“You can achieve anything by investing for long terms, as the long term gains are involved with the power of compounding”
Share market investments, in simple terms investing in public company shares. Equity will offer the highest return when it’s been accumulated and invested in long terms (more than 15 years).
The reason why most people don’t invest in equity is because of the risk associated with it. People should understand that in all types of investments including Gold there is risk associated and also the price might fall or rise again.
When it comes to gold, we people wait for the price to go to the apex, but in equity when the price falls we all start worrying and book loss. If you can control your emotions and stay as a long term investor, equity will be the best place to invest.
Here, we will be discussing the long term benefits of investing in equity through the Shares Market.
Share Market Investments:
Share Market – Basics:
The stock market is where people buy and sell the shares of a public company. There are two types of the stock market in India,
- Bombay Stock Exchange (BSE)
- National Stock Exchange (NSE)
- We cannot trade (buy or sell) directly with the share market. We need a broker who buys on behalf of stores and us the digital stocks in your DEMAT Account.
- Here is the list of some brokers. HDFC Securities, ICICI Direct, Axis Securities, Zerodha, Sharekhan, Motilal Oswal, Kotak Securities, 5 Paisa, Angel Broking, etc.
- These brokers charge you some brokerage charges as per their terms and conditions.
- There are two types of markets, chiefly we discuss:
- Bullish Market – When the stock market is in a growing trend
- Bearish Market – When the stock market is in a falling trend
- Another important term is IPO – Initial Public Offering. When a private company decides to become a public company, it divides its shares and sells it to NSE/BSE and it comes to the public with the initial price, this is known as an IPO
- It is important to know about the stock market is, STOCK MARKET IS A ZERO RUPEE GAME. It means if one has to buy company stock, then someone has to sell the same company stock.
- The main risk of the stock market is “markets are irrational as no one can predict the market”. So, you have to invest your time and energy to do a fundamental analysis of stock and you have to diversify your stock.
- As all your stocks are not going to yield a good return, but 6 out of 10 will yield a good return and will recover the loss of the other 4 stocks.
Share Market Investments – Growth in the Long Term:
- Before knowing, how to pick shares. First, let us go through how much you can earn equity in the long term.
- When it comes to investing in equity for the long term, we should remember one thing, that is ROI (Return on Investment) and the return has to beat the inflation in long run.
- Why long term investment?
- You can beat the market with the fluctuation of share prices.
- You can accumulate more stocks in a definite period, as most people, will not have a huge lump sum amount to invest.
- If you select a stock wisely, after 20 years you will be gaining 60-80 times the amount you invested. In this long 20 year phase, the company will benefit its investors by providing DIVIDEND payouts, BONUS, and SPLIT of shares, which are an added advantage for having a share in a company, this is apart from the gains that we get from a company’s profit.
Dividend:
It’s part of the company’s profit that the company decides to pay back to its investors on the total number of shares they are holding. For example, ITC Ltd has given a dividend payout of Rs. 5.75 in 2019. Assume, A person who has 1 lakh shares of ITC, will receive 5.75 Lakhs as dividend payout for every year.
Bonus:
A bonus is something when a company decides to share the profit with their investors but not on dividend payout, they opt bonus. For example, if person ‘A’ has 100 shares of company ‘XYZ’, company XYZ plans to give its profit as a bonus like 1:5, which means for every 5 stocks person ‘A’ will be credited with 1 bonus share.
Split:
If a company has 4 sectors, and when it plans to divide all the sectors as different public companies in the stock market, we will be getting an equal number of shares for all four new companies. For example, if the person ‘A’ has 100 shares of company XYZ, he/she will get the same 100 shares in all the new 4 companies also. Here is an example of HDFC Bank:
Benefits with HDFC Bank Shared as Example:
Here, we have discussed only the price gain over the years by this chart. We haven’t discussed dividends, bonuses, or splits in this subject. If needed we can discuss in our future topics on HDFC BANK.
Source: Investing.com
- HDFC BANK 1 share was Rs. 20.01 on 1st June 2000. Currently, as of 23rd June 2020, the price is 1026. In two years, the stock price has grown by 52 times at 21.67% per annum(calculated by XIRR)
- In this graph, you can see more ups and downs even throughout Feb 2020. The stock price was about Rs.1300, then dropped down to Rs.756 in March 2020, and again it has pulled back to Rs. 1026.
- The only thing you have to know from this graph is, no matter the price varies as it moves bullish and bearish when you consistently invest an amount and wait for 20 years or more, the returns are going to be 52 times the amount you invested.
- In simple terms, if A person invested Rs. 1 lakhs in HDFC Bank on 1st June 2020 at Rs. 20.01 per stock, will be pricing currently at Rs. 51 .27 lakhs. Over 20 years, person A has gained almost Rs. 50.27 Lakhs as a capital gain.
Please visit for XIRR Calculations:
In such a way, many stocks have yielded a huge return of 70-100 times the money invested. A few examples are ITC, Infosys, TCS, Reliance Industries, Dr. Reddy’s, Titan, Hindustan Unilever Ltd, etc.
Note: Share market invests are relatively high risk, you have to choose a stock by understanding and by doing an analysis of its fundamental parameters and have to buy in low price as per intrinsic value.
Demerits of Share Market Investments:
- You have to invest more time and energy in choosing a share, anyhow you cannot be 100% assured that the share will gain you growth as desired in the long term
- You have to plan your portfolio as it has to be diversified, to average our risk management
- No one can time the market and no stock can yield you a fixed return like RD or FD.
- You cannot park any of the money that you require back in 3-5 years.
- One cannot be assured of the return they are looking for or calculated
- The demerits are complete with the individual who deals with investing in equity if they can control their emotions and wait for the long term. Shares will be the best place to get the maximum returns for a long-term investor.
This subject is completely taken from practical sense from most of the successful financial leaders and even from my mentors and myself.
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