Become Rich Beyond Your Imagination

Power of compounding is a simple principle which can make you rich beyond your imagination. I personally know one person who used to work in a private company with a handsome salary of 15000 rupees per month in 1995, but today he is a very rich man and he is a good friend of mine. It is very inspiring to know that only two things made him so rich - disciplined investment and power of compounding. He started by investing just 1 lac and had a very simple strategy. Every year he used to wait for markets or specific stocks to correct and after correction was over he used to invest his money. After correction in the stock market, most of the stocks show a very positive rally. His idea was to invest in few selected blue-chip companies and sell all his stocks after 20 % profits. Due to the rally 20% profits were sometimes achieved in just 30-50 days but still he would not hold any shares after getting 20 % returns. The total amount received after the transaction was never touched and was kept ready for re-investment. Next year again he used to save 1 lac from his yearly income and add that into his previous total for re-investment. After correction he used to invest all the amount for another 20 % returns. Sometimes after getting 20% returns from one stock he noticed that another stock had corrected giving him an opportunity to earn another 20%  in the same year. Table below shows how exactly he accumulated so much wealth with this method. Here I consider that stocks corrected only once in a year.

Actually the amount of my friend's wealth is much more than this. It is because over the years his salary has increased and so has his yearly contribution. Now his yearly investment has increased to 3 lacs. If today someone follows this method and invests 3 lacs every year then he would reach an amount of almost 60 lacs in 8 years and almost 2.5 crores rupees after 15 years. Most of the experienced traders in the stock market will tell you that 20 % rise in stock prices after correction is a very common thing. Now the question is that why does everyone not follow this method. The main reason for it is that finding out whether correction is over is not very easy. However, if you carry out regular research on markets and are ready to wait patiently then you can follow the same path.

Short Selling : Explained

When you buy stocks its called ' long ' and when you sell stocks which you have not bought is called ' Short Selling '. Now the question that comes to your mind is how can someone sell shares which they have never bought. Actually when you short sell stocks then you borrow them from your broker. Now what you borrow must be returned too. So you have to buy same number of stocks after some time - it is called ' covering the short '. A trader short selling in futures has to buy back on or before the expiry date of the futures. If a trader has short positions in cash then he has to buy on the same day. Here stocks are sold at a higher price and bought at a lower price. So if you are buying at low price and selling at high price then it means profit. In this case its just doing the opposite i.e. selling first and then buying later.                                

 Why the word Short Selling ?
 Let's break up these words. Here word ' short ' means that trader is short of the shares that he is trading. Second word ' selling ' means selling the stocks which he is short of.                               
Here also the trader uses market fluctuations to his advantage. However, it is more risky than going ' long '. Let's find out the reason for this with the help of an example.
A person buys 1000 shares of a company called SSS at the price of 50 rupees per share. He wants to do ' Day Trading ' and expects that the price would come to more than 50 rupees per share. But near to the closing minutes of market the price reaches 47 and he does not expect the price to come to even 50 in remaining few minutes. He is under a loss of 3000 rupees so he decides not to book the losses and hold those 1000 stocks. He has money in his account and holds these 1000 stocks. The next day the price of the stock comes to 51 and he sells at a profit of 1000 rupees ( note that profit is not exactly 1000 rupees as some money is charged from broker in the form of commission fees ). 
Now on some other day same person Short sells 1000 shares of same company called SSS at the price of 50 rupees per share. He expects that the price would come to less than 50 rupees per share in that day. But near to the closing minutes of market the price reaches 53 and he does not expect the price to come down to even 50 in remaining few minutes. He is under a loss of 3000 rupees but does not want to hold decides to book the losses. This is because in case he wishes to hold the shares then he has to pay interest charged on the stocks because he has borrowed it. So holding short position for a long time can be very costly. However, in F & O there is a provision to hold stocks without any interest charged. But this can be done only till the expiry date of F& O.                              
There are other reasons too that makes Short Selling riskier :                                                                

 1. If the company declares dividend, bonus or right issue during the period you hold the stocks, then it has to be paid by you to the lender because in reality he owns those shares.

2. At the most price of a stock call fall by 100% and that too when the company looses its business and its stock loses all its value. But there is no upper limit for the stocks. So your losses can have no limits.

3. When stock prices go up a remarkable development takes place which is called ' short squeeze '. What actually happens in this is that when stock prices start rising upwards more and more sellers rush to cover the shorts ( it means to buy the stocks which were short earlier ) . This ' short squeeze ' causes huge demand for the stock as both buyers as well as sellers rush to buy the stock. When the demand for the stock rises its price also rises. So the person having short positions bears heavy losses.

4. Generally the stock prices rise. So shorting means going against the general trend.  
Short selling can give you a lot of profit especially in a bear market. But we know that no one can predict the markets. So considering the risks associated with it one must take extra precaution and must be absolutely confident before going for it. 

Good And Bad Aspects Of Online Trading

GOOD                      
        
1. Buying and selling is easier because you don't have to call anyone or go to your broker's office for trading. Just sit at your home, log on to the website and trade with the click of a button.
2. You can place limit orders. If you do not have time to monitor markets then you can place a buy and sell order of any no. of shares at your desired price. Once the stock price reaches your desired price then automatically shares will be bought for you. Later on if the stock price reaches your desired price again the shares will be sold automatically. When you check your account after an hour you will see the profits or loss.
3. Dividends are directly deposited in your trading account.  
4. All transaction statements ( present and past ) can be seen with the click of a button.  
5. Various trading softwares / tools are available which help in taking better decisions.      

BAD    
                                                    
1. Everything depends on one click. If you click at the wrong place then result may be completely opposite.
2. Internet security is a great concern. Your computer could be hacked. If somehow your login id and password reaches wrong hands then consequences can be fatal.
3. Due to technical reason you may have to bear losses without any mistake of yours. However, chances of such technical faults are rare. 
4. Slow computer speed may cause trouble in buying stocks at desired prices.
5. Stock market is very volatile. The stock prices change every second. Due to this placing an order can sometimes be very difficult. You may place an order at a price and later on cancel it after watching a different price.

Types Of Trading In Stock Market

There are three ways of trading in the stock market. These are Day Trading, Position Trading & Swing Trading. Anyone can trade in any of these ways to earn money but he must keep himself updated about the markets and the company in which he is invested. Now let's quickly understand basics of these three types of trading.

Day Trading or ' Intraday ' - In simple words it means buying and selling shares on the same day. In this type of trading main thing is to use the daily price fluctuations to your advantage. A trader generally buys shares when he anticipates the price to go up. He waits for some hours or even minutes and sells it when price rises. After the introduction of internet it has become more popular with traders. A trader can also sell stocks when prices are up and buy later when the stocks are down - ' Short Selling '. A day trader continously monitors market during trading hours and can trade any number of times in a day. In ' Day Trading ' commission fees is least & a trader can trade upto 4 times the money he has in his account. This kind of trading involves more risk but its more exciting and can turn out to be a fast earning option also. But research shows that day traders lose more money than people who buy stocks and hold for long terms. So for beginners its recommended to trade very few shares ( like 5 share of rs 50 each ) before getting hang of it and then go for large numbers. However, people who get easily exited about things in life must completely avoid it.  

Position trading - In this the trader buys stocks and holds it for some months. The trader buys stocks after proper research. He may not monitor the stock market closely during trading hours but keeps himself informed about the economic changes which could affect the market and also about the company in which he has invested. Stocks are bought taking into consideration a longer view of the company and the market. The risk involved is less than Day Trading because the trader does not have to sell stocks in a day.  

Swing Trading - In this stocks are monitored for weeks or months before trading. Although a swing trader may not spend hours monitoring the markets closely but he gives more time monitoring fundamental and technical analysis of the company. He carefully studies financial reports and profiles of the company. Most of the Swing traders study only about few certain sectors and as a result they become experts in those sectors. They are able to predict movement of stocks within their chosen sectors more accurately. This way trading becomes less risky and the trader does not have to give his full time to monitor the market. It suits people who are willing to give time to study markets and have patience to wait for good returns.

What Is The Difference Between Stocks And Futures ?

If you are new to the stock market then you must have heard words ' stocks and futures ' and wondered what is futures. One main thing to understand is that trading in futures involves a lot of risk is not same as trading in stocks.
Here is the comparison between the two :

           Still confused ? Don't worry. Now let us understand futures contract with the help of an example : Consider that this is the month of February. You have been told by your friend to trade in futures for better profits. The reason is because you will have to pay less for number of stock futures purchased and only you will have to pay ' margin money ' plus lower commission fees. This means that you can buy more shares for a lesser price. So you decide to buy futures of a stock called SSS for the month of march. You call your stock broker and ask about details of stock futures of SSS. You are told by your broker that one ' lot ' of SSS contains 75 shares and ' margin money ' per ' lot ' is 20000 rupees. You have 50000 rupees in your trading account and current market  price of SSS stock futures for the month of march is 1000 rupees. So you decide to buy two lots of SSS futures which means 150 shares. Once you buy the two ' lots ' 40000 rupees ( 20000 per lot ) goes from your account in the form of ' margin money ' plus the brokerage. Now you have less than 10000 rupees left in your account. Suppose the price of share of SSS increases by 100 rupees then you will have option of taking profit of 15000 rupees ( 150 * 100 ) by selling those two lots. Now if you sell the futures and take the profits ( 15000 rupees ) then it means that you have made remarkable profit of  30 % within a month. However, you must have noticed that the stock price had risen only 10 % which normally happens in the stock market. Now let us take the same case but instead of stock price rising by 100 rupees we consider that it has fallen by 100 rupees. As soon as the stock price falls by 100 rupees you can get a call from your stock broker. He may ask for deposition of more money as your loss has reached to 15000 rupees and that means after deducting 10000 rupees from your account you still have to pay 5000 rupees  more to pay for the loss. this kind of call is called ' margin call '. If you don't have money to deposit then either you will have to sell the futures lots at a huge loss or even the broker can ( read will ) sell your futures lots. So in this case you will have to bear a huge loss of 30 % in a month. Also it is important to note that when stock prices fluctuate a lot then ' margin money ' is increased. So if in this case you had 60000 ( instead of 50000 ) in your account but ' margin money ' per ' lot ' had increased to 25000 rupees after few days of purchasing then also you would have landed in a similar position. So it better to understand the risks associated with trading in futures before going for it.  

22 Basic Rules Of Investment In Stock Market

There are many basic rules of investment in stock market. Here is a list of most important ones which I have learned over the years through my experience.                            
1. Would you gamble in a casino without knowing rules of the game? Of course not. Same way never invest without having a basic understanding of the stock market. Stock market never forgives and has no emotions.
2. No one can time the market. Not even the best of analysts whom you may have seen on TV ,magazine or a newspaper. If they could do so they would be rich like anything and wouldn't be trying to earn by giving tips to others.
3. Overconfidence is harmful in all aspects of life. This is true in stock market too. Do not increase your investment if you have had success just once or twice.
4. Do not trade with emotions. Emotional traders lose more than what they earn.
5. Keep in mind that you cannot always be right. But remember that stock market is always right. If you short in bull market or you go long in a bear market then you are most likely to lose money. Easy method is to always follow the market.
6. Do not invest all your money in a single stock, no matter how positive the news is. Diversify your investments. This will reduce risk of heavy losses.
7. NEVER ever take a loan and invest your money in the stock market. An experienced person will never advise you of that.
8. Do not blindly trust any analyst or a trading software. People claim to have best of knowledge about a stock and they advice others to invest in a stock. But actually their earnings are not from investing in that stock but by selling you these advices. These advices can be seen in a magazine, television, stock brokers, research analysts etc. It is always better to do your own proper research. It would not take more than 7 hours in a week to find a good stock to invest.
9. Start booking profits partially when the markets are high. Do not wait for a correction. Partial profit booking means you will keep increasing your cash reserve with the rise in markets. So with lot of cash in hand, when market falls you will have a good amount to invest at low prices.
10. Cut of your losses. Also you must avoid increasing your losses by investing more and more in a falling market. It may come as surprise to most of you but most of the investors hold on to a stock when it's price is falling day after another and later on sell it at huge loss.
11. Buy at low price and sell at higher price. Most of the investors track a stock for few days and buy after its price has already risen a lot ( Overbought ). Later on they either sell at a loss are get stuck in a stock for a long time.
12. Huge sums of money have not been made by trading daily but by investing for a long term. Look for long term trends of the market and a company. Returns of 20-50 times or even more can be earned if you invest in a multibagger stock for a long term. 
Read: How To Identify A Multibagger Stock ? 
13. When markets are rising everyone seems to be bullish and when markets fall all become bearish. Best of traders are the one who don't follow others but instead look for signs of trend reversal. Imagine how much money you would have made if you would have predicted SENSEX to rise from 8000 levels in 2009.
14. Do not chase a stock. Keep cash ready and wait for the right price or invest in some other stocks. Your wait might be a long one but remember " everything comes to him who waits ".
15. Do not invest in Futures & Options without having good understanding of it or else it might be your last trade.
Read - What Is The Difference Between Stocks And Futures ? 
16. Over-indulgence must be avoided. There are too many experts in the market ( television, magazine, analysts, brokers etc. ), it is advisable to think before you act. Do not keep changing your portfolio on the basis of these recommendations. Again I would recommend you to carry out your own research before taking any action.
17. Remember that two forces that drive the market are fear and greed. When market was at 21K levels everyone seemed to be bullish. Reports were that SENSEX would soon touch 25K levels. People who could not control their greed bought more and more anticipating huge profits. Later on when SENSEX fell to 17K levels in two days, these people found themselves under huge loss. Same way when SENSEX was below 8K levels there was so much fear in the market that people did not consider it as good investment opportunity. Most of them wanted to wait for the SENSEX to fall to 6.5K levels. Unfortunately they never saw those figures and missed a golden opportunity of investing.
18. Most often stock market moves before the news is out. By the time everyone comes to know about the news, the stock price may already have moved. So if you wait to invest till the news is out you may miss the train.
19. Just like in any other field a good trader must have two qualities- commitment and discipline. People who trade in the stock market just on the basis of their luck are mostly losers.
20. Don't go for penny stocks. Certain unheard stocks rise by 20-50 % in just 2-3 days. This makes many traders to jump into that stock. However, most of the times the prices of these stocks jump on the basis of rumors and later fall more than by 20-50 %. In every bull run certain penny stocks outperforms the SENSEX or NIFTY and they are considered a hot pick by most of the traders. But when market falls these stocks are worst hit. These are the kind of stocks that can ruin all your investments.    
Read: 10 Mistakes That Causes You To Lose Money In Stock Market
21. Be very cautious when you notice that only one trend is visible. Stock market is not uni-directional. If it is going in only one direction then there are lot of chances of a sudden trend reversal. 
22. Avoid opening an account in a small local broking firm. In Jan. 2008 market fell from 21 K levels to 17 K levels just in two days. At that time buying stocks was not possible in nearly all small broking houses. This happened because people who were trading in F & O had to bear heavy losses so there was lot of margin pressure on these broking houses/ private brokers. Due to this, the stock exchange only allowed these brokers to square off the position of the current traders. Many traders had money to buy stocks but could not do so because of this problem. People who had accounts in a well established broking houses e.g. HDFC did not face this problem. Apart from this there are also many other advantages of choosing a well established broking house.

How To Identify A Multibagger Stock ?

Multibagger stocks are desired by everyone. One multibagger stock alone can earn you more money than what you may earn in years. Here are some useful guidelines to find out a multibagger stock :    

1. Check out a company which has a very good business. Also the company's business must be in a sector which has a good growth story behind it. 

2. Find out order value of the company. A company with good order value shows the business solidarity of the company.

3. Look for a midcap stock which has capability to become a largecap. History tells that many a midcap have become large caps and in the process have turned out to be a multibagger. A potential mid caps stock rises more quickly than bluechip companies. Its better to opt for a company with market capital of less than 1000 crores. 
4. Find out if the company has any expansion plans. A company must have expansion plans like increasing its turnover or diversifying its business into other sectors.

5. EPS of a multibagger stock should have increased over past few years. Find it out from its previous data.


6. Look for a company which has a new innovative idea which might have great future potential. This can be like introduction of new technology in field of education, automobiles, treatment of diseases, generation of power, agriculture, reducing global warming etc. 

7. A multibagger company usually pays regular dividends. This shows that it is ready to share profits. But if a company is paying too much dividend then you should be cautious. A company with expansion plans will not pay too much dividend and leave nothing for itself.

8. Don't ask somebody else to do the research for you. Research yourself and after picking your stock be confident in your stock pick. Stay invested for long term. Do not loose hope in your stock even if the market crashes. A stock with future potential can even go upwards in the falling market.

10 Mistakes That Causes You To Lose Money In Stock Market

There are many mistakes which cause people to lose money in equities but here are some important and most common ones :

1. Lack of knowledge : Most people don't have sufficient knowledge or should I say basic knowledge about the market. They trade because either they have been advised by someone or because they have done their own incomplete research. Most common example of own research which I found is that often people feel that price of a particular stock has fallen so much from its high that now its like a gold mine. People invest heavily in these stocks without finding out why the stock price had fallen and the final outcome is a disaster. Stock market never forgives and has no emotions.
2. Overconfidence : It is not necessary that once your research has brought you gains then same would happen again. People who are new in this field often get overconfident after tasting success once. They increase their investment greatly without calculating personal risk appetite. Loss occured under such circumstances is huge and normally dries their savings. 
3. Running after a stock : I personally know so many guys ho have lost money because they were chasing a stock. A perfect example is stock of Ackruti city in the year 2008/2009. This stock was running upside even when whole market was heading towards a new low. It was at 600 in Dec 08 and in March 09 it was at 2350. You must be thinking what if i had bought this stock. Well don't worry if you did not buy this stock because those who did not sell it had to see a price of 330 in next month. Most of the people could not get out of this stock as it was hitting lower circuit day after day. Imagine what if you had bought it at 1000 when the stock was going up and was waiting for it to cross 2500 mark. Even if you had bought it at 600 when the stock had already fallen from its high you would have made huge loss. So running after a stock when its going down should also be avoided untill you have done proper research on the stock.
4. Portfolio not diversified : If you have invested all your money in a single stock or sector or a mutual fund then you are at a great risk of losing money. If your stock goes down due to any reason or the sector in which you are heavily invested then you will be have no other stock/sector to provide much needed support. Often people don't understand how to diversify and importance of risk management and they invest in sectors or stocks which are not suitable to them. 
5. Fear and greed : Fear and greed are two forces that drive the market. Fear will make you sell at a loss or at a lesser profit and greed will make you hold it a little longer till the stock tumbles or will make you invest heavily in a particular company. So keep your emotions away when you trade.
6. Over-indulgence : Over-indulgence must be avoided. There are too many experts in the market, it is advisable to think before you act. Advices keep on changing daily. Changing your portfolio every now and then on the basis of these advices is not at all recommended. Many brokers offer a lot of advice. The reason is that they earn on every stock, when bought and also when sold. More you trade more they earn.
7. Futures and options : Trading in futures and options without proper knowledge can sometimes be your last trade. Every year thousands of people exit stock market forever after suffering heavy loss by trading in futures and options. It is very very important that you understand every aspect of it before trying. It is widely known that many rich men became poor overnight because they were trading in futures and not in cash. Its actually better to go at your broker's office and learn from other's mistakes who trade in futures and options. Do not trade in futures and options if you are new to the market. In the beginning it appears that you can make a good fortune out of it. You might also earn when you start. But if you don't have proper understanding about trading in futures and options then its alsmost certain that someday you will end up losing money from your pocket. My friend once spoke very funny but sensible words " If you trade in Futures you will ruin your future".
8. Investing by taking loan : NEVER ever take a loan and invest your money in the stock market. An experienced person will never advise you of that.
9. Following others advice : A new trader thinks that all he needs to do is switch on the television and just note down some expert advice on the stocks. If it was so easy then I would'nt be writing this article and you would'nt be continuing your job. Some people take advice from anybody, these may be friends, relatives or even an unknown person. They don't seem to understand that the origin of some of these advices are just a rumour which passes from one person to another.
10. Non-stop buying : Some people just buy stocks no matter what the situation is. If the stock price falls by 15 % they buy. Then whent it falls by 20 % they again buy and regularly do it till the stock has fallen considerably. Later they notice only one trend and that is downwards. These people either get stuck in that stock for a very long time or book heavy losses. So it better to find out the reason of decline instead of rushing to buy. 

An Introduction To The Stock Market: PART-2

What is ' BULL market ' and ' BEAR market ' ?
An extended period of time when majority of investors are buying stocks and the stock prices are rising is referred to as a ' Bull Market '. An extended period of time when majority of investors are selling stocks and the stock prices are falling is considered a ' Bear Market '. 
What is dividend and bonus shares ?
' Dividend ' is the portion of company's profits which is paid out to its shareholders ( remember if you own a share of a company then you are legally associated with its profits and losses ). So if you own more shares then you get more money in the form of dividends. The amount of the dividend is decided by the board of directors of the company. So suppose SBI informs that it is paying dividend of 10 rupees per share and you hold 500 shares of SBI. Then after a pre-decided record date you will get 5000 rupees ( 500 * 10 = 5000 ). Also the price of its share will be adjusted accordingly and will drop by 10 rupees. Similarly ' Bonus shares ' means dividend paid to shareholders in the form of shares. Sometimes a company is not in a position to pay dividend in the form of cash. So it issues bonus shares to its share holders. One of the reason why this happens is due to unsatisfactory cash position of the company. The number of the bonus shares is decided by the board of directors of the company. Now consider you have 500 shares of SBI at current market price of 1000 rupees per share. Now SBI announces bonus shares at a ratio of 1 : 1 ( it means 1 share free for every one share held ). Then after a pre-decided record date you will get 500 extra shares. Also the price of its share will be adjusted accordingly and will become 500 rupees per share. So now you will have 1000 shares of SBI at a price of 500 each. But if a company has some expansion plans or some other reason, it can decide not to issue bonus shares and/or dividends instead of huge profits. In such a situation, the company keeps large cash position with itself for future investment and the price of share is not adjusted.
Why are stocks categorized in different sectors ?
There are so many companies which offer different kind of products or services. E.g. SBI is a bank, INFOSYS is an IT company, DLF is a real estate and infrastructure company etc. These companies are categorized in different sectors according to their business. This way its for everyone to know the basic business of any company and compare it among other competing companies.
What kind of stock broker should I choose ?
To buy shares you should have a broker who will buy shares on your behalf. Since we are in an era of internet it is advisable to choose a broker which provides facility to trade via internet. A broker should be well established in this field, should have a good team of research analysts to provide you with good stock buying tips and should be the one who charges less brokerage fees. This fees is charged by the broker whenever you make a transaction i.e. buy or sell.
How to find out profit making stocks ?
Finding out good stocks is not an easy thing to do. But there are some useful points which should be considered before choosing a stock. These are :                            
1. The company should be among the leaders in its group.
2. The company should be under good & smart management.
3. The company must have a strong brand value.
4. It should promote innovative ideas and technology for the future.
5. The amount of debt should be very small for a company. ( Debt-equity ratio not more than 0.5 )
6. The owners must have a high stake ( at least 30 % ) in the company.
7. The company must have expansion plans for the future.
8. The company must have a solid and scam free background.
9. The company must have sufficient cash reserves for future investment.
10. It should have high profit margins as compared to its competition.
11. The company must be growing at a good pace.
12. It should have a higher average return ( at least 15 % on equity).

Read : How To Identify A Multibagger Stock ?                                            
It may seem very difficult to find good stocks which meet all the above criteria but actually its not. Its just a matter of doing proper research. These days internet offers so many websites by the help of which it easy to carry out a research. All the information mentioned earlier can be found in the annual report of a company and its profiles. But to actually be able to carry out a research you must have good knowledge and understanding of the stock market and for that you must trade. Remember, no matter how much somebody explains still you cannot learn how to drive a car unless you actually sit on the driver's seat and drive it. So research and research more because the main reason why people lose money in the markets is because they don’t carry out proper research before investing. Some people say that investing in the stock market is like gambling but if you carry out a proper research then I am sure that you will earn handsome profits.

Read : 10 Mistakes That Causes You To Lose Money In Stock Market                                  

An Introduction To The Stock Market: PART-1

If you have ever asked what is Stock market but could never get a satisfying answer then don't worry as now your prayers are going to be answered.

What is a Stock ?                        
In simple words a stock represents ownership of a company’s assets and profits and to be associated with its losses and liabilities. Each stock has a stock symbol. e.g. Reliance Industries Limited has a symbol ' RIL ' . This symbol is used in the stock market instead of full name of a company. When a channel related to stock market is selected on a television we see these stock symbols scrolling at the bottom of the television screen.
What is a Share ?                        
Share of a company represents ownership of it. Total no. of shares you have represents total amount of ownership you hold in that company.
What is an IPO ?                        
Now what is an IPO ( Initial Public Offering ) ? To explain this let's consider a company ( worth 600 crores but not listed in stock market ) wants some money to expand its business. So in order to raise this money or funds either it can take a loan or can sell some percentage of its business and receive cash in return. Suppose it decides not to take a loan and sell some of its stake. Now if the company calculates to sell 25% of its business to meet its fund requirements then it needs a buyer for that. We know that 25% of 600 crores is 150 crores. But it is not easy to immediately find a buyer who can invest 150 crores in a company's business.  So the company decides to break this 150 crores into 15000000 ( 150 lacs ) parts, these parts are called shares. So price of each share becomes 100 rupees ( 150 crores divided by 150 lacs = 100 ). Now with this break up of 150 lacs shares of 100 rupees each it is easy to get buyers who don't have to spend all 150 crores. But its not easy to find so may investors who could altogether buy all 150 lac shares. So to solve this problem the company decides to go to the public and issue an IPO. This means that now shares of this company can be bought and this company will be listed in the stock exchange.
What is stock exchange and what is the use of stock exchange ?
A stock exchange is an organised marketplace where shares of a company can be bought and sold legally. It is regulated under the laws of the government. The advantage of a stock exchange is that buyers and sellers are connected electronically without the company of the stock taking any trouble for it. The stocks can be bought and sold with the blink of an eye. For buying stocks no training or degree is required. A person with some money, passport sizes photos, address proof, a bank account, a demat account and a PAN card can buy stocks.
What are the timings of Indian Stock market  ?
Market Opens at  : 09:00 hours ( From Monday to Friday except holidays ) Market Closes at  : 15:30 hours ( From Monday to Friday except holidays ).
How can one make money from stock market ?
Actually there are two ways to do so. We all know that the price of a share continuously swings ( almost every second ) and this is the feature that allows us to earn profits. One way is by buying shares at a low price and selling when they are at a higher price. The second way is by first selling shares at a high price and then later buying at a lower price -- it's called short selling. The second method involves a lot of risk, so for the beginners its advisable to forget the second one and concentrate on the first. As a company grows and becomes more and more profitable the share prices of the company also increase. However, it takes time for a company to grow. That's why for higher returns it is advised to choose a good company and remain invested for long term .
Why does stock prices swing so much ?
To understand this let us consider two cases :
Case 1 - There is only one shop in the city which sells apples. Now when everyone comes to know about it they all go to the shop to purchase apples. The shop is flooded with buyers & shopkeeper being a smart guy increases the price of an apple from 50 rupees per kg to 60 rupees per kg. But still he finds huge number of buyers flooding his shop. The reason is because no other shop is available for the buyers, so they are willing to pay extra. He again decides to raise the price to 70 rupees per kg. Now he notices that the number of buyers have reduced but still they are too many for him to handle. He again increases the price and continues to do so till he feels that the number of buyers are now reduced to a level which he can handle. 
Case 2 - There are many shops on a street which sell apples. The cost of apples in all the shops is 50 rupees per kg. One of the shopkeeper notices that no buyer comes to buy apples from his shop. He feels that if the things continue same way then he might have to stop his business.  Now this shopkeeper displays a board which says apples at 40 rupees per kg. He finds some buyers in his shop but still he wants more buyers as the apples might rot after few days. Now he starts selling apples at 30 rupees per kg. Now he finds that all his apples are sold and none have gone waste.  In first case the price of apples increased because of huge demand and less supply. But in the second case the price had to be reduced because there was little or no demand and the supply was abundant. The same thing happens in the stock market where instead of apples the shares are being purchased and sold .
Where does this supply and demand come from ?
Demand comes from the investors who are willing to buy a stock. When a investor thinks that a stock is worth more than the current price then he is willing to pay extra to get it. This normally happens when a company is expected to report better profits, when a company reports to have huge expansion plans, when analysts suggest positive upmove for the stock or when there are news that some large company is going to buy stake in their company etc. The demand also arises when the stock prices have fallen a lot and there are not many people willing to sell their stocks at such low prices -- this condition is called oversold. Supply comes from the investors who are willing to sell their stocks. If they think that value of a stock is going to reduce more than the current market price then they are willing to sell it for less than current market price. This happens when a company reports loss or lesser profits or if there are doubts about company's business plans. The supply also arises when the stock has jumped a lot and there are not many buyers at the current high price -- this condition is called overbought. 
When does a company reports its earnings ?
All companies listed in the stock exchange have to report their earnings four times a year. This quarterly report is given every three months. Each set of three months is together called ' quarter '. Thus there are 4 quarters in a financial year.
What is ' SENSEX ' and ' NIFTY ' ?
The SENSEX includes thirty blue-chip stocks such as Reliance Industries Ltd, ITC, SBI, L&T etc. It is an average of these thirty blue-chip stocks. These are big well-established companies and are considered to be pioneers in their sectors. If the SENSEX rises then it's considered that the economy is doing good. But when it falls, it is considered that the economy is not doing so well. Similarly NIFTY is an average of 50 blue-chip companies. BSE Midcap index, BSE Smallcap index, BSE BANKEX - Banking Index etc. are some of the other indexes but SENSEX and NIFTY are the ones which are widely followed.
Read: An Introduction To The Stock Market: PART-2

Child Mutual Fund Vs Child ULIP

Features That Your Child Plan Must Have…

There are many child plans in the market and each claims to be better than the other. In this scenario choosing a child plan can be a confusing job. Here are some important points which must be considered before choosing one for your child :

1. Chose a child plan only when your term of investment is at least 10 years otherwise the returns will be lower.                            

2. Make sure that insurance cover is on the parent and not on the child. Plans which have insurance cover on the child must be avoided.              
            
3. Your plan must include ' Waiver of Premium ' benefit. ' WoP ' or ' Waiver of Premium ' means that in case of death of the parent all future premium payments will be discontinued but the maturity value will be paid out as decided by the parent.                            

4. If the parent does not wish to have an insurance cover then child mutual funds must be considered. Also note that unlike ULIPs returns on mutual funds are tax free if invested for long term ( more than 1 year ).
Read - Child Mutual Fund Vs Child ULIP

What Are The Benefits Of Child ULIP

With the rise in cost of education parents are left with no other choice than to look for an investment option which could take care of their child's education and marriage. Investing in a child ULIP can be a good option to secure your child's future . Here are some benefits of a Child ULIP.

1. The plan allows investment in debt and equity together. This will reduce risk associated with investing only in equities and will also provide better returns than a debt fund. However, you can chose to invest maximum amount in equities.                            

2. If you expect the market to fall then you can to switch over to debt funds within the same plan to avoid equity related threats.                            

3. Payment of premium can be stopped after the lock-in period. But in this case returns will be very less.
                          
4. It provides insurance to the parent. In case of demise of the parent The sum assured is paid to the nominee.


5. In case of demise of the parent all future premium payments will be discontinued but the maturity value will be paid out as decided by the parent.
                           
6. Partial withdrawal can be made from time to time.        
                  
7. Sum assured can be chosen by the parent. Returns will be higher if sum assured is reduced. 

A child ULIP seems to be a good option but it should not be used for a period of less than 8 years. For short term profits are less due to higher cot of charges. Longer the period of investment better are the expected returns on your investment.
Read - Features That Your Child Plan Must Have…

You Need At Least 70 Lac For Your Child

I know this may come as a surprise to a lot of readers but on the basis of simple calculation more than 70 lacs will be required to secure future of a single child.  To find out the real reason behind it just check out the below table. Here we have considered 7.5% average rate of inflation for next 21 years and age of the child - 3 years. 

Here it is important to note that expected amount for the future can vary for an individual, depending upon many factors. These can be :                                                               

 1. Age of your child.                            
 2. Type of degree for graduation or post-graduation.                            
 3. College in which your child studies.                            
 4. Average inflation rate.                            
 5. Child's marriage depends upon your future financial status, love or arrange marriage etc.

Considering above factors you can calculate expected future amount for your child.

Read - Common Formulas Used In Investments

To arrive at such a large corpus you must start investing now. Do not worry if your monthly savings are less than the required investment. Invest whatever amount you can. Remember as your income increases your investment can also increase.

Read - What Are The Benefits Of Child ULIP

Do's And Don'ts of a Retirement Solutions

With the introduction of a society where joint family system is a thing of the past and unexpected rise in inflation, retirement planning is a must. Only 5% of the jobs provide pension. People with remaining 95 % have to work out a plan of their own. Just investing money in insurance, PPF and FDs may not help. There are lot of other things that you should be aware of. For a comfortable and debt free retirement you need to acquire a lot of wealth. There is a long list of Do's and Don'ts of retirement solutions. Here are the main points which should be considered and followed for a happy retirement.

ULIP Sold As A Mutual Fund

There seems to be a fight going on among the insurance agents to sell their products. Some of theses agents cross their limits and thus misguide the investors. This is because of large commission for the agents in insurance related schemes which results in mis-selling of the products. One such case that I have came across few years back was selling of a ULIP as a mutual fund. One of my friend's cousin wanted to invest in mutual funds. His name was Amit. He wanted to invest 4 lacs but he did not have good knowledge about mutual funds. So he called the bank where his account was and asked them to send someone to his house for investment. After an hour one agent from the bank came to his house with blank application forms of various fund houses. The agent soon noticed that Amit was new to the field of investment. So he took Amit into confidence. He asked Amit to keep 1 lac in his bank account to deal with any unexpected need of cash. Then he asked Amit to diversify his investment and advised him to invest 1 lac each in three different funds. He told that all the proposed funds had been giving returns of around 50 % per annum and also promised that in bad market conditions too the returns would not be less than 30 %. Amit was very happy with the agent and decided to do exactly the way he was advised. After completing the formalities the agent told him that one of the proposed funds would also give him insurance cover of 5 lacs. This investment was in a ULIP but Amit had no idea about it. Amit was satisfied and thanked the agent for his advice. After one year he found that one of his investments had returns in negative. So he went to the bank for the redemption of the non performing investment. Over there he was told that the non performing investment was in a ULIP and he cannot redeem it before 3 years. He was also told that he has to invest 1 lac for every year for at least two more years. He asked the bank about consequences of early redemption. He was told that if redeemed he would get around 40000 rupees only. Amit felt cheated and tried to contact the agent. The agent was no longer working in the same bank. When Amit called on his mobile number the agent showed no interest in the argument and disconnected the call.


What to do ?
1. Research about top mutual funds before signing the papers. All good performing funds can easily be found on the internet.
2. Chose funds as per your risk appetite.                       
3. Have a knowledge about the FREE LOOK PERIOD of ULIPs.
4. Take advice from your elders. If getting advice is not possible then talk to other agents regarding investments. Ask their opinion about the funds proposed by other agents. Listen to what they have to say. A good mutual fund will receive good reviews from most of the agents.

Bought A Policy But Never Got It

These days a new kind of scam is in news. Let's understand it with the help of an example - Manoj decided to buy an insurance policy from an agent. He called the agent to his house and properly verified the offer document before signing. He issued an account payee cheque in the name of insurance company. After two months he got worried as he did not receive the policy bond. So he decided to call the agent from whom he had bought the policy. He tried for two days but could not contact the agent because the agent's mobile number was no longer in use. Then he went to the company's office to find out the problem. There he was told that the company had no records about his policy. He showed a photocopy of the cheque issued by him and also contacted other senior officials of the company. In spite of all his efforts  he never received the policy bond or his money back.

What to do ?
1. How these agents get money from an account payee cheque is still unknown. So bottom line is do not trust an unknown insurance agent.
2. If you don't know a reliable insurance agent then it's better to go to a bank personally and complete the formalities over there. At a bank you should not be cheated in such a way.

Credit Card Fraud

Some banks hire private parties to find new takers for their credit cards. These private parties are given certain targets. Now in order to complete these targets the parties try their best and sometimes cross their limits. One such case has also happened with me. One day I received a call from a girl asking me to take a credit card of a very famous bank. She told me about lot of benefits but I told her that I was not interested. I was about to disconnect the call but suddenly she started crying. She told that she has a lot of pressure to complete the target and she was lacking far behind. She also told me that there was no fee involved if a new credit card was taken or cancelled. Once again I told her that I was not interested. Then she told me that I don't have to take any trouble for it and she would send an agent to my house to complete all the formalities. She also told me that after one week she would send an agent to cancel the credit card. This way her target would be achieved and I wouldn't have to go anywhere for it. Somehow I got rid of her but later on I felt very bad for the girl. Then one day I came to know that the girl was trying to fool me. What happens is that some people try to help these girls and they decide to take the credit card. After one week a guy comes to their house to cancel the card. He completes the paper work and takes away the card. Later on they find out that somebody has used his cancelled card and had done a lot of shopping. When they go to the bank to find out the matter they are told that bank does not send anybody to cancel a credit card. Unfortunately the owner of the credit card does not even have documents to prove that he had cancelled it. What actually happens is that a guy comes to you house without any information from the bank. He completes all the paper work, obtains all your information and takes away the card. The card is not taken to a bank for cancellation. All the papers are thrown in a dustbin and the card is used till it is blocked.

What to do ? 
1. Don't give your credit or debit card to a stranger who claims that bank had send him for cancellation. Confirm it from the bank.
2. If you want to cancel a credit card then personally go to the bank.  

Dividend Fraud

Shahid was a govt. employee who had invested 2 lacs in a Mutual Fund ( Dividend ). One day he received a phone call from a fund manager. The manager said that he manages funds of SBI and wants to know if Shahid had received dividends on his mutual fund investment. Shahid was surprised to know that how did the caller knew about his investments. The caller told Shahid not to worry and also said that the mutual fund company has been contacting all its investors regarding the same issue. Shahid replied that he had not received any dividends on his investment. The caller said that many of the agents have been cheating investors and were keeping the dividend which were issued to the investors. He also told that Shahid should have received a dividend of 20000 rupees. Shahid was shocked to know it and begged for help. The caller told him that he would be sending a person to his house to solve the matter. After two hours a man came his house. He asked Shahid to issue a cheque of just 2599 rupees rupees in the name of fund manager and give a photocopy of his pan card. He said that as per the company's procedure the cheque would be cancelled by the fund manager himself and then a new cheque of 20000 rupees would be issued to Shahid after one week. Considering the smaller amount Shahid did not feel that he was being cheated. The man took the cheque as well as a photocopy of his pan card and left his house. After about two weeks when Shahid did not receive any cheque he went to the Company's office. There he was told that no such call had ever been made by the company and there was no dividend issued. Shahid knew he had been cheated. He tried to call the same fund manager but his call could never connect.


What to do ? 
1. Do not issue a cheque to any stranger. 
2. Never believe in such calls. A fund manager will never call all its investors ( He is a very busy person ).  
3. If there is a doubt then its better to find out yourself. These days it is very easy to find dividend related information about any mutual fund though Internet.  

Common Formulas Used In Investment

Simple Interest        

S.I. = Simple Interest          

P = Principal amount or Sum of amount      

R =  the annual rate of interest in the form of decimal e.g. 3% means r = 0.03

T = Total number of years you deposit money                    

S.I. = P*R*T/100                        


Compound Interest                                          
          
P = the principal (the money you first deposit)

r = the annual rate of interest in the form of decimal e.g. 3% means r = 0.03

n = the number of years you deposit your money

A = how much money you have accumulated after n years. This also includes the interest gained during n years.                            
If the interest is compounded once in a year :  
                        
A = P(1 + r)ⁿ                            

If the interest is compounded q times in a year :                        
  
A = P(1 + r/q)^nq                                                   


Formula for the amount of an annuity                                

Annuity - An annuity is a fixed sum of money which is paid at regular intervals.                                          

P = Sum deposited each year (beginning one year from when the annuity starts)

r = The interest rate, in the form of decimal e.g. 3% means r = 0.03

n = Total number of years the annuity has run.                  

N = Total amount accumulated after the end of n years.                                              

N = (P/r) ( (1 + r)ⁿ - 1)                                                    

So if 20000 rupees is deposited yearly for 20 years at 6%,                                              

N = (20000/0.06) ( (1 + 0.06)²⁰ -1) = 735711.8233 rupees

Money Saving Tips

If you are one of those who always wanted to save money but somehow ended up spending it then please continue reading.

1. Don't buy what you can't afford : We buy things which we like. But most often we don't realize that we might be spending much more than what we can afford. A second thought and calculating monthly budget must be done before buying expensive things.
2. Don't go for everything that's on sale : Sale items may not include everything that you actually need. But just because it's cheeper you go for it. One good example which I noticed in a showroom is that I saw lot of crowd had gathered over a counter. At the counter 20 rupees could be saved upon purchase of two pair of slippers. What people don't ask themselves is why it is on sale and do they actually need the second one. They assume that these slippers will be needed sometime in the future and hence it's bought. Now in order to save 20 rupees they spend much more than what they intended to. You might be thinking that even if they've spend extra in this month its not a problem because one day they will be needing the second pair of slippers and in that month they will save. But remember it becomes a habit, this month it is slipper next month it may be a shirt and so on and so forth. Also note that people may not only go for slippers but they may do the same for other items on sale.
3. Don't buy everything on credit : If you buy these slippers with a credit card then again you are not saving. You are just buying an unwanted thing and if you exceed your budget in that month then you will end up paying interest on it. Don't you think it sounds foolish.
4. Don't pay only the minimum amount on you credit card balance : Due to it you have to pay higher interest every month plus your savings will be lesser as you will stay in debt for a longer time.
5. Don't gamble with your hard earned money : You may argue that there are many people who have earned huge amounts by gambling in casinos,horse racing etc. The answer to it is that these so called people are either very very lucky or they have a very good understanding of the game that they are playing. 99.9 % of these rich guys know a lot more about casino's and horse racing than other gamblers. 
6. Don't be ready to lend money to your friends/relatives : Lending money to your friend/relative because he is in great need can sometimes be a bad option. One of my friend once said ' I never show all my cards '. This means that although he may be asking money from you but he certainly has many other options of getting it. When you lend money the borrower acts like a holy cow but when you ask for it he becomes a wild tiger. Trust me in most cases you will not get a single penny back or you may get it after a lot of time and that too in parts. More than 90% of people all over world have lost money lending to a relative or a friend. Make sure that you are lending your money to someone who has good bank balance, asset to his name. So that later on your relative/friend cannot say that he has no way to return it. Always lend money after consulting your elders or well wishers. Listen to what they think about the borrower's intentions. If possible let the borrower know that some people have a knowledge that you have lend money to him. The best way to say a NO to your friend/relative is that you have invested all your savings in stock market, mutual fund or a business and presently you are at a huge loss.
7. Don't spend your money as soon as you get it : Many people develop a strong urge to spend money after receiving their salary. They rush to buy a latest gadget or an expensive watch or a dress etc. This happens especially to those people who are either young or who don't have someone depending upon them. Best way to control this habit is to invest some money every month in a lock-in sort of investment like FD, ULIP's etc. for long term. The lock-in facility will not allow you to use the invested amount. These investments will grow over a period of time and will also supress your desire to spend money as soon as you get it.
8. Bargain before purchasing expensive things : It is surprising to know that almost everyone bargains with an auto rickshaw driver, vegetable vendor or a local market shopkeeper for only 5, 10 or 20 rupees. But we find so many people not bargaining about their salary, when buying a house, car or a furniture. These are the places where bargaining will save more than just 20-50 rupees. Even if they bargain it is found that most   often people easily settle for something less. The reason is that bargaing too much in areas like car showroom or real estate agent's offices where other well off guys are present is considered a bit insulting. The person selling the item knows very well about this ( after all he deals with so many persons everyday). So he tries a trick and tells you that he has not met anybody who has asked for such a low price or he may laugh after you offer your price. Don't easily give up, be firm, fight for every hard earned rupee and always be ready to walk out from the place without any argument. Argument makes things personal but your politeness may make the dealer call you again. Also it should be noted that these well off customers who are around you in a car showroom or real estate agent's office may be in a similar situation like you and even if they are not then  99 % of them will forget your face after just 1 or 2 days. 
9. Save on your electricity bill : Switch off the lights and fans which are not required, use AC in sleep mode, use microwave only when it is required, use CFL instead of bulbs, use gas geysers instead of electric geysers. During winter season only one gas geyser is enough for a family of four. This way you will not only save money but also contribute towards welfare of our mother earth. 
10. Save on your telephone/mobile bill : Have a good knowledge about the various plans on offer. Don't develop a habit of talking for hours. Call only when you have to and talk only till it is required. If you have a habit of talking too much on the mobile then it is always better to top-up with small amounts like Rs 50. This will make you think twice or thrice before calling anyone. Also you will have a constant knowledge about the balance and will not talk for hours as there is always a need to keep some amount for an urgent call.
11. Spend less on a dinner/movie : Movie for a couple generally costs around 500 rupees ( movie tickets + snacks + petrol ). Same amount is required for a dinner at a decent restaurant. If you save 1000 rupees every month by skipping a movie and a dinner you will save 12000 rupees in a year. These 12000 rupees can be used to meet other needs like buying a washing machine. If you invest 1000 rupees per month in a mutual fund through SIP for 20 years then you may get around than 10 lacs after 20 years. It sounds great to earn 10 lac rupees just by skipping a movie and an expensive dinner a month. 


Read - How To Beat The Equity Related Threats


12. Don't use car where bike is sufficient : Don't use car where bike is sufficient and don't use bike where your legs are sufficient. This way you will save money on petrol, reduce road traffic and improve health.
13. Internet shopping : These days there are so many websites which offer branded products at discounted prices. Just think of a product and chances are that you will find it being sold on the net. We can really save lot of money if we do a bit of research before buying things. Just go to the nearby market / mall, find out the MRP of a product and search the same on the shopping websites. You will be surprised to see the discounts offered on some of the products. If you don't have a credit card then also you don't have to worry as most of these websites sell products on 'cash on delivery (COD)' basis.
14. Reduce ciggarette and liquor : Actually it should be avoided but if you cannot avoid then at least reduce. This way you will save money and improve health.
15. Use washing machine judiously : Using wasing machine for only few clothes means consuming more water, washing powder and electricity.
16. Go for large quantity : What is common between a large bottle of sauce, large packet of detergent powder, large bar of soap, large can of cooking oil etc ? The answer is that you save money when you buy these items in large quantity you save money. Just compare the ratio of price to quantity of these large items with the smaller ones you will understand what I mean. However, monthly budget must be considered before buying large quantities.
17. Chose a group tour : When choosing a holiday package a group tour allows you to visit more places for a lesser amount. However, the disadvantage is that it can become tiring due to over travelling. 

We Must Find Retirement Solutions....Now

Finding retirement solutions is something that most people consider at a later part of life. We are so busy in our lives that sometimes we don't observe how fast things are changing around us. Most of us don't think about consequences of these rapid changes. However, this situation is changing fast and few years from here retirement planning might become your first priority. If you don't act now then you may find yourself in lots of trouble at the later stages of life.
If there are any doubts in your mind then consider these points which may change your investment strategy.
1. Rising inflation : Costs are increasing at a rapid pace. Due to this even people with good monthly income are having problems with their budget. If you think that the rise in inflation rate is not constant and it may come down in future then you must rethink. Yes, inflation rate is not constant and prices may come down. But history tells us that there has always been an increasing uptrend in the prices. Few factors such as global warming, frequent floods, draught are causing the food prices to rise year after year. The overall population of the world is increasing like never before. Due to this there is a huge increase in demand of all commodities which includes oil, food and other things which we use in our daily lives. We also know that constant decrease in crude oil reserves are not going to help. It is almost impossible to imagine what the world will look like 30 years from now and what the prices will be when you reach your retirement age.
2. Decline of Joint Family System : Our social system is changing and its going the western way. More and more youngsters are willing to stay away from their parents and live separately. It is also because for higher education most of the youngsters have to go to cities other than their hometown. Thus they develop a habit of living a life of freedom. Some kids are forced to leave their parental home because they are offered jobs in cities other than their hometown. So when children shift away from home parents are left with not much support. 
3. Loneliness : You may not agree that money is sometimes required to reduce loneliness at an older age. But I am 100 % sure that once you grow old you will . When we are young we get a lot of importance from our parents as well as from our close relatives. Just look around and try to find people who give lot of respect/importance to their old age relatives ( who don't have any source of income ). You may find very few of them. But if you think of your other relatives who are old but still earning members of their family ( through business, some job, investment or pension ), you may find that still they are given respect/importance from others. It's sad but true. Though there are many people who treat elders with respect but still they may not be able to give enough time to their elders. It has been found that all this problem generally starts with an old age and never ends. Being lonely in life is a very uncomfortable situation which nobody wants. If you do not trust me then ask the old man in your house.
4. Medical costs :  Due to inflation even medical costs are increasing. Imagine what the costs will be after 30-35 years. You may consider that taking a health insurance will solve the problem. But then there is lot of thinking required for it. Most of the people buy health insurance of up to 2-3 lac rupees. But what we don't consider is the medical cost required at the time of retirement. Also money is required to pay the premium for health plan which might be difficult for someone without a pension. It is also important to note that a health plan does not necessarily include expense of medicines, injections, medical equipments etc. It is needless to mention that these things are required more often at an old age.
At an older age very few have the courage, stamina and options to start earning again. On top of that pension related jobs are also decreasing. So to avoid these problems retirement planning is a must. Nowadays retirement plans provide monthly income without any hassle. However if some other plan promises better returns then it can also be considered. So plan now and retire rich.

Why You Should Start Investing As Early As Possible

I have always asked youngsters to start investing as early as possible. I found that after getting a job most of the youngsters want to first enjoy their life and want to think about investments at a later stage. They want to have best of clothes, latest gadgets, speeding bikes and many more things. Actually there is nothing wrong in it. When someone starts earning he wants to have everything that once he dreamt of. Every youngsters goes through this phase but later on they realize their mistake. I don't recommend you to invest all your monthly income and kill your desires. But if you invest just 1000-2000 rupees per month then it would be a good start. Later on as your awareness increases further investments can done.

Read - How To Beat Equity The Related Threats


Here are some of the main reasons why it's important to start investing as early as possible.
 1. India's Growth Story : Presently we all know that India has a great growth story. But history tells us that a country's growth story has never been everlasting. Returns in the next 10 years may or may not be same after 20 years. So it is better to invest now and reap maximum benefits than investing at a time when everybody is uncertain about the returns. 
 2. Disciplined Savings : Monthly Investment of some amount of your income at a young age will help you in developing a good habit of saving money. 
 3. Lower insurance premium : If you buy an insurance plan now then your yearly premium will be much less than what you will have to pay if same insurance plan is bought after 5 years. So its better to invest in insurance as early as possible.  
 4. Deal with rise in inflation : Inflation rate has jumped much more than what anybody would have asked for. With the rise of human population, increase in global warming, reduction of oil reserves etc. inflation related concern is here to stay. Investing early means having a plan to deal with the rise in inflation. The returns from your investment will provide financial support if inflation causes any problem. 
 5. Better returns : All financial advisors will advise you to invest regularly for a long term. Now consider two persons Alok and Manoj. Alok is 25 year old and Manoj is 30 year old. If they both invest 5000 rupees per month then at the retirement age ( i.e. 60 ) duration and amount of Alok's investment will be much more than Manoj's investment. Needless to say, Alok will have better returns than Manoj. 
 6. Better Home : If you start investing early you may buy your dream home much earlier than you would have thought. Also your investments will give you a power of choosing the best option instead of compromising on anything. 
 7. Nice Car : If you have a house then surely you would like to have a car. Again your early investments will be useful. 
 8. Child's Education : Education fees is growing every year. Govt. colleges where students go for higher studies have also increased their fees considerably. Even for a man earning 50000 rupees per month it has become difficult to manage such large amounts at any point of time. Now imagine the situation after 15-20 years when your children decide to join an engineering or medical college.  
 9. Child Marriage : We all know that plenty of money is required for Indian marriages. These days there are various child plans available where you can invest for your child's marriage or higher education. You can also invest in stocks, mutual funds, gold, real estate etc. but the main idea is investing as early as possible.  10. Retirement Solutions : Nowadays retirement planning is a growing concern among investors. There are many reasons for this. But early investments can give you an option of early and happy retirement. 


Read - We Must Find Retirement Solutions....Now

Pure Risk Cover Term Policy Vs Endowment Policies

Pure Risk Cover Term Policy:                    
1. Premium is very low for a given sum assured.
2. There are no returns at all.
3. Policy cannot be pledged for taking loan.
4. Since the premium is low tax saving from it will also be low.
5. Sum assured shall cease after the policy term.

Endowment Policies:
1. Premium is higher for a given sum assured. 
2. Completely tax free returns on the premium. 
3. If premium is paid for at least three years then some policies can be pledged for taking a loan. The rate at which you get loan is lower than other personal loans. During this period the policy is also continued.
4. Tax savings up to 1 lac is possible.
5. Some policies offer sum assured even after all the maturity of policy. So you get the returns and don't have to pay any more premiums but risk cover would still remain.  


Now you must be thinking that if endowment policy has so many good features then why should we go for the other one. Well, the companies are not a fool to introduce pure protection policies. In a pure protection policy an amount is paid as a yearly premium for a given sum assured. This amount is also deducted from the premium paid in the endowment or money back policies. So the amount which gets invested in endowment or money back policies is what remains after deduction. Also the returns that we can get from endowment or money back policies is usually less than returns from PPF or from investment in mutual funds through SIP. So now that you have a fair idea about these policies I am sure you can take a good decision when buying a policy. 


What is Moneyback policy ? It is same like an endowment policy. The only difference is that here you get some money in the form of returns after every few years ( e.g. after every five years ) till the policy term. Returns are usually lesser than endowment policies.  

How To Beat The Equity Related Threats

Although equities are said offer higher returns than any other assets but still most of us are very cautious when it comes to investing in equities. There are lot of reasons for it. So let's quickly understand what are these reasons.
 1. When to invest ? No one can time the market. Everybody is unsure whether market will go down or rise up from present levels. So the first question that comes to mind is what if the market takes a downturn after you buy?
 2. Where to invest ? There are multiple options available which can be confusing at times. Some of these options are bluechip companies, A group companies, B group companies, largecap, midcap, smallcap, numerous different sectors etc.
 3. The volatilty associated with equities. People often sell at loss when market goes down, later on they find out that market has suddenly risen and now they don't want to invest at such high prices.
 4. It involves lot of risk. Equities have eaten up entire savings of many investors.
 5. Investing in stocks means being constantly in touch with the stock market and the news about the companies. This is not possible for most of the business and service class people. 
 6. Lot of research has to be done to find out the right stock. But it requires a lot of time. Even if you give lot of time for the research still there is a chance that your research may backfire. The reason is because most of us are not an expert.                                 
Now after knowing so many risks involved you may be thinking about dumping the idea of investing equities forever. But what if we have a solution for all these problems. I am sure you will then be very happy to invest in equities and earn handsome returns for a long period of time. Investing in mutual funds through SIP will solve all these problems.                            
What is a mutual fund ? A mutual fund is an institution which manages money (pooled in from investors) professionally by investing in securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals).                             
What is SIP (systematic investment plan) ? The Systematic Investment Plan (SIP) is an option for investors to invest a fixed amount in a mutual fund regularly on a particular date of every month. The amount to be invested every month and the date on which this amount will be regularly invested is decided by the investor. Time period for the investment is also decided by the investor and there is also no lock-in period. Any number of units can be redeemed at any time and even added by the investor.

The advantages are:
1. Unknowingly you get into a habit of saving money every month.
2. Since your money is getting invested every month on a regular basis the market fluctuations are dealt with.
3. You don't have to research for the good stocks.
4. When you invest in SIP your money is invested in many stocks so there is no need to worry about a single company going bankrupt.
5. You don't have to be in constant touch with the stock market news.