Last Updated : Mar 13, 2012 10:43 PM IST | Source:

Simple and safe way to invest in equities

Invest via SIPs in Index Funds to invest in equities with practically zero possibility of losing your entire capital.

Sanjay Matai

Investing in equity is one of the few ways of making big money - sometimes very big money. However, it comes with the risk of losing money - sometimes the entire amount. Therefore, despite the high potential, investment in equity is negligible when compared to the bank deposits/post-office schemes. The fear of loss is simply too overwhelming.

That apart, investing in equity is not easy.

- You have to have sufficient knowledge to understand the economy, markets and annual reports
- You have to spend considerable time analyzing balance sheets, profit and loss accounts, cash flow statements
- You need to monitor your portfolio almost on a daily basis
- You may not have sufficient corpus to build a meaningfully diversified portfolio
- Due to sharp market volatilities you are never sure when to buy/sell
- All the news flow, hype and conflicting opinions in the media only adds to the confusion
- You cannot depend on the tips as, more often than not, they are a trick to fool you
- Time and again the scams in the market have eroded the investor confidence
- You have to open a Demat a/c

Given all this, it is not difficult to understand why majority of the investors prefer the Simplicity and Safety of bank/post-office deposits.

But there is a way out. Yes, there is a Simple and Safe way to invest in equity.

Yes, you can invest in equity without the abovementioned problems. Yes, you can invest in equity with practically zero possibility of losing your entire capital. The answer is - SIP in Index Funds.

When you buy index funds (Nifty or Sensex), you are investing in top 30/50 companies.

- No need for you to analyze balance sheets, profit and loss accounts, cash flow statements of these top companies. They are anyway tracked by FIIs, MFs and other Institutional investors
- Corporate governance in these big companies is good
- Due to large equity base and diverse ownership, chances of share price manipulation are low
- Scams usually happen in small or medium sized companies. Even if there is a scam in a large company (e.g. Satyam), it may be a one-off case. Moreover it will be thrown out of the index. Thus its impact, over time, will be negligible
- Index funds do not require a fund manager
- All index funds are more or less same. So no problem of how to choose the best funds
- Fund management costs of index funds are amongst the lowest
- Since you are doing SIP, you don

First Published on Mar 13, 2012 10:35 pm
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