Tuesday, 27 May 2014

Why & how you should start investing in Equity markets now!

Everything is boding well for the Indian economy! A business friendly government, a strong mandate, and good global economic conditions. 

This is definitely the best time for salaried people and others to start investing in Equity markets.

But there is still a fear in the minds of Indian investors regarding investing in Equity markets even though equity markets have given returns of more than 15% in the long term. Equity returns of 15% post tax are far higher than Fixed Deposit returns of around 6-8% post tax, and so investment in equities is a very good solution to handsome financial growth & to beat average inflation of around 8%. 

In this article, we have tried to clear some basic doubts in the minds of people regarding equity & have provided a complete solution on how to invest in equities.

Doubt 1: Stock markets may be highly overvalued now after the recent bull run?

The answer is NO.

One of the major indicators of whether equity markets are undervalued or overvalued is the P/E or price to earnings ratio. 

What is P/E?  A P/E ratio of 15 means that investors are willing to pay ₹ 15 for every share if the company has an income of ₹ 1 per share. The higher the predicted growth rate for companies, the higher is the price paid for their shares and the higher is the P/E ratio. During bull runs or period of optimism, the P/E increases above average value. During period of bear run or pessimism, the P/E decreases below average value.

Nifty is an index which represents 50 top stocks listed at National Stock Exchange. The value of Nifty increases or decreases depending on the increase or decrease in share prices of constituents shares.

Data till 26th May 2014. Source NSE website

In the graph above, we can see that during the recessions of 2003 and 2008-09, stocks were very undervalued. Similarly in 2006, 2008, 2011, the stocks were overvalued. 

In the current markets, the P/E is the same as average value for past 15 years. This means that stocks are not overvalued & we are at the start of bull run.

The same is true even for midcap and small cap stocks. CNX mid cap is an index which represents all mid cap stocks listed on National Stock Exchange.

Data till 26th May 2014. Source NSE website

In the graph above, we can see that currently the mid cap stocks are priced at average P/E and are definitely not overvalued.

Doubt 2: Will Equity provide me growth in the long term?

Stock Prices depend on the earnings of companies. As GDP of economy increases, the earnings of all companies will also increase. As earning of companies grow, the prices of stocks also increase.

Data till 26th May 2014. Source NSE website

We can see in this graph that as the earnings of Nifty companies have increased, the value of nifty index has increased. There is a very good correlation between Nifty value and Nifty companies’ earnings.

Thus if one is optimistic about the Indian economy and Indian companies, one should invest in Equity markets.

Doubt 3: How do I select which shares to invest in?

There are 2 ways to invest in Equity markets – through direct purchase of shares or through Equity Mutual Funds.

Direct purchase of shares has many disadvantages. An average investor does not have the time, the resources and the knowledge to do a thorough research of Equity markets. Also, one does not have the asset size to diversify portfolio across different sectors to diversify risks. Many people indulge in the practice of intra-day trading or very short term investing which proves to be disastrous for most. To conclude, direct investing into equities by an average investor is not advisable.

It is more beneficial for an investor to invest in Equity Mutual Funds. There are various advantages of investing in Equity mutual funds:

  • Mutual funds have very qualified and experienced fund managers who decide on which stocks to invest in based on thorough research and a risk experience
  • Fund Managers have a very extensive and capable research team, and spend a lot of time and money on research on various equity stocks
  • The asset size runs over hundreds of crores and hence the portfolio is diversified across various industries, which helps to get higher returns at lower risks
  • The expenses are distributed across fund holders and the expense for an average investor is extremely low
  • Many top equity mutual funds have given consistently higher returns that index and returns of more than 15% consistently 

Doubt 4: How should I invest so that I don’t suffer losses by investing at peaks?

 The best way to avoid the land mine of investing only at the peak is by using the technique of SIP or systematic investment plan.

When one takes an SIP, one invests only a fixed amount every month on a fixed date in a mutual fund. Due to this, one invests at peak as well as bottom and the cost is averaged out. In the end, the investor safely benefits from the rise in values of stocks over time.
Analysis of SIP returns of mutual funds for past 15 years have shown that out of all equity mutual Funds active since last 15 years, 100% gave returns of more than 13% on SIP & 84% of the funds gave returns of more than 15% on SIP. Average SIP returns were 19%.

So, what are you waiting for? Start investing now. 

We will advice you on the top mutual funds picks based on our thorough & sophisticated research reports. You can also buy through us.

Fill the very short form on the link below and we will get in touch with you.


Minster is a distributor of mutual funds products with branches all over India. The advantage of buying through us is:

  • Zero brokerage on mutual funds transactions
  • Very simple registration process on our trading website for online & offline transactions
  • Very easy to use & state-of-the-art online platform to buy & sell financial products; Transact online or on phone seamlessly
  • We will do your retirement planning, tax planning, goal planning & insurance planning for free
  • Invest in products most appropriate to your risk profile, financial goals & tax profile 
  • Invest in products handpicked after conscientious  study of financial products market 
  • In depth research material & support will be provided to help you get the best out of the financial markets  
  • Get periodic review of your investments to adapt your portfolio to market dynamics

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