Direct equity investment can be very rewarding. Simultaneously this is also true that risk of loss in direct equity is high. People who can balance risk and return while dealing with direct equity are the winners. But how can one balance the risk and reward? The risk associated with direct equity comes from complexity of information. Its not so easy to decode information’s related to equity. Information’s related to equity is contained in companies financial reports like balance sheet etc. Let me explain this to you with an example.
How Profitable can be Direct Equity Investment?
Compared to any other asset class, direct equity is more risky. Best investing skills generates maximum profits here. Direct equity is risky but it also open doors for higher returns. Return of direct equity (in long term) can outperform any other asset class. But the only precondition is, one should know to value stocks and time the market. In last 15 years, share market in India jumped from 113 to 27,000 levels. If we would had invested in an index fund in year 1990, our annualised return would be >44% per annum. It means in last 15 years our principal amount would have got multiplied by >230 times. Isn’t this fantastic? This is the benefit of direct equity investment in long term.
Direct equity investing is all about long term growth. When one buy stocks, he/she becomes part-owners in that company. This way one becomes eligible to share both profit & loss made by company. Investors prefer equity because no other investment option promises long term growth as high as equity. As a result, equity also beats inflation very conveniently in long term.