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Know Your Fundamentals – Equity Management Services

Investments
Know Your Fundamentals: Equity Management Services

Know Your Fundamentals – Equity Management Services

Investments | by 2 | on 2020-10-30 07:21

Equity market or portfolio market is one of the many financial commodities that people consider to invest in. One primary reason why people consider investing in equity shares is that there is always a scope for getting better and more returns over the principal amount invested. Capital gains and dividends are two forms that it comes in. The number of shares that a person invests in can also be increased over some time when the company decides to expand. 

Equity shares are those that emerge when a company or an organisation decides to divide its total capital in investment in smaller amounts for people to pool in money to start the business. This for a company is a liability because it owes to those who put in money as an investment. Along with the dividends and returns that the investors get, based on the number of shares that they have invested in, they also get voting rights for taking decisions for the company.

The various benefits of investing in the Equity Market is that.

  • Higher liquidity – Investing through two major exchange bodies in the country, BSE and NSE give an advantage of having higher liquidity as these bodies deal with a large volume of transactions and when one wants, they can buy or sell quickly.
  • Quick returns in a short time –  One equity investment tip is that unlike other investment commodities, equity shares tend to provide higher returns in a short time. 
  • Right to vote –  Equity investment strategies state, the best part of investing in the equity market is that along with shares, you also get entitled to voting rights. This means that a part of the company’s ownership lies with the investor. This gives investors the power to influence various managerial decisions. 

One can also explore the various options that online equity trading offers.

Portfolio Management Services

India has long-standing trading in shares and other financial instruments. There are millions of people who consider investing in shares and other related financial commodities than other investment options. While many people prefer investing through investment brokers, others choose a much advanced and professional service called Portfolio Management Services. PMS or portfolio Management Services are provided by professionals who are experienced and qualified to identify the trends and those who understand the in and out of investing in equity shares.

Under this service, the portfolio of a person is managed by a team of experts instead of the client doing it by herself/himself. When an investor does it by themself, then the burden of wrong decisions is weighed upon the investor itself.

On the other hand, when the PMS manages the stocks, then the advisory is answerable for an unlikely result. Also, there are two types in this service, namely discretionary or non-discretionary. While in the former one, the fund manager takes all decisions relating to the investment on behalf of the investor. On the other hand, a non-discretionary relation is where the fund manager should get the approval of the investor before making any investment-related decisions.  

Benefits Of Having Portfolio Management Services

  • Opting portfolio management services can benefit you with a quality portfolio. Most times, individual investors do not identify the right shares and only aim for higher returns rather than focusing on long term returns.
  • Investments through portfolio management services are dealt with separately and hence is not impacted by the behaviour of other investors.
  • One significant benefit of opting for portfolio management services is that every single transaction is updated to the investor. Be it discretionary or non-discretionary; every single transaction is informed to the investor. This makes it more transparent. Expense ratios are evident as well, which gives investors scope to customise it.

Based on the kind of risk taken and the amount of lenience that an investor has, Portfolio Management is divided into four categories.

Active Portfolio Management 

This kind of portfolio management aims at making higher returns. It focuses more on getting better returns than the rest of the market. For this, the portfolio manager does not step back from taking huge risks but in an informed manner. It is also that the portfolio manager invests in multiple asset classes. Under this type, the returns are higher when compared to any other portfolio type.

Passive Portfolio Management

Under this type of portfolio management, the manager experiments, and invests with index funds. They have lower turnover and a decent long-term return. 

Discretionary Portfolio Management

As mentioned previously, this is a kind where the manager is given full authority and flexibility to take any type of investment decisions on behalf of the customer. The manager is generally an experienced and informed person and so makes careful strategies and analyses the market trends before taking any step. This also means the portfolio manager is solely responsible for any unfortunate results. This kind of portfolio management is higher in cost as it involves a sum of amount to be paid to the portfolio manager for his services.

Non-discretionary Portfolio Management

Under this type, the portfolio manager does not have the authority to make any decisions but can advise the investor on the best decision to make. It is up to the investor to create the end decision. The results of the risk and the rewards come back to the investor as he is responsible for making the final call on all investment activities.

A portfolio manager gets into an agreement with the investor through an investment policy statement that defines the terms and conditions of the contract. By investing through PMS, one is drawing a shield to make their investment safer and better as an expert is handling the funds.

Equity investment tips state when one does not have a reasonable knowledge of the subject, it is advisable to approach the experts. Investing and trading in shares is a different ball game and one has to take enough precautions before stepping into the primary picture. Trading, if not done correctly, can leave massive amounts of debts or even loss of shares. Make the right choice and choose the right investment option.

FAQs

What is the difference between debt and equity investment?

Unlike equity investment, debt instruments mean ‘borrowed money’. When a company borrows money from investors through bonds and mortgage, it’s called Debt Investment. On the other hand, when a company raises capital from the public by giving a piece of ownership of the company to them, then it’s called equity raised capital fund. While in the former the company is obliged to pay to the investors irrespective of the profits they acquire, in the latter, the need to pay the investors based on the earnings of the firm.

What are some ways to reduce taxes on my equity investments?

Some of the best ways to reduce taxes on your investments are by booking a portion of profits and reinvesting the proceeds. Some areas where you can reinvest are in real estate, municipal bonds, and index funds.

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