Consult any professional investment advisory services and they’d tell you that equity should definitely be a part of every diverse portfolio. As compared to other asset classes like debt market, real estate, bonds, etc. equity investment or investments in stocks or shares of companies are known to offer a host of benefits.
If you are planning to create a portfolio and are searching for the right assets for the same, we’ll give you 7 reasons that make equity a valuable addition.
The most important benefit of equity investment is capital appreciation. The company in which you invest your money might reinvest the profits back into their business to fuel further growth. This can help increase the value of the company which in turn would also increase the price of their stocks.
Investments in financially sound companies can easily beat the returns of other assets like real estate, bonds, fixed deposits and the inflation rate.
The companies that have been in existence for a long time and are mature might not have to further continue their growth. So, rather than reinvesting the profits they might pay a portion of the profits to the shareholders in the form of a dividend.
Investment advisory services often recommend stocks of blue-chip companies as these companies generally offer regular dividends irrespective of the market condition.
Stocks of companies are listed on major exchanges in India. You can sell them anytime you like. While stocks are not as liquid as the idle money in your bank account it is definitely more liquid than assets like real estate.
Moreover, there is no fixed maturity period like fixed deposits. You can sell the stocks today and you’ll get the money in your bank account within a couple of days.
Bonus Shares and Stock Splits
Apart from dividends, companies also offer bonus shares to the investors. Think of these as free shares of the company in which you’ve invested. This too is a type of dividend and is often given in place of the normal dividends.
A lot of stocks also go through a split in which the stock is divided into smaller parts. For instance, a stock trading at Rs. 1,000 would be split into 10 stocks of Rs. 100 each. This reduces the price of the share and increases its readability and volume.
Creating a Diversified Portfolio
Investment advisory services suggest that it is very important for a portfolio to take advantage of as many asset classes as possible. This helps in keeping the portfolio stable in case if a particular class is falling or is unable to perform at par with other assets.
By allowing you to invest your money in stocks of different companies, equity is one of the most diversified additions to any portfolio. They allow you to take advantage of many different industrial sectors and add valuable stability to the portfolio.
While there are several benefits of adding equity to your portfolio, most of the investors fear the volatile nature of this asset class. A professional investment advisory service can be an ideal option to eliminate the fear and create a power-packed equity portfolio that can maintain its stability in any market condition.