A stock market is a place where you can buy shares of a company that is listed on it. Buying shares makes you the owner of the company to that extent.
BSE(Bombay Stock Exchange) and NSE(National Stock Exchange) are the two most widely known stock exchanges of India. Sensex and Nifty are the indexes of these exchanges respectively. i.e. Sensex represents the top 30 companies of India and Nifty represents the top 50 companies of India.
Why Should We Invest?
To make sure that you remain ahead of the inflation. Inflation eats up all your savings, and you do not get benefited by saving money. you earn and save money to be prepared for future needs but you forget about inflation “Money kept in a bank gives zero or negative return”
you get around 5 to 6 % of return on bank F.D. and the inflation rate is 6%, so any return less than that is negative return. If you are doing a fixed deposit in bank you are probably at no profit from it.
To remain ahead of inflation, you should invest in the stock market to channelize your savings into the most productive asset without working on it.
A look at Sensex!
Sensex started in 1979 at 100 points and is now around 39,000. It means it has given a 390 times return in 40 years. If you calculate the rate of return it is around 15 to 16% without dividends and if we add dividends to it it becomes near 17%. If you wanted to earn a return of 17% or you wanted to multiply the money 390 times, you would have to do nothing but just bought Sensex and sit back.
100 rupees invested in would have become 39000, So you now may be thinking what’s a big deal in it.
Now let’s have a look at what these 100 rupees have become if invested in a bank fixed deposit.
Taking a rate of 10% on a fixed deposit. Our 100 rupees have become around 4100 rupees, which means only 41 times.
and when you compare it with gold it becomes even worse gold rate in 1979 was around 1000 rupees and gold is now trading somewhat around 31000(2018 data) that’s only a 31 times.
So it is clear that the stock market would have been the greatest investment rather than any other investment class.
Was It So Easy to Earn That Money?
MAYBE YES, MAYBE NO
To earn that money you have to hold the Sensex for this long period of time the journey was not a cakewalk it consisted of many ups and downs.
If the journey would have a straight line journey, everyone would have earned that return, but it is not so. At the time of depressions, people lose their patience and quit taking a loss and then saying the stock market is a casino.
How can I Invest?
There are multiple ways to invest in the stock market.
- Mutual funds
- Direct Investment
You may not want to Involve in Stock research and finding companies to invest. So you decide to hire a Company to Invest in Your place. And there are many people like you.
Here mutual funds come in play:
Mutual funds pool money from investors like you and money and invest in different stocks. They have a qualified team and research analysts who do the research work. and for these services, they charge a certain commission from you.
If you are a newbie you can go Through mutual funds but If you are ready to learn and want to maximize your wealth you can go and open a Demat account.
A Demat account provides you the freedom of investing in the companies you like.
There are multiple brokers who provide a Demat account.
- Motilal Oswal
- And almost every bank provides the facility of the Demat account.
By opening a Demat account you can directly invest in the companies you like.you may have a savings account in HDFC bank, you may go to D-mart for shopping and if you think the profits of these companies are going to rise and you want to be part of it, you can just buy a piece of ownership in that company without involving in managerial activities