When it comes to equity, India is divided into three categories:
- Category 1 – people who invest in equity
- Category 2 – people who think equity is gambling and no one should invest in them
- Category 3 – people who have little or no understanding of equity
Sadly, less than 4 percent of Indians invest in equity and equity-related schemes. Most people who start investing in equity, invest to become rich overnight. They sooner or later, increase the number in category 2. All we would say to people in category 2 – be it success or wealth, nothing comes overnight. This article will focus on people from category 3.
Why are people not investing in equity?
Before we talk about why you should invest in equity, let us talk about why people are not investing in equity.
A lot of effort has been made by the industry, media, and regulatory bodies in the last few years to increase financial literacy in India. The change is happening, but it is slow. Most people still in India, when it comes to investment, only think of gold, real estate, or insurance policies. The main reason for this is people do not want to invest in something they do not understand – stock picks are still a mystery for them. We completely understand it. Hence we are trying to bring about change through these articles.
Why should you invest in equity?
The returns are best – Before we talk about the returns, we would like to educate readers that stock investments carry both risk and reward. However, if you know what you are doing, you can lower your risks. We will talk more about how to reduce risk later.
When you invest in equity, you get two types of returns – one is capital appreciation, and the other is dividend income. Yes, stocks are risky if you invest to make quick money from them. If you invest for the long term strategically, equity will give you better returns than any other investment instrument. For example, the debt instruments in the last 15 years have given an average return of 8.5 percent. On the other hand, Sensex has given a CAGR of 10.96 percent, 11 percent, and 15.71 percent in the last 15, 10, and 5 years, respectively.
India is expected to become a 5 trillion dollar economy by 2025. If that happens, the equity market will play a significant role in the journey. It is the right time for you to start investing in equity – do not miss the bus. If you don’t have the understanding, it is better to opt for equity advisory services.
To create wealth and beat inflation – Many people consider opening a fixed deposit account – investing. The truth is that the returns on fixed deposits post-taxation are much lower than inflation. Hence when you open a fixed deposit account, you are technically losing your money. Your net worth reduces after one year of investment in fixed deposits. How?
If your tax bracket is highest, you make around 3.5 percent in the fixed deposit. The inflation is 5%, meaning you lose approximately 1.5% of your capital every year investing in fixed deposits.
Investing in equity gives you much higher returns when you invest in quality stocks and stay invested. The returns not only beat inflation but also help you build a corpus over time.
You can start with small capital Unlike gold and real estate, where you need a substantial initial amount for investment, you can start investing in equity with Rs 1000 (or even less) per month. You can start with a small amount every month and build a good equity portfolio over time. Within a year, you can have a diversified portfolio that consists of quality small, mid, and large-cap stocks. Also, buying and selling stocks is very easy, unlike real estate. Consult a share market advisor if you are unsure how to diversify your portfolio.
Equities provide high liquidity – When you invest in gold, real estate, and bonds, it is difficult to make them liquid. If you require money instantly, you cannot go to these options. However, you can sell shares on any trading day, and you can get the funds in your account in 2-4 days. You also have the option to get loans against your stocks with ease.
Tax advantage – Compared to other investment instruments, stocks offer you better tax benefits. Long Term Capital Gain (if you sell shares after one year) from equity up to 1 lakh, is exempted from taxation. For long-term capital gains over Rs 1 lakh, you need to pay tax at 10 percent. If you sell your stocks within one year and make a profit, you need to pay a Short Term Capital Gain tax of 15 percent on gains. These are much lower than the tax on other financial instruments. Tax harvesting is another popular strategy to work with taxation. Consult equity advisory services to work with your equity taxation.
Do not wait – start investment NOW
We understand most of you fall in category 3, and even after knowing the benefits, it would be tough to start investing in stocks on your own. While you continue to learn about equity, we don’t want you to wait and miss the opportunity.
The main reason most people fail in stock investment is that they cannot control their emotions. JARVIS is completely machine-driven (artificial intelligence), so every penny you invest using JARVIS is logic-driven, and there is no place for emotion-based investing.
Do it yourself or take assistance from a share market advisor, the crucial thing is to start investing in equity.