Equity investments for wealth creation: A beginner's guide — 5 steps to get started, benefits, risks and more

Investing in the equity market is one of the most efficient ways to build generational wealth. Equity investors purchase ownership stakes in businesses through stocks or shares. As a shareholder, you become a partial owner in a business. The returns that one makes in equity investments are primarily generated from capital gains and dividends.

The long-term capital gains tax (LTCG) on equities is currently 12.5%. Under the current tax regime, capital gains exceeding ₹1.25 lakh in a financial year are taxed at 12.5%. Generally, equities compound by 12-13% on an annual basis. Still, it is crucial to keep in mind that investments in equities come with higher risks compared to fixed deposits, bonds and other similar fixed income investments.

Furthermore, reading good books such as The Psychology of Money by Morgan Housel, The Intelligent Investor by Benjamin Graham, and Think and Grow Rich by Napoleon Hill, along with similar books, can further help investors understand basic concepts such as consumption, profit losses, balance sheets, asset classes, and the power of compounding. Such knowledge can bolster investment decisions and make buying stocks easier.

What is equity investment?

Simply put, equity investments mean buying shares or stocks that represent ownership in a company. There are several different types of the same, as discussed below:

Tips to manage equity investment risks

• Diversify across different sectors and asset classes.
• Invest with a long-term perspective, don’t participate in short-term trading.
• Stay informed on market trends and news by referring to credible sources.
• Avoid emotional decisions during volatility and follow the fundamental rules of investing.

Finally, before opening a new demat account, you should remember Charlie Munger’s iconic words: “The big money is not in the buying or the selling, but in the waiting.”

This simply means growth in equity markets is a consequence of making sacrifices and investing in good businesses. Once the investments are made, you should give them time to earn returns. This philosophy is against the widely practised norm of thrill-based, short-term trading.

In summary, equity investments offer a pathway to significant long-term wealth but require informed planning and risk management. Opening a new demat account with a leading broking firm can be a good start, as it can provide a seamless investment experience with convenience, low charges and comfort.

Disclaimer: Equity investments carry market risks, and past performance is not indicative of future returns. The stocks and companies discussed in this article are purely illustrative examples. This content is for educational purposes only and is not financial advice. Please consult a qualified financial advisor before investing.