Saturday, August 30, 2014

Why Should You Invest Some Money on Equities, Stock or MutualFund

Many people ask me whether they should invest money in stocks or mutual fund or not? I say, you should invest at least some part of your money into equities because it is the only investment which can beat inflation in the long term. It's not that investing in equities will guarantee superb returns because there are periods and even extending up to 5, 10, 15, 20 and even 25 years where equities have delivered negative, no returns or very poor returns. For examples in Japan, Equities has not really been the best performing asset class in last twenty years. Nikki, index of Tokyo stock exchange was around 39K on December 1989 and where it is now, around 15K, after touching lows like 7K and 8K during 2001 and 2009. What this mean, if you have invested in Index you would have one-third of your money by now, forget about getting any interest.
 

This may look you really contrasting from the title of this article, but it's true that there is no guarantee on the stock market and even with a mutual fund. You need to accept that fact to better organize your investment. The most important thing is that stock market is actually a proxy of the countries economy and so is inflation. 

Inflation will only rise if there is money to spend, and people will only earn money if there is a job to do. More jobs mean more production and consumption, which means growing economy. This is the key, if you feel an economy is at the start or mid of growing cycle, then investing in Equities is the best idea. 




Why should you invest money in Indian Stock Market

Now let's take an example of India. Some time back I have said that is it the right time to invest in Indian stock market and we will continue that discussion here. If you have invested at the start of 1990 into Indian equity market when Sensex  was around 1000 to 1500 and Nifty was around 500, you would have made almost 15 to 20 times the money, but if you look closely, it was not until 2000, when Nifty really kicks off. The problem is though Stock market is a reflection of the economy, it's not easy to predict anything. 


What you can do is take a call based upon information available. Since, it's almost impossible to time the market, it's better to be in market than not. Take a latest example of TCS completing it's 10 years of listing, have you invested 1 lakh rupees at the time of its IPO, you would have made around 12.5 lakh by now, instead if you invested in fixed deposit @ 9% per annum, you would have only made around 2.5 lakh and given high inflation in that period, you would be able to buy the same thing on this money, you could have during your investment period. 



But TCS is also not like ever increasing stock, it has given only about 60% returns during its first five years, when Sensex was given whopping 220% interest, had you sold your shares that time, you would have lost the magnificent growth period which came after that, when TCS grows almost 5 to 6 times. So, again it's difficult to take a call on the market with a limited amount of time and knowledge a retail investor has, but not investing money on Equities is just letting an opportunity go.



India is a really great place to invest now, given political stability and growth prospect of the country for another 20 years. So if you an Indian, you must take advantage of this unique opportunity. 
By the way, diversification is key and you should also take advantage of traditional investment  schemes  e.g.  PPFfixed deposit and gold to keep your eggs on the different basket. 


Should you invest money in Stock market India


Mantra of investing in Equities is that to invest only money which you can let go without too much of trouble and you don't need it the in short term. Keeping that extra money the in stock market will give it an opportunity to grow than bank's saving account. Now, about selling your stock and getting the money back from Market, you only do, when you really need money. Why? because you don't really know whether your investment has matured or not. Take an example of TCS, had you taken money after investing it for five years, you would have missed the real returns. So only take out money when you really need it e.g. for your daughter's marriage, eduction and may be for buying a new home for you.


If you do want any fuss, then settle for mutual fund, which will not give you astounding returns an stock or company can give you but 
at-least give you more stable returns. Your principle money will also be safe there because of diversification. These are my reasons on why one should invest in equities particularly at this time, when whole world is looking forward to India for driving growth. Always remember, the in global economy every investor, FII and high net-worth individual will search and invest where there is growth and stability. West might give them stability but only east can provide growth in near future, until they developed fully. After that it will be Africa's turn :) 



Having said that, you should never put all or even 50% of your money on equities as you may lose it all as in case of Japan. You should only do investment based upon your risk profile, like for conservative investor like me,  who give more important to stability than growth, you can put 20% of your money on stock market, either in company which you think will be there after 20 years and will grow or simply on mutual funds which delivered best performance in last 10 years. It's time to realize that investment is not optional, it's mandatory for any salaried employee or self employed people with small business. Last but not the least, one penny saved is one penny earned, if you believe on this, you may find these saving tips helpful.

1 comment:

  1. Investing on Equities and Mutual Funds is very helpful for securing the future upto a great extent. You can research the market and choose which opportunity suits you more. But that may require some time. Therefore, it is recommended to take the help of a Forex Fund Manager. He can guide you through all this money investment strategies.

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