Most stock market investments are equity investments. The decision regarding the stocks to pick may be at the investor’s own discretion. Additionally, F&O contracts have short expiry dates typically up to 3 months, which makes these unsuitable for long term creation of wealth. There is something for everyone in today’s market. Investors need to understand that volatility is a characteristic of equity investment which can lead to substantial swings in valuation terms in the short term. Conservative to aggressive equity investment funds are available rampantly. The opposite of equity investment is debt investment, where money is loaned to a company in a negotiated lending arrangement, as opposed to the issuance of stock certificates. Thus F&O is basically a bet that the investor is making with respect to movements of the underlying asset/index.F&O contracts can be used by the investor either to earn money by speculating price movements of the underlying stock or to hedge current investments.
But, these investments being market-linked are not completely risk-free either and the rate of returns are not assured.Apart from diversification, equity mutual funds come with the added advantage of the professional fund management, transparency and ability to regularly invest small amounts through SIP, make equity mutual funds an ideal investment opportunity for investors who have a limited understanding of financial markets.Apart from the cash market where equities are bought and sold, an investor can also trade equities in the derivative market. Therefore, one must invest in more than one equity fund to do away with the impact of manager biases.While diversification helps in eliminating unsystematic risks, there also exists the possibility of over-diversification. These are of course some of the riskiest investments currently available in India with the potential to provide one of the highest returns in the class.Every investment which provides market-linked returns is associated with an element of risk. In the case of equity investment, the amount is basically invested in the stocks and equity derivatives of listed and unlisted companies.A major chunk of non-equity investments is channelled into bonds (government or corporate) as well as a range of money market instruments such as treasury bills, certificate of deposits, commercial papers, repurchase agreements, etc.Since market movements play a crucial role in the performance of equity investments as well as non-equity investments, these investments feature a significant element of risk. Equity represents the own funds of the company. In the following section, some of the key risks related to investing in equities will be discussed along with common mitigation strategies that mutual fund companies and/or individual investors tend to utilise.Market risk involves the possibility of investment incurring losses due to market factors. Funds offset risky equity investments with cash and bond positions to offer a relatively secure product to the investor.Though not always true for private equity investments, liquidity is a sure shot benefit for listed and public stocks. The investor is thus protected against the consequences of “putting all eggs in one basket”.
Money that is invested in a firm by its owner (s) or holder (s) of common stock (ordinary shares) but which is not returned in the normal course of the business. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".Use of this feed is for personal non-commercial use only.
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