Want to make money? This is why you should invest in equities in 2019

Investors have been divided on equity investments for a long time. The traditional investors still prefer fixed return products which come with less risk even as they don't promise high returns. Equity investments, on the other hand, offer high returns but have an element of risk - this can be high or low depending on the kind of stocks or sectors that you are investing in. If equity is what investors want to invest in, then they have the choice between direct investment or mutual funds. The money invested in MF schemes is channeled in equities, i.e. shares and equity derivatives. It also makes the investor a shareholder in the company. As we step into the new year, it is time to assess the best schemes for the next 12 months that can help grow money as well as save taxes. 

Jitendra Solanki, author and Sebi registered investment advisor, believes that equities are the best option to get good returns. "I think for the long-term, equities remain the best option. You want to achieve returns that can beat inflation. If inflation is 7 per cent, you would want to achieve at least 10 per cent return. And, there are not too many products that offer 10 to 12 per cent returns. So, you have to come to equities and they remain best investment option in 2019," he told Zee Business Online, in an exclusive conversation. 

Equities vs other schemes

Most financial goals are driven by financial dreams of individuals. Often people consider safer options like public provident funds (PPF) and bank fixed deposits (FDs) to protect their wealth. However, both these schemes come with a lock-in period of 15 years and 5 years, respectively. 

Also, the returns are comparatively less. In case of bank FD, an individual can get a return of only 7 to 8 per cent, depending upon the tenure of the investment. This further decreases the wealth earned. 

So the smart way is to maintain a diversified portfolio and invest money in multiple products. Equities have delivered average returns of 12% annually. But, one characteristic required for this is the ability and willingness to take risk along with the ability to stay invested for the long term.

WATCH | Jitendra Solanki's tip

"If you have dependents, your risking taking capability is lower. But, if you don't have any dependents, you can take more risks as you have a longer horizon and lesser responsibilities. People often perceive risk with loss. Instead, they should look at the volatility of the market: How capable I am! Or, how comfortable I am while staying in the investment," Solanki said. 

Risks involved

The risks in equity investments can be put into four categories: market risk, performance risk, illiquidity risk and social/political/legislative Risk. Market risk is when the entire stock market goes through a tough time. But, it also provides an opportunity to pick stocks at lesser price. 

When stocks in which the money is put through equity mutual funds do not perform as per the expectations, it is called performance risk. The best way to counter it is through diversification across industries, themes and market capitalization. Equity investments also come with lliquidity risk, i.e. when the prices go down, there are more sellers than buyers. 

Social, Political and Legislative changes can lead to changes in the performance of a business and impact your investments too. Again, the only way to counter this risk is through investing across multiple industries as well as across national borders.