Investment Planning
Investment Planning
Investment planning is a critical component of personal and financial growth. It involves identifying financial goals and creating a strategy to allocate resources into various investment avenues to achieve those goals within a defined time frame. Whether you’re planning for retirement, your child’s education, buying a home, or simply growing your wealth, investment planning helps you make informed decisions based on your risk tolerance, financial objectives, and time horizon. A sound investment plan typically begins with a detailed assessment of your current financial situation, followed by the selection of suitable investment instruments such as mutual funds, stocks, bonds, fixed deposits, real estate, or government schemes.
Equity shares and Tax planning
Traditionally, investors in India have favored safe and fixed-return instruments like Fixed Deposits (FDs), Post Office schemes, and government bonds. However, with rising inflation and declining interest rates, these conventional options no longer offer the returns needed to build substantial long-term wealth. As a result, more people are shifting their focus toward equity shares and equity-oriented mutual funds.
This trend is clearly reflected in SEBI’s 2021 data, which reported the opening of approximately 1.42 crore new Demat accounts—a significant surge in stock market participation. A large portion of these investors are showing interest in Initial Public Offerings (IPOs), seeing them as a gateway to potential high returns.
Equity investments are indeed effective in combating inflation over the long term, as they typically outperform traditional investment avenues.
What are equity shares?
In a company, ownership is typically divided into units called equity shares. When an individual invests by purchasing these shares, they contribute to the company’s capital and become a shareholder. As part-owners, shareholders are entitled to a share in the company’s profits and have the right to vote on key company decisions, although their control is proportionate to the number of shares held.
Investors in equity shares benefit financially in two primary ways: dividends, which are a portion of the company’s profits distributed to shareholders, and capital appreciation, which occurs when the value of shares increases over time.
Companies generally issue equity shares to raise funds for expansion or business development. When shares are offered to the public for the first time, it’s done through an Initial Public Offering (IPO). After an IPO, these shares are listed on stock exchanges, where they can be actively traded.
Once you invest in shares, your ownership is recorded with depositories such as NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited). These entities maintain the record of shareholders. Whenever the company declares dividends or issues bonus shares, it uses the data from these depositories to credit benefits directly into the shareholders’ bank accounts.
How do prices of the equity shares move?
Stocks are inherently volatile, with their prices fluctuating daily due to a variety of influencing factors. One of the primary drivers of stock price movement is market demand and supply. When more investors are interested in buying a particular stock, the increased demand tends to push the price upward, as sellers can command higher prices. Conversely, when there are more investors looking to sell than buy, stock prices typically decline.
Investor sentiment plays a significant role as well. Positive news—such as strong earnings reports, expansion plans, government approvals, or new projects—can boost investor confidence and drive prices higher. On the other hand, negative developments, like poor financial performance, regulatory issues, or management controversies, often lead to a drop in stock prices.
To assess a stock’s true value and make informed investment decisions, investors often turn to financial ratios and analysis. These tools help in evaluating a company’s profitability, liquidity, and overall financial health.