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Things to Keep in Mind Before Investing in Direct Equity

28 Aug 2023

When you think of the shares of a certain company, this means ownership in the simplest terms. Equity is actually the full amount of money that is received by an investor when any given company has settled its debt (if any) and has liquidated all assets. If you are an investor investing in the equity of any company, you automatically become a part-owner in the said company. Hence, you are known as a shareholder of equity in the company. You are permitted to participate in the profits made by the company as you own the stock (shares) of the company. The stock market today in India is open to investors investing in shares of a company and encourages this. However, you should note that if you do choose to invest in any company’s equity, the profits you may yield will only be realised if prices of shares appreciate. 

What is direct equity?

You may have often heard of the online share market as it exists in India today. As you may well know, all operations are done online, and the buying of stocks and shares can be done this way too. All you need to do is open a demat account and you can do this seamlessly and quickly. After that, you have the freedom to invest in the stock market and its stocks directly through online channels. The term that refers to what is called “direct equity” simply means you invest in the share market directly. 

In order to undertake a direct investment, you must have a demat account that is linked with a trading account. The trading account aids in making transactions (the purchase and sale of stocks) and the demat account stores your stocks bought in electronic formats. You can buy shares from a company directly through your trading account via the stock market. However eager you may be to invest in direct equity, believing you may get high returns, there are things to keep in mind before investing. 

Equity Investments

Online trading is very simple to do, but if you are a serious investor, you should know what you are investing in. If you think of the stock market, the term equity represents shares of any given organisation or company. If you buy stocks of a company, you naturally become a shareholder of the company. When you invest in a company directly, you can easily earn through a company’s profits, and you get a part of this as a dividend payment. You may also gain from the stock price increasing when you choose to sell your shares at a profit. Monetary benefits apart, you should be knowledgeable about certain aspects of direct investment in advance of your investment foray. 

Should you opt for investment in direct equity?

The first and foremost thing to consider is whether you are the right kind of investor to make direct equity investments through the stock market today. Everyone thinks they are perfect investors, but stop and have a good think as to whether you really are. Investment in direct equity is good for investors who are highly risk-tolerant. If you are willing to take risks, and you have had positive experiences with risk-taking in the past, then you can try your hand at direct equity. If you have a low tolerance for risk, then the share market and direct equity may not be suitable for you. 

Direct equity needs time and high-risk behaviour as shares tend to be volatile, and market shifts are common and quick. This translates to the fact that returns are high when there are gains to be had. Still, if your risk levels are low, you should try your hand at less risky investments like equity-based mutual funds. For beginners, and those with little or no experience, the online share market may not be the place to begin to invest. 

Keep Objectives in Mind

What are your long-term objectives and goals? If you wish to invest in direct equity, you must be prepared to stick on for the long haul. Stock markets are, for a large part, volatile, and seasoned investors know that there could be swings if you are looking at the short term. Experienced investors know that you have to remain with your investment through hard times as markets have a history of moving in upward directions in the long term. Therefore, you cannot be an impulsive investor who sells a stock the moment it shows a trend of sliding. Commensurate with the high risk involved, direct equity offers you great returns, but only if you have investment objectives that align with the long run. 

Online Trading and Knowledge

Investors who choose to invest in direct equity have sufficient knowledge of how different online trading platforms work, and select ones that give them optimal functioning. It is important to choose a suitable platform that makes your trading and investing activity seamless and smooth. If you wish to make the most of an opportunity while investing in direct equity, there can be no time to waste, or the opportunity may cease to exist. 

Apart from the appropriate trading platform, investors who make the most of direct equity investments do so with a high degree of knowledge to back investments. The serious investor knows about companies that list their shares in the stock market today. Knowledge is based on things like a company’s profits, its future outlook, and the history of its performance. There is a necessary amount of study about companies and stocks that goes into direct equity investing. This is essential, as it lets you know about the companies being invested in. Taking risks is one thing, but calculated and well-thought out risks are the requirement of investors today. 

Think Before You Act

Investment in direct equity involves certain advantages, but it may not be for everyone. The main thing is your risk level, and if you are just starting out, you may want to think twice before direct equity investments are made. You can always open a demat account and start with minimal funds invested. This may be a careful and sensible way till you are more experienced. 

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