Indians are skeptic about investing in Equities. Reason behind so is lack of knowledge and general awareness of the benefits. One needs to understand that stock markets are the best way to benefit from a country which economy GDP is growing over 8.5% year on year. Stock market basically resembles a Nation's financial condition which of India is going to get better n better.
Indian Money Is Way Too Conservative
Fact figures suggests that 48% of total American savings goes for investing in schemes related to equities. On the other hand the fact figure for Indian savings money routed to equities stands at a merely small total of just 2%. No wonder, both the Indian Government and leading Indian Stock Exchanges are always keen to generate interest and awareness within the common people indicating towards the benefit of investing in equities for the long term.
Its the lack of Financial Education which keeps Indian savings money away from the Equities, since they are not ever formally introduced to financial planning and Investing. Majority of people believes that small investors cannot earn money from stock market, which absolutely is just a myth and nothing more.
Indian Investors still prefers the traditional way of Investment like Fixed Deposits. In fact Fixed Deposits are so famous and traditional that, during daughters marriage, father often gifts Fixed Deposits!
What Is A Bank Fixed Deposit?
A fixed-income debt security issued by banks. A Fixed Deposit is like loaning the bank your money and in return, they pay you interest which is currently between 8-9.5% p.a.
At this interest rates your money will double approx in 7-8 years. Too less, too late? Read on
Why You Should Not Be Investing In Fixed Deposits?
The most unusual characteristic of a fixed deposit is that the funds cannot be withdrawn for a specified period of time which is usually 3 years since deposit for any reason.
Changes in the going interest rate may also rise to a point above and beyond the interest rate applied to existing deposits done with the banks. This means account holders are actually earning less interest with fixed deposits than with other types of products.
What is a Mutual Fund?
A Mutual Fund is a investment scheme maintained and run by professional fund managers working under the name of a Financial Institute or a Fund House. Money is being collected from different and many investors and then collectively put in a pool account from where the fund managers makes Buy and Sell trades according to there own group research and investment objectives.
Dalal Street people prefers you thinking that what they do with your money is some rocket science and you are absolutely not the right person to take your own financial decision so that they keep earning fat commissions for themselves you being entrusting them your hard earned money.
Though its a different case that of course you can also invest your money yourself with little bit of research and with the help of expert Indian stock advisory services like Winfromus which generates higher returns than the different Mutual Fund schemes.
But never the less, there are some real good fund managers out there too, doing what they are best at and most of the good names has been successfully generating 13-15% Compounded Annual Growth Returns (CAGR) since the past 5-6 years.
CAGR Projection over the next 3 years from Indian Stock Markets
Conservative projection suggests that the Indian markets can deliver CAGR of 15-18% over the next 3 years and optimistic like me expects 20% CAGR over the next 3 years with the right selected stocks and sectors.
20% CAGR is not just a dream, but it is also fundamentally backed by growing GDP, country's financial condition and over all economical and business development which is on course and expected to grow at a descent pace.
Fixed Deposits Returns are Guaranteed, Mutual Funds Are Not - What about my money safety?
Well, for a matter of fact nobody can guarantee you returns while investing in equity via any possible way, since it involves risk. But theres a way to cut the risk virtually to Zero levels and still get benefited the most. The secret is Systematic Investment Planning (SIP).
Systematic Investment allows you to stay invested without worrying to time the markets or about the volatility we see in stock market. In fact SIP works out best when markets are volatile. The funda of systematic investing works on a simple formula invented by world's most genius ever Albert Einstein - Power of Compounding.
While SIP, rupee cost averaging and compounding of returns/interest earned on principle over a period of time compounds together and puts significant impact on wealth creation over the long run and stock market being a cyclical asset, it is very likely that you will see a higher end where you may take profits and then go conservative.
Do you know how much money can be made on investment of just Rs 10,000/- per month at a CAGR of 20%? I have done the maths, here's the result -
* Rs 10k/month Invested for 5 years at 20% CAGR to become 10 lacs
* Rs 10k/month Invested for 10 years at 20% CAGR to become 35 lacs
* Rs 10k/month Invested for 15 years at 20% CAGR to become 95 lacs
* Rs 10k/month Invested for 20 years at 20% CAGR to become 2.4 crore
Eventually In 25 years 10000/month @ 20% CAGR (compounded annual growth rate) to become 6.1 crores and in 30 years 10000/month @ 20% CAGR to become a whopping 15 crores. The longer you invest, the higher would get your returns.
Think Mature, Aim Higher, Plan and Set A Goal...
Fixed Deposits cannot generate the kind of returns stock markets will and theres no doubt about it. If you are young and want to Invest and grow your money big, equities are the way to go. Don't be skeptic and look at the brighter side of investing in Stock Market, you don't get such money making opportunity in a lifetime.
Returns of fixed deposits may not even beat Inflation rates, then whats the use of saving money in them and allowing money to sit idle to generate lesser returns on investment when a simple SIP in equities can do a better performance for your money? Think about it..
Happy Investing!!
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