The value of the Sensex in its base year in 1979 was 100 and today it is up more than 270 times giving a compounded return of upwards of 16% per annum. This return by far exceeds other popular investment class returns which rarely come close to double digits %. Yet very few investors have availed this benefit
Most of us look at Equity Markets as casinos, where one could win a lot of money or lose a lot of money by trading
Equity, simply put, is actually ownership of businesses! If you own even a few shares of a company, you are a part owner of that company!
Consider this – if you wish to start a business, say, to manufacture packaged drinking water. You would do months of research about various aspects of the business e.g. latest filtration technology, plant and machinery, sources of water availability, skilled manpower availability, marketing, finances, vendors, supply chain, packaging, rules and regulations, competition etc. and analyze the long term feasibility of the business to finally go ahead and start the business
After so much hard work in setting up the business, would you want to sell it the very next day, in one week, in a month? If you have so surely set up the business and analyzed its future profitability, you would want to run the business and look at growing it further, and pass it on to your future generations so that they could also benefit from the same
We should look at buying equity shares in the same way
Normally we don’t have the time and resources to research businesses that are outside our own field of expertise, and so we should refrain from buying shares directly. Mutual Funds, on the other hand have a team of expert research analysts that are constantly gathering facts and information about various companies across the different sectors of the economy
Invest in a diversified Equity Mutual Fund scheme with a strong long term track record to reap benefits of the Equity markets