Looking to turn a windfall into your first venture in investing? Your first instinct may be to plunk that cash into the hot company stock of the moment, but for most investors the wiser course would be to put that cash into a basket of stocks called an equity fund. Before you dive in, we'll cover what an equity fund is, why it's generally a better choice for investors and where you can buy them. What is an equity fund? Equity funds are a kind of mutual fund, where thousands of investors purchase shares of the fund, and the fund buys stocks in a range of companies. Often the companies are alike in some way, meaning the fund might buy shares in all the firms listed on the Standard & Poor's 500 index, or it might invest in technology companies. "Equity" in a company is like the equity that homeowners have in their house; each speaks to a degree of ownership of the asset. Equity funds give investors fractional ownership of companies via the shares they purchased in the fund. Mutual funds' popularity among investors continues to rise, and equity funds are by far the most popular type of mutual fund.
It can be understood as never end up paying more than what you actually get in return. Additionally, you need to take steps to prevent the portfolio value from falling more than your target. You may use a ratio called Dividend Yield to get an answer for the above. A dividend refers to the part of profits shared by the company with its investors. If you find that the dividend paid by the company is stable and increasing, then it shows that company is experiencing a good cash flow and a positive outlook for the future. A decreasing dividend, on the other hand, means the company wants to retain some cash to meet other expenses. Look for companies with a high dividend yield. 3. Quick tips to pick multibagger stock a. While looking for growth stocks, you might come across stocks which are selling cheap and others which are expensive. It is reflected in the Price-Earning ratio of the stock. A stock having a low P/E might seem an attractive proposition. But instead of jumping to a conclusion, try to find out reason for the low P/E.
It is better to venture into sectors and markets which you know like back of your palm. It gives you a competitive edge over naive and uninformed investors. 2. Things investor should keep in mind Stock-picking is an art that you may require quite some time to develop. Here are a few things that you need to consider to select stocks which give you consistent returns: a. Earnings Per Share While researching on a stock, the foremost factor to be considered is the Earnings per Share (EPS). It is important because it divides the net income of the firm based on the number of equity shares outstanding. In this way, you get to know the amount of profit which the company makes on each share. Ideally, good stocks are those whose EPS has grown over a said period of time say 5 years. On the contrary, inferior stocks are the ones which have a stagnant or gradually decreasing EPS. b. Stable business model Veteran equity investors understand that buying a stock is like owning a company and its business.
Private equity is capital made available to private companies or investors. The funds raised might be used to develop new products and technologies, expand working capital, make acquisitions, or strengthen a company's balance sheet. Unless you are willing to put up quite a bit of cash, your choices in investing in the high-stakes world of private equity are minimal. Key Takeaways Private equity investing includes early-stage, high-risk ventures, usually in sectors such as software and healthcare. These investors try to add value to the companies they invest in by bringing in new management or selling off underperforming parts of the business, among other things. The minimum investment in private equity funds is relatively high—typically $25 million, although some are as low as $250, 000. Investors should plan to hold their private equity investment for at least 10 years. However, there are non-direct ways to invest in private equity, such as funds of funds, ETFs, and special purposes acquisition companies.
Know about the Mutual Fund schemes available The mutual fund market is always brimmed with options. There are multiple schemes to cater to almost all the needs of the investor. Before investing, make sure you have done your homework by exploring the market thoroughly to get the hang of the different types of schemes available and how to choose the best equity mutual funds. Once you are fully assured, align it with your investment objective, your risk appetite, your affordability, and see what comes up to be the best fit for you. If in doubt, seek the help of a financial advisor as it is always best to get an expert's opinion. At the end of the day, it is your hard-earned money. You need to ensure that it is used judiciously to fetch maximum returns. On a closing note In a nutshell, equity mutual funds are no different than other mutual fund schemes and pool your money to invest in equity stocks after thorough research. However, it is imperative to understand the basics of how equity funds work.
Will it be equity (shares of ownership of the company) or a convertible note? The note means that the investor loaned money to the company with the right to either be paid back or to turn the loan into equity as some later date. 2. How and when does the investor get the money back? When an investor buys an equity stake in a startup, usually those shares cannot be sold or traded for several years. If the investment is a convertible debt, figure out the conversion date. This is when the company either pays the money back or the investor can convert the money loaned into equity according to the terms of the convertible note. 3. How will the business make money? I am amazed when I see business plans that don't describe a visible means of monetization. If a company has not yet started generating revenue (like most startups), look at how the enterprise plans to make money. If the company has indeed started generating revenue, examine how it's making money. Consider if the model makes sense and is sustainable.
These brokers are more expensive but provide more guidance and advice. On the other hand, an online broker will simply place your orders to buy and sell equities specifically as you tell them to and are a cheap alternative if you prefer to do your research. Most brokers in Singapore offer both options of service. What You Should Look Out For? Check the reputation of your broker before depositing money with them and before trading equities with them. Even with the best broker in Singapore, mistakes can be made on your account – so it is also important to monitor your account statements and check the transactions are correct. If you notice an error immediately get in touch with your broker to have it corrected. Log the complaint with your broker and if they do not resolve the matter contact the SGX (Singapore Stock Exchange) and SIAS (Securities Investors Association Singapore) to log the complaint with them. They will assist in resolving your issue and will also take steps to warn other investors of substandard broker behaviour.