Tuesday, July 13, 2010

Problems in Investing In Equity Shares

1.Changing Market values
The Market values of actively traded equity shares seldom remain constant. They keep fluctuating; some moderately, but others violently. These fluctuations in market prices are likely to cause anxiety and discomfort for an amateur investor.
2 .No guarantee of Super Profits
There is no guarantee that you will make profits, let alone super profits, in this equity game. There are no sure-fire formula for success in the stock market. Some investors may gain and many others lose. There is even a risk of the complete loss of your capital. Remember equity is known as risk capital. You have to risk everything in order to gain something in the stock Markets.
3.Uncertainty of government policies
Consistency has never been a strong point of the Indian Government. Uncertain and changing policies of the government cause considerable damage to the profitability of companies which, in turn, affects the shareholders. A change in the government, of course, leads to considerable changes in policies.
4.Oversubscription of new issues
When you apply for new issues offered at par by a company belonging to a reputed group, it is likely that the issue may be oversubscribed several times.
5.Criticality of timing
Since timing is crucial both while buying or selling shares, you have always to be alert. If once you miss a good opportunity; you may have to wait for a long time for the next one. When prices rise, they rise quite fast when they fall, they plummet even faster.
6.Need for constant watch
Equity investment is not a one- shot affair; it demands your continuing involvement. You have to keep a constant watch on various environmental factors, such as economic conditions, an industry’s prospects, company’s performance, etc. sometimes it can be more preoccupying than a full time job. Many investors can neither afford nor are they inclined to spend so much time and energy on their investments. A possible solution to this problem is to entrust your equity portfolio to a reputed firm specializing in portfolio management. Alternatively, one may play the equity game through the mutual funds route.
7.Professional guidance is essential
It is possible that one may make some money in the beginning, through beginner’s luck. This often leads to aggressive buying of shares at high prices and subsequent panic sales, often at the lowest prices.
To avoid such wrong decisions, one may need expert and objective professional guidance which is both scarce and costly. Now a new breed of professional called CFAs (chattered Financial Analysts) is fast emerging in India.

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