Equity- 4 reasons why it outperforms other asset classes in the long run

Nutan Gupta

05 Jun 2017

New Page 1

Slow and steady wins the race. We all believed in this until we all saw what fast and furious could do. Wouldn’t you want to drive a Lamborghini instead of a regular sedan? Wouldn’t you want to travel in a speedboat instead of a row boat? Need for speed is the demand of the time. This is because people have increasingly grown impatient. People want results and they want it quick. The same rule applies to their money too. The one dream that almost everyone somewhere cherishes in their heart is to make money in the fastest way possible. The adage that shortcuts are risky is somewhat true when it comes to investing. One such investment avenue perceived as risky is equities.

However, this is not true always. Equity has the potential to outperform other asset classes in the long run. Equities have in fact achieved this tremendous feat in the past on numerous occasions. Let’s look at 4 reasons why it could do so.

Small Investment, Big Gains: By opting for a longer-term investment plan, you are reducing the amount required to attain your financial target. When you plan on buying that luxury sedan that costs an eye-popping 80 lac rupees, your first target is to save up for the initial down-payment and an apt car loan plan. Assuming 40 lac rupees is the initial down-payment, it would require you to invest Rs. 6000 per month to attain your desired goal. Under normal circumstances, the situation is different while with equities wherein an investment of Rs 3000 per month would help you meet your target, under the same time-period.

Capital added is Multiplied: When we talk about returns from equities, one cannot miss the term 'compound interest'. Over the longer time period, your invested amount is compounded annually. What you reap later is capital enough to have leapfrogged your financial target. An investment of Rs 5000 per month at the rate of 18% P.A for the time period of 10 years would yield a handsome Rs15.5 lac.

Ahead of its Time: With fluctuating inflation rates, there isn't much of a margin on return gains while with many asset classes. As compared to these asset classes, returns from equities have always proven to hover much above the average inflation rates in India. An investment in an asset with its interest rate lesser than the inflation rate is a failed investment.

A Step Ahead of its Peers: Comparing it with any kind of investment, equities have historically blessed its investors with greater returns. Anyone who invested in IT firms during the year 2000 surely received better gains as compared to ones who invested in real estate or the ones who expected stabilized returns from fixed deposits.

Your Take

Patience is never discouraged. But it is advisable to make most of the time spent being patient. Necessity is the mother of invention. This need for quick money had paved way for financial trading. Equity is one of the prime attractions for young investors. Equities, despite its risks, has an upper hand over all other asset classes. As discussed, its returns on a longer term are unrivalled. Yet, with changing trends and fluctuating market, one may be tempted to stay away from it. It is advised to have a composed mind to make the most out of the volatile and beneficial nature of equities.

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Equity- 4 reasons why it outperforms other asset classes in the long run

Nutan Gupta

05 Jun 2017

New Page 1

Slow and steady wins the race. We all believed in this until we all saw what fast and furious could do. Wouldn’t you want to drive a Lamborghini instead of a regular sedan? Wouldn’t you want to travel in a speedboat instead of a row boat? Need for speed is the demand of the time. This is because people have increasingly grown impatient. People want results and they want it quick. The same rule applies to their money too. The one dream that almost everyone somewhere cherishes in their heart is to make money in the fastest way possible. The adage that shortcuts are risky is somewhat true when it comes to investing. One such investment avenue perceived as risky is equities.

However, this is not true always. Equity has the potential to outperform other asset classes in the long run. Equities have in fact achieved this tremendous feat in the past on numerous occasions. Let’s look at 4 reasons why it could do so.

Small Investment, Big Gains: By opting for a longer-term investment plan, you are reducing the amount required to attain your financial target. When you plan on buying that luxury sedan that costs an eye-popping 80 lac rupees, your first target is to save up for the initial down-payment and an apt car loan plan. Assuming 40 lac rupees is the initial down-payment, it would require you to invest Rs. 6000 per month to attain your desired goal. Under normal circumstances, the situation is different while with equities wherein an investment of Rs 3000 per month would help you meet your target, under the same time-period.

Capital added is Multiplied: When we talk about returns from equities, one cannot miss the term 'compound interest'. Over the longer time period, your invested amount is compounded annually. What you reap later is capital enough to have leapfrogged your financial target. An investment of Rs 5000 per month at the rate of 18% P.A for the time period of 10 years would yield a handsome Rs15.5 lac.

Ahead of its Time: With fluctuating inflation rates, there isn't much of a margin on return gains while with many asset classes. As compared to these asset classes, returns from equities have always proven to hover much above the average inflation rates in India. An investment in an asset with its interest rate lesser than the inflation rate is a failed investment.

A Step Ahead of its Peers: Comparing it with any kind of investment, equities have historically blessed its investors with greater returns. Anyone who invested in IT firms during the year 2000 surely received better gains as compared to ones who invested in real estate or the ones who expected stabilized returns from fixed deposits.

Your Take

Patience is never discouraged. But it is advisable to make most of the time spent being patient. Necessity is the mother of invention. This need for quick money had paved way for financial trading. Equity is one of the prime attractions for young investors. Equities, despite its risks, has an upper hand over all other asset classes. As discussed, its returns on a longer term are unrivalled. Yet, with changing trends and fluctuating market, one may be tempted to stay away from it. It is advised to have a composed mind to make the most out of the volatile and beneficial nature of equities.

Have Referral Code?