A regular systematic investment in strong companies can help you not only beat inflation but generate a return on investment that beats all others. A key is to be aware that stock market values do not grow in a linear pattern
There is a wealth of literature on the internet on ways to buy or sell shares. You can watch videos or sign up for online courses that teach you investing at your convenience. A way of explaining is through ‘what could have happened’ stories.
For example, 10 years ago, if you bought a Maruti Suzuki car worth Rs 6,00,000 on a loan, you could have paid Rs 9,00,000 over 5 years. Instead, if you had invested the down payment and the EMIs into Maruti Suzuki shares, you could have accrued shares that would have been worth Rs 54,00,000 today. Everyone wants to get rich. Money may not buy you all the happiness but it is a quest for most people. Equity markets are considered as an avenue for creating wealth. People buy shares of businesses with a hope that one day they may strike it.
A majority of Indians though prefer to stay out of the stock market. There are barely 2.5 crore demat account holders in a country of 130 crore people. Even mutual funds that allow investors to indirectly own shares have 1.8 crore unique folios. Household savings are largely in real estate or gold. Financial assets are slowly making their way up.
However, most investors prefer fixed return investments like fixed deposits or government schemes like public provident funds. However, if you are thinking of taking that first step towards equity investing, you may want to take a few steps forward:
Defining goals and investing
Typically, financial advisors will not advise on investing in equity markets directly. They will suggest protecting your capital or income first. They will also assess your ability to withstand risk. This is called the risk appetite. They will recommend an allocation to diversified equity mutual funds based on your risk appetite. If you are a high net-worth individual and commit a fixed amount of investment each year, you will receive personal attention from major stockbrokers. However, if you are not privileged but still are interested in investing, the onus of starting to invest in equity markets is on you. Your dreams and goals are the biggest drivers of your investments. You may be at any stage in your life. Setting goals are important before you begin.
You read regularly
An important aspect of investing in equities is keeping up to speed with information. The companies you invest in have to make consistent profits for the share price to rally. However, you need to know them first. The simplest thing to do is take a look at companies that make up the BSE Sensex or NSE Nifty. These are picked up after taking into account a lot of factors. Most companies have a consistent financial track record besides a significant stock market trading history. You can start reading about them and observe the share price behaviour for a few weeks. As you read more, you will know about factors that influence their value.
Your future income
If you are young, it is worth investing in equity. Yes, if you get carried away and make wrong choices, you may lose money. However, your ability to withstand losses is much higher at a younger age than later. Besides, equity investing should not be your only source of income. Your ability to invest in the stock market is a function of your future income. If you have consistent income, you can always invest regularly in fundamentally strong companies.
This is irrespective of the swings in the stock market or your age. It is commonly called as ‘risk appetite’. It is higher if you are confident of your future income.
There are multiple investment philosophies and strategies. However, a tried and tested one is ‘buy and hold’ in fundamentally strong companies. A regular systematic investment in strong companies can also help you not only beat inflation but generate a return on investment that beats all other. A key is to be aware that stock market values do not grow in a linear pattern.
(Author is publisher and founder at Simplus Information Services Pvt. Ltd.)