Investors can use the systematic way of investing in equities wherein they put in some amount of money each month over a period of time. This helps to generate wealth over the long term due to the benefit of the power of compounding. There are different ways of doing this for equity investments.
Investing in ETFs or index funds
Exchange traded funds (ETFs) and index funds replicate the index that they represent. You need to open a demat account and a trading account for investing in ETFs. In case of index funds, you can invest in them either directly from the mutual fund or through a distributor.
Investing in stocks directly through SIPs
You can invest in various stocks on regular basis directly from the exchange by setting up a stock SIP. Various broker platforms provide this facility where the investor has to decide the regular amount to be invested and the allocation percentage to different shares. Investors need to set up a mandate for stock SIPs and transfer that amount to the trading account each month to ensure that the instalment is invested regularly.
Investing in equity mutual funds
Instead of researching on different stocks to invest, you can invest in an equity mutual fund that is managed by experienced fund management experts who carry out extensive research and analytics to create a scheme portfolio. It is simple to set up a systematic investment plan (SIP) in a mutual fund scheme, and this can be started with an amount as small as `500. An SIP instruction can be given online or by fi lling up a physical form.
Points to note
- Investors should consider expense ratio and consult their tax adviser for tax implications on equity investments.
- While investing for the long term, one should also review the portfolio periodically to 3 weed out the non-performers.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.