Direct Stock Market Investment
The biggest risk associated with direct equity comes form complexity of data. Its not always so easy to decipher information pertaining to equity. Information relating to equity is included in most companies annual financial reports such as profit and loss statement and balance sheet.
In order to make a profit through direct equity one has to buy the assets and then let them mature. This can be done for many different types of assets and many different lengths of time. For example, a mutual fund may buy a stock that has a long term value in the future and allow the investor to sell it for a higher price in the near future. This type of investing can be very profitable but it takes considerable patience and knowledge of when to buy and when to sell.
One of the main advantages of direct equity investment is that there are no broker fees. An investor does not have to hire a broker to buy stocks and allow them to mature before selling. There is also no commission fee paid to the broker. The advantage to using this method is that you don't have to hold any stocks in order to profit. If an investor is able to buy stocks at a discount then they will profit by selling the stocks for less than what they paid.
Another advantage of direct equity investment is that there is no minimum holding period required. Some stocks require that the investor hold onto them for a year before they decide to sell them or pass them onto another investor. Other stocks only need to be held for a week or two and then sold. Investors who can handle this asset class well are able to make profits in a short amount of time.
One disadvantage of direct equity investments is that the potential to profit greatly is dependent on how the market value of the security changes. If the value drops the investor's investment could be reduced. Another disadvantage is that it is not easy for mutual fund investors to evaluate the value of investments. The process of analyzing securities and valuing them can take months. It is possible for investors to miss some good opportunities because of this factor.
In order to understand the pros and cons of direct equity you must first understand the concept behind mutual funds. In a mutual fund all of the profits from the investments are used to buy more shares of the same security. The risks involved with these investments are the same as with stock investments; dividends and interest are subject to change, and capital gains and net profits are not guaranteed. Investors must diversify their investments to minimize the risks that are present in any given investment. As one completes their research, they should consider all of the pros and cons to determine which of these different options are the best to invest in.
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