Investment Options

You may have heard, finance aficionados telling that, investment is a kind of business to be handled very prudently, especially if you are investing for the first time.

There are various things including: -

1.) Type of investment,

2.) Where to invest (Funds, Securities, Indexes, etc.),

3.) Capital to invest (keep in mind this capital should not influence your livelihood),

4.) Calculating the involved risk.

Now, these factors require the investor to have some insight or technical knowledge of finance and market, which often makes them reluctant to execute any decision of their own. To counter this, many seek financial and investment advices from stock market experts. They pay for this service and even after a detailed consultation they are unsure as to which security/ index they should invest in. But, wait a minute, I told in my earlier post that one does not require any special knowledge to make profit. By this profit I mean a fulfilling profit.

So, what should you opt for; advice from an expert or belief on yourself.

Let me tell you something we have never came across any trader or investor or even heard of any such person who earned a decent money following the advice of any expert.

I discussed about how long term investment is a better option.

Let us discuss in detail about where to invest. If you remember, in my last post I told you about indexes being an option. But, indexes require large capital investment for considerable gain and for people with limited or small capital it could be an issue. Here comes the role of Exchange-traded Funds (ETFs) like Nifty50 ETF and Nifty Junior ETF. Nifty 50 is the index of top 50 blue chip stocks of NSE and nifty Junior is the index of next 50 stocks. Every stock exchange in the world has their own indexes & corresponding ETFs (as you already know).

For your knowledge:- “An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.” – courtesy of investopedia.com

The best part about these indexes is that they list only the top performers (the blue chip companies). If any stock under-performs, it gets listed out of the index and other company take its place.

You can log-on to your exchange's portal and look for the companies listed in your index. An elaborated list of NSE's Nifty 50 stocks can be found here

Nifty 50 has a return of around 17% and Nifty Junior has 18 to 19% compounded annually. For ex. If someone invests 10,000 bucks’ worth of stocks in Nifty 50 ETF, then at the end of 1st year they would make 11700, for 2nd they make 13,689 and so on after 10 years the return would be 48,000 after 20 years it would be 2,31,000.

This is the power of compounding and investment in an index ETF. Turning 10,000 into over 2 lakhs in 20 years. I know, what you may be thinking: -

1.) The profit margin is small.

2.) Duration is high.

So, as far as margin is considered, it depends on your investment capital. Note that the investment was only 10,000 and after that nothing has been added to the principal amount. If the investment was 10 lakhs, return would also be over 2 crores (20 times the starting capital). Understand this way, you have invested some money for long run and without worrying about anything you get 2 lakhs after 20 years. You may well be surprised with such return. If you would have invested periodically which is often referred as Systematic Investment Plan (SIP), the return would also be enormous. Instead of 20 years, target it for 40 to 50 years.

The stock market is a device for transferring money from the impatient to the patient

-Warren E Buffett 

There is no other business that has such higher return with such minimal risk. It’s just that people don't have a clue about it. They repeatedly lose money in markets, because their approach is “the sooner the better” or in other words they believe in extracting money faster. Whereas market works the other way round “the longer the better”.

Please Note: I am not compelling you to make investment. It is my knowledge that I am sharing with you to make better decisions & how you could minimize the risk while investing.