Investing in equities over a long period is one of the best ways to stay ahead of inflation. Over the last 10 years, the Nifty has returned 16.7% a year compared to the 7% average inflation rate. One can either invest directly or through mutual funds. For small investors, it is advisable to invest through mutual funds, as they are managed by experts.
Investors should look at diversified equity mutual fund schemes to earn higher risk-adjusted returns. However, equity investments should have a horizon of at least three years, sometimes even longer.
Another way of lowering the overall risk is investing via systematic investment plans or SIPs. The compounding impact of such investments over long periods will help you beat inflation by a comfortable margin.
Should you consider direct equity or equity mutual fund
Direct equities: You should consider investing in direct
equities if you have the time to actively monitor and research stocks, you have
a reasonable knowledge about the financial markets and you have the patience to
bear market volatility. In such cases, it is preferable to invest as lumpsum.
Mutual funds: You should consider investing in
mutual funds if you do not have the time to actively monitor your investments
and cannot bear market volatility. Also, you should invest in mutual funds from
a more goal-oriented perspective and we think systematic investment plans (SIP)
are the best way to invest in them to create wealth from your income saved over
a long period of time.
