Equity

Investing in equities is considered risky because it is subject to market fluctuations, but if invested prudently and wisely, equities are relatively best options to invest, because of the high returns it offers to the investor.

Investing in equities is easier done than said. SEBI, a regulator of financial services industry, has already simplified the process. However, most of us are unaware of this process of investing in equities.

HERE is the process in a simple manner which can guide a layman investor to start investing in Equities:

Understand your Profile - There are multiple investment products with different risk and return. When it comes to investing, the first step should be to know personal risk profile. An investor should first understand his or her risk profile for investing.

Risk profile depends on following two factors:
Risk Attitude - The risk one is ready to take
Risk Capability - Risk one should take as per financial position

Generally higher the age and financial obligations lower the risk profile. However, one can learn risk profiling through various free online tools. Knowing the risk profile helps in knowing the products one should not invest in.

The below helps to understand the basic categories of profiles and meaning

• Identify Stocks
The most crucial step is to identify shares for investing. There are two major methodologies to choose from.

1. Value strategy
Strategy focused on investing in mature companies growing at a low rate, that industry which is available below their intrinsic value is known as value strategy. Generally investors invest in popular stocks which are growing too fast, but there are companies which are already matured in their business and are not fancied by investors due to the lower growth rate in business. Investors give more importance to the overall value of the company and invest only if it is available at a discount to intrinsic valuation. These companies normally have high dividend yield ratio since they repay profit to investors as dividends and low P/E ratio and Price/Book Value ratio. Generally people follow such strategy in picking stocks of Commodity or Automobile companies.

2. Growth Strategy
Investing in companies which are experiencing or expecting faster than average growth is called growth strategy. These can be early growth companies that have brought innovation in the industry and can experience huge growth, like IT companies. Investors give more importance to the future growth of the company rather than valuation. These companies can trade at supernormal valuations. The shares of these companies mostly trade at a higher price than their intrinsic value. These companies generally have high P/E ratio of a company's share price to its per-share earnings and Price/Book Value ratio on the expectations of high growth. But these companies commonly have low dividend yield ratio since these companies usually invest profits for growth.

Now comes the next step to execute the plan.

• Open a Demat account and trading account
For execution, one has to open a Demat & a trading account with a broker. One can open Demat account online or offline with the help of the broker. Nowadays, all the brokers offer the service of opening Demat account online. A Demat account is a type of account where shares are held in electronic form, thereby eliminating the need for physical paper certificates.Trading Account - Trading Account is a type of account which allows investors to buy and sell or simply trade in shares. It allows trading of securities with the money deposited with a financial institution or brokerage firm.Once you have opened a trading account. You have to transfer amount to your trading account. For this one can link a bank account with the trading account, once this is done then the user can transfer funds online. or one can transfer money through a cheque into the broker’s account offline.The broker will send a bill and ledger account on the date of trade by the end of the day and the investor will get a message on their mobile from NSE or BSE for the trade.

• Sleep but Track on a quarterly basis
If you have invested in equities with a proper plan, you need not track them on a daily basis. Equities deliver returns in the long-term. The only to monitor them on the quarterly basis is to check for any negative news regarding the company which can affect the long-term performance of the company. One should not get worried with one or two bad quarter earnings of the company. When you have invested for long-term, one negative update of the company will not hamper long-term performance.