Equity as an asset class #10 – How should you invest?

In the last post of this particular series I want to write about the different ways in which you can invest in equity. This will depend on a variety of aspects like your financial stage in life, the capital you can deploy and the objectives that you have for equity investment.

Broadly speaking you can invest in equity in any of the following three ways:-

  1. Invest directly by purchasing shares of companies through a trading account.
  2. Invest through a brokerage house or subscribe to a PMS.
  3. Invest indirectly by purchasing equity through the Mutual fund route.

The first is the simplest way to do it if you are confident of what you want to buy and at what price you are comfortable buying it. Here you are responsible for all decisions, though you can tap into advice from various sources before making the call. As I said before, look at the PE ratios of the stocks you are considering to buy for getting a sense of whether it is a value buy or not. Also look at the 200 DMA and pricing trends to decide at what price you should buy it.

The second broadly works on the same principles but here you have a brokerage house to advise you and therefore the responsibility is shared. Needless to say, you are going to pay a price for it. At a higher end of this we have the PMS offered by large Brokerage houses and some Banks. Here your portfolio value will need to be substantial for people to take you seriously, Though most Banks and other places are willing to take your portfolio at 25 lacs, my experience is that you do not get the right level of service unless your portfolio value is more than 1 crore.

The third route is the simplest. Here you do not have to worry about what stocks to buy and at what price. Such important decisions are now taken by the Fund manager of the MF you have invested in. Your job now is to select the funds based on your preferences and investment objectives. This is a much simpler process as there isn’t a great deal of difference between two top rated funds from the same category. The real issue here is to decide on what categories of funds you should have in your portfolio and in what proportion should you be investing in these.

From a personal angle I have always stuck with 1 and 3. I strongly believe in a 3 portfolio strategy, one each for stocks, MF and Debt products. Though I have been approached by many Brokerage houses and Banks I have not found any real value in taking their services, considering the amount that you pay for it.

If you are someone starting off then what should you be doing? Well, to start with, you must invest in Mutual funds preferably in a regular manner. Make sure that this investment is sustainable over the long term. At the same time, it will be important to start a stock portfolio, maybe in a small manner. Many will tell you that MF investments are less risky but that is simply untrue. As long as the underlying asset class is the same, the risk is also the same. It cannot be any other way. There are others who will tell you to go with stocks only but I do not agree with that too. Mutual Funds are pretty good products at a fairly low cost and you need to take advantage of the same.

I hope this post and the series has been useful to all the readers. I will be writing two more series in the future on Stock investment and MF investment which will have details of issues related to these.


2 thoughts on “Equity as an asset class #10 – How should you invest?

  1. Hello sir,
    I have been following your blog since its inception. Keep up the good work.
    My basic aim of reading this blog is to begin investing into stocks.
    I had a request which would greatly benefit newbies like me.
    Could you please do an article on the actual process of investing in stocks. Specifically what kind of brokering to choose, whether to opt for fixed transaction charges or percentage ones. How much amounts to reasonable brokerage fee etc. Basically the technical aspect of investing in stocks.
    It would be greatly appreciated sir. Thank you.

    Liked by 1 person

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