Investment in Equities

Investment in Equities/Mutual Fund:
Security prices are affected by economic, political, and sociological factors. It causes interest rate risks and purchasing power risks. These are called systematic risks. In addition to the above security and mutual fund prices that are also affected due to fundamental characteristics of the company. This is also called business risk.
Stocks and shares
Investors make direct investments in equities to earn some positive return in the future in the form of capital gains and dividends. If the investment is properly undertaken, the return will be commensurate with the risk the investor assumes. Dividends are received only if the company grows and is declared on year after year. Capital gains arise when a market is enjoying upward trends and the price of the stock rises against its purchase price, which is generally associated with growth in per share earnings. On the other hand, if the stock price is lesser than the purchase price the investor incurs capital loss. Based on the holding period capital gain/loss is determined. The percentage of equity in a portfolio is calculated based on the investor’s age and risk appetite.
The prices of equities vary from company to company and sector to sector. It can be measured through fundamental and technical analysis. An investor must see the financial statement of the company and compare that company with its peers within the industry. Generally fundamental analysis watches the company share price trend through Earnings per Share (EPS). P/E ratio, profit margin, debt to equity, divided yield and price to book value ratio and P/E to growth ratio. On the other hand, technical analysis measures share price trading of shares in the past as well as day trading through graph and volume. Technical analysis predicted the movement of the share price on the basis of the historical price of a share by plotting a two dimensional chart.
An investor can get bonus shares if the company issues them. Bonus issues may vary from company to company or may not be declared by the company. For income tax purposes, the cost of such shares is nil. If such shares are held for more than 12 months and sold on a recognized stock exchange, the capital gains are exempt from tax. In contrast, if it is sold within 12 months of the bonus issue capital gain is taxable as per prevailing tax rate of Income tax Act. One can plan accordingly while investing in shares and debentures. Former is exempted from tax and latter is taxable as per individual tax slab.
Tips for stock investment:
• Select the right stock after studying a number of companies fundamental
• Closely follow up the price trend of shares as well as industry
• Get the desired return predicting the trend in the right time
• Avoid the stock run by the speculator in the market
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Published on February 22, 2014 21:30
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