Well, everyone is talking about taking out your money from Fan start putting it in the stock market. If you have not started SIP yet, then you are making the biggest mistake of your life. But here you will have to understand some factors. Before you invest in the stock market or start SIP, you will have to understand why you have to do it, how much money you have to invest, where to diversify, there are many parameters because you cannot play with the parameters.
It means that you earn money with a lot of hard work and if that money is less instead of increasing, if you have a loss, then it can be a big challenge for you. So now let’s understand a simple thing here. People talk about investing in the stock market. When we talk about investing in the Indian stock market, then most people talk about investing in Nifty 50. This is called index investing because it is the index of Nifty.
Nifty is made by the top 50 companies on NSE. So the top 50 companies in India will grow and your money will grow. It is a very good thing. Similarly, there is another index here. Look at the example behind. We are talking about the Japan index. Let’s take an example of Nikkei 225. In 1991, I come here now. In 1991, it was about26,500 and today it is about 27,000.
So today we are standing in 2023. From 1991 to2023, it has been 32 years. If you look at its 30-year return, it is almost zero. It has not given any returns. Now if it has not given any returns, then people are talking that Nifty gives very good returns, but it has not given any returns.
So you have to understand why the returns did not come here. Did Japan not perform? Did Japan not grow? Why did this happen? Because this index did not give returns and we are very optimistic that Nifty will give a lot of returns. Let’s understand.
Now this blog is very interesting because I will definitely tell you that by investing very little money, like 3, 4, 5, 10 thousand, you can create wealth of lakhs of rupees. In fact, you can create wealth of crores of rupees. We will just talk about that how it will happen. We will understand step by step, but first of all, let’s take the example of Japan. Now when I took the example of Japan, itis a very interesting case study, so I am taking the example.
Japan’s index has not given any returns in almost30 years. Okay, you saw this, but why did this happen, we will understand this. And when we are talking about India, then if you look at the returns of Nifty in India in the past few years, then it is about 15%. So in the past few years, Nifty is giving 15% returns and Japan is not giving any returns in the last 30 years. Solet’s understand what happened like this. So first of all, there is one thing that you have to understand, which is inflation.
Now why do you understand inflation? Inflation means inflation. Now if Nifty is giving returns in India, then are the rates of things increased? In India, you must be filling petrol, you must be buying milk, there are basic commodities. Is their price increased? You will say that it is absolutely increased. If we talk about petrol, then it has doubled in a few years. Milk has doubled, so we call it inflation.
So how will you know how much inflation is increasing? I will explain to you how much inflation is increasing. If you look at the interest rate of an average FD of the bank, then in today’s rate, about 7 to 8% interests getting in FD. So you understand that this much inflationist going on. So just beating inflation, FD is giving a little more return. So if you keep money in FD, then the money will not be less, but it will not increase much.
So that’s why people tell you that brother, don’t keep a lot of money in FD, now invest in other places where you can get more returns. Because if there is 7 to 8% inflation here, then nothing will happen with, but if the index of Japan did not give a return, then how much inflation is therein Japan?
Now check, almost 0%. That is, inflation is not increasing in Japan. Forman years, inflation has not been increasing in Japan. If you look at the purchasing power of yen, then it is not depreciating. This is an example of India and Japan, of inflation. Similarly, you will have to understand more parameters here. If you go to India to take loan, then how much interest do you get? And if you take loan in Japan, then how much interest do you get? So here you get almost 0% interest. But in India, you will see that more than 8% interest is required.
And if you keep another comparison here, how much rate of interest do you get in a simple saving accounting India? You will say that you get 3%, 4%, 5% somewhere. So if you are getting interest on keeping 4 to 5%money in the account, you get 0% in Japan. You will be surprised to know one more thing.
If this money, for example, you have 1 crore and you keep it in Switzerland, then there is almost a negative rate of interest. Now, the negative rate of interest means that if you keep 1 crore, then stop increasing, it will decrease. Now why is it negative? Because the currency depreciation you will see is very low. Their currency does not depreciate. But here you take the example of countries like Africa.
So when we are in countries like Africa, you know that there are many countries. So in Africa, you will get better growth. There are such countries where you are getting a rate of interest of 20% on Fore than 20%.
So if you are getting a rate of interest in for 20%, then you understand one thing. Where FD is getting a very high rate of interest, there is a lot of inflation there. There, inflation is also increasing by 20%. So the economies that you see that is getting a very high rate of interest, it does not mean that you take all the money from India and I will invest in Africa. If you want to investing Africa, then you have to invest in the stock market of Africa.
Rather than you have to invest in FD in a bank in Africa, because their currency also depreciates very fast and inflation also increases. So these are some important things that you have to understand. Now a second question comes from here that if the inflation is increasing by 7-8%, then how much money should I increase from FD? Definitely more than this. If you are seeing that the inflation is 7-8%, then what will you do by keeping it in FD? It is not that you do not have to invest in FD atoll.
You have to invest in FD, but you have to think about it. Now I will give you the answer at the end that how much to keep in FD and how will your money grow. So my first question comes that I get a rate of interest more than inflation. How much more can it increase? It is up to you. So there is a simple rule of 72. Now what does the rule of 72 say? This is the simplest principle for compounding. Suppose you get a rate of interest of 12%, then you divide it by 72, then your money will double in roughly 6 years.
So if you invest 2.5 lakhs today at once in lump sum and you are getting an interest of 12%, then 2.5 lakhs will become 5 lakhs in 6 years, but this may not appeal to you today, but in the next 6 years it will be 10, in the next6 years it will be 20, in the next 6 years it will be 40 and this is also the same principle by which a man becomes rich. So it is important for us to understand this principle. It is a simple thing.
Where will I get a higher rate of interest than this? Where should I invest money? Now the first thing is, do not invest money until you understand this, which I am going to tell you now. Before investing, you have to understand two things that why do you have to invest and how much time do you have to invest?
Why do you have to invest and how much timed you have to invest? If you are investing money today, then why are you investing? Why do you have to invest? Okay, you want the money to increase, but how much money do you want to increase and how much time do you want to increase?
If you have any immediate requirement, you feel that I will need money in 6 months, 8 months, in a year, then I will warn you, you stay away from the stock market, do not invest money in stocks at all, because the market can be correct in a year, it can increase, it can decrease, so there is high risk. It is possible that you needed money, you invested10 lakhs and within year the market did not give good returns.
It is possible that correction has come, so if your 10 lakhs becomes 8 lakhs, then you will feel that I made mistake by investing money in stocks. It was your immediate requirement, so if itis your immediate requirement, theft like instruments are good because at least you are getting protection from inflation, money is not getting less and for the emergency fund, what is the emergency fund?
Your monthly income of about 6 months, you should have a minimum of safe in something like FD like instrument, such a thing which is safe. Why should you have a salary of 6 months, if you do a job and you do not have a job, then what will happen? How will a 6-month house run? That is your emergency fund, you cannot keep it in the stock market.
It is not possible that I put all the money here, so you cannot take a lot of risk for this thing, so it Isa safe thing, but now comes a little long term horizon, where you say that I am saving for 15 years, 20 years and I want to have a very good amount of money within 15-20 years, so for this I will tell you something else.
If you say that I have to invest for 5-10years, then I will tell you something else for this and if you tell me that I have to invest for 5 years, then I will tell you something else for this. So for all three, I have different suggestion, but I will tell you before you invest. Move forward. When I say that this is a different horizon, then understand it.
I will tell you when you understand the stock market here, the stock market is basically a market where you can buy stocks, you can sell stocks. What are stocks? Participation in companies.
Nowhere are a lot of chances you invest, you must talk to your financial advisor. So let’s that the Indian economy can flourish a lot in the coming time. What are the biggest reasons for that? We have a lot of population.
As this population increases, it needs food, clothes, house, mobile phone, you can say, traveling, everything is needed. So if any industry comes inside India and works for the masses, then itis going to earn a lot of money.
People will always give money and companies will earn money. Companies will earn money, companies will grow, our economy will grow. So itis a very simple thing. I cannot tell you a simpler logic than this. So we have a lot of capacity to grow. Because we have a lot of capacity to grow, then you will have to understand that there are three types of companies in the stock market. One is large cap companies.
Large cap is those whose market capitalization is very high. So the 50 companies that will come in Nifty50, their market cap is very high. So we can call it a large cap company. Similarly, there are mid-cap companies and the third is small cap companies. Now what I want to explain to you, understand this. What I say is that the small cap companies whose market capitalizations very low, they are basically horses.
The mid-cap is a camel and the large cap is an elephant. Now the elephant can walk very far, but it walks slowly. The camel can run faster than the elephant and the horse can run very fast. But you have to understand that there are many donkeys in the market.
But if you want to invest forth long term, then the time horizon of 15-20 years, then small cap companies can give you exceptional returns. So where we are talking about 12%, you can get 15-20% or more returns over the years. So if for example, instead of 12, I am talking about the rule of 72, you got a 24% return, then your money that was doubling in 6 years, it will start happening in 3 years and then you can see the magic.
Because I gave an example of 5 lakhs for2.5 lakhs, 10 lakhs for 5 lakhs, which was happening in 6 years, it will start happening in 3years. So compounding can become fast, but it does not happen immediately. You can get a return of 20% over the years in small caps. There are many such mutual funds whose CAGR, compounded annual growth rate is 20%, in fact, it is more than 25%. So this is a simple thing. What is the second concept when you are investing for a horizon of 5-10 years, you can consider mid cap and flexi cap companies.
Now there is a difference between flexi cap and mid cap. This is basically for mutual funds. If you want to do SIP, then in fact you want to invest, then flexi cap basically mutual funds. What happened in mid cap? If it is amid cap mutual fund, then it will invest in mid cap companies. But it is not like that for flexi cap. It can be invested in small, mid and large.
But if your time horizon is 2 to 5 years, then you should consider large cap companies. Because what is here, if there is a correction in the market, then small cap companies can break a lot, but the share prices of large cap companies do not break much. This is an important thing. They will grow slowly and break slowly. In small cap, they will grow fast and breakfast. In the long term, nothing is better than small cap, but in the short term, you should consider large cap companies. So this is a basic thing that you need to understand.
Now, on the basis of this, for example, I would like to recommend you Angel one. You can go to Angel one and open your Demat trading account for free. What is important here is that you can invest in Angel one in stock market. You can also start SIP. If you want to trade tomorrow, you can also trade.
The account will open for free. Now you can simply search on Angel one. You can search for mutual funds. Small cap mutual funds, large cap mutual funds, midcap, flexi cap mutual funds and you can start your SIP. I will show you the power of SIP.
You have heard the power of SIP, but now you understand where to invest. And here the example of SIP that I took is a very important example because people will tell you that if you investing index, then you have got 0% return. So what is the benefit? You will have to understand that their economy is different.
There is a lot of potential in the Indian economy. For example, if you choose SIP, then SIP of 3500 rupees per month, if you get 15% returns, in the long term, I have told you that in the small cap and flexi cap, you can get15% returns and if your investment period is 10 years, then what will happen in 10 years, your investment of 3500 rupees per month will become almost 10lakh rupees. 9.8 lakh rupees you are seeing here that this is your expected amount, but here only by changing the time, the game changes.
Now if you are seeing here in 10 years, 9.8, so what is the magic of this? If I say here, how much money will be there in 30 years, in 10 years, the investment of 3500 rupees is almost 10 lakhs. So a simple question comes in the mind, 10 lakhs in 10years, 20 lakhs in 20 years and 30 lakhs in 30 years. If you are thinking like this, then you are thinking wrong because look at the magic here. As soon as you calculate it for30 years, the game will be here for 250 million.
Now it is not30 lakhs. This is the magic and you have to understand this magic that the compounding works in this way.
It is possible that you are surprised to see this figure, but you will get this calculator on the internet. You go and calculate it yourself. So this is an example of 3500 rupees. Someone’s capacity can also be of 35000. So instead of 250 million, there is 25 crore rupees, almost 24.5 crore rupees you are seeing.
So 24.5 crore rupees you are seeing here, so it is not wrong. If you get a 15% return, according to 30 years, then your SIP of 35000can earn you almost 24 crore rupees.
Now you figure out yourself that you can invest35000 or you can invest only 500 rupees a month. 500 rupees’ month also becomes 35 lakhs. Today we do not know when 500 rupees are spent, but if your puta good habit and start investing, then you can do a lot for your future generations. Now definitely30 years is a big horizon, but you think according to your goals. For whom do you have to invest?
Yourself, you have to do it for yourself. Even then, instead of 30 years, this year can be 5 years,10 years can be according to your goals, but your money will increase if you invest. Because if you did not invest, then you just understood the rule of 72.
The rule of 72 says, I am explaining the rule of 72 again. The rule of 72 says that if you were getting interest according to the investment, then the money was doubling in 6years. Okay, we also understood it.
Now I ask you a question. Today you have money attached to your house. It is possible that you already have 10 lakh rupees attached. I took the example; you have 10 lakh rupees attached. You just tell me this much that if you did not get interest, money is attached and the inflation has increased.
We take the scenario of the worst, that inflation increased by 7% and in the next 10 years, how much will be your10 lakh rupees in 10years? So you keep calculating it, I will give you the answer. It will be half. It will be worth 5 lakh rupees and in the next 20 years, it will be half. It will be one-fourth and only 2.5 lakh rupees will be left. So when we said 2.5 lakh, we said 5 lakhs, 10lakh will be there, then it is also decreasing.
If you have not learned to increase money, then automatically what is attached to you will start decreasing and you are going to use it against yourself. So what are you going to do today? You are going to be a smart investor. You are going to use this compounding against yourself. Do tell by commenting. This blog can be very interesting for many people. So do share this blog.