This article has been written by Dhruv Poddar, pursuing Diploma in International Business Law, and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Table of Contents
Introduction
When we strictly talk about investing in the Indian market, investments in Real Estate and Gold (Bonds) are the most popular form of all investments. Now, in 2023, equity, options and derivatives, and investing in the capital markets in general is also gaining popularity. But have you ever thought about this? When we talk about Investing, what does it essentially mean? Well, where there are a variety of descriptions and definitions of the same. Put simply, investing means putting in your time, money, or energy into a business, commodity, asset, or even in a bank, expecting that you will earn returns, upon the principal amount in the future. Well, it might seem quite straightforward, but opening a fixed deposit in a bank giving you annual 8% returns, or buying equity shares of a listed company, which could probably give you 100% returns in 3 months time (or probably could fall and become a penny stock, driving your numbers to the ground, along with your money), both can be put in the same broad bracket of “Investing and Investments.” This article aims to explore the same thereby helping readers know about things that are necessary to be acknowledged before investing in India.
Why is it important to learn about investing
Warren Buffet (arguably the greatest investor ever) once said, “if you don’t find a way to make money while you sleep, you will work until you die.” But, let’s say you do not care. You have a high salary job, and you are meeting your expenses quite easily. You are also saving sufficiently, and in all practicality, “there is no need to invest.”
But this is the story you have been telling yourself. In reality, just because you are not making a conscious effort to invest, or to learn how to invest, does not mean you are not!. What we are trying to say is, that eventually you are putting in your money (henceforth we will only be talking about monetary investments) somewhere, be it in a bank, giving you an annual return of 4%. That is also an investment. And, if you also accumulate the fact that the value of “Rupee”(again, sticking strictly to Indian markets) is depreciating, meaning 1 rupee today has more purchasing power then 1 rupee of say tomorrow, or say 10 years down the line. So if you are not investing that 1 rupee anywhere, and not even in a bank, you are losing out. Yes, losing out without doing anything!
That is why it is so important to learn how to invest, because we are all making choices about how to invest our money, knowingly or unknowingly! Doing it consciously just makes it all better, easier and of course, safer for a longer course of time.
It is quite interesting, but back in 1992, during the Harshad Mehta Scam, and even post that, people were afraid, scared, and even ashamed to invest, specifically in the stock market (of course investments in the equity, options and derivatives are just a small part of Investing is in general). But what we are trying to say is, back then people resided to safer and risk averse options to invest their hard earned money. Investments were primarily driven towards Real estate, gold, insurance and mutual funds.
Cut to 2023, investing in the stock market has never been easier. With tech advancements, gone are the days when you even had to call up your broker to buy or sell stocks. Everyone, not just our brokers, can buy or sell by just a click of a button. Platforms like Zerodha, ProStocks, UpStox and others open free demat accounts and charge a zero brokerage fee, for long term investments.
Why is there such a revolution in the Indian investments scenario
Well, there are a couple of reasons for the same:
- Number one, investments opportunities which were quite popular in the 90s, have not turned out as fruitful as they were sought out to be. Namely, real estate prices have fallen or remained constant (as good as fallen, if you understand how purchasing power of money has been depreciating). Real estate investments have ended up blocking a lot of money, for most people. Yes rental income is a positive, but if you analyse the capital investment to the rental income ratio, you would understand it is not anything substantial. We are not anti real estate investments though. It has, for years now, been a phenomenal source of income for many people, and has led to formation of business empires. It is just that, it is not ideal for everyone.
- Another popular investment opportunity people grabbed, and still do to some extent is, investing in gold or gold bonds. Yes, gold has been a successful endeavour. But people in large numbers are not investing in gold anymore, because it has become super expensive, and if it has to be a part of your portfolio, it would take up an ample amount of space. This has led to the rise of the entire Indian population, and their total investments in the stock market.
What to keep in mind when investing in India
It can be quite alluring and captivating, but ideally you should not build your entire investment portfolio around any one commodity, be it real estate, capital markets, bonds, insurance, or mutual funds. Thoughts like why not invest in something that with the highest percentage of returns can come across, but also, it is an age old saying in business, “Higher the risk, Higher the reward.” So, since it is your hard earned money that you will be investing, we want you to be more calculative and follow these pointers.
Stop listening to other people’s opinions
The fact that nowadays investing has become more of a trend, people are flooding social media on best forms of investments, which stock to buy, how to invest, and whatnot? We like to refer to this as noise. To be a potent investor, you need to block out all the noise and then decide on where to invest your hard-earned money. Also, one pro-tip would be to stop watching Hindi news channels giving insights on the current capital market. The deeper you dive in, the more you will see everyone has an opinion. Rather than following what they tell you to do, you should research for yourself? And what is this research we keep referring to? Well, some might say that even following people is a form of research. It is, but that is not how you learn. Investing is not something you would do once. Ideally, it is something you would do and should do your entire adult life. That being said, read books, read blogs, follow investors who do not tell you names of stocks but rather teach you how to choose the stocks, learn fundamental analysis and technical analysis, and work with a portfolio manager. There is a lot that can be done, only if you are willing.
Diversify
The key to being wealthy by investing is to stay in the game for a long time. The longer you stick around, the better the returns would be. The key to staying longer is not about winning, but is about not losing. The hard fact about investing is, if you lose big. Sometimes you cannot even come back. For the same reason, diversifying is very important. The idea behind diversifying is, that in all probability, your entire portfolio will not crash, making you stay longer in the market. That is why it is important to invest in a variety of stocks, bonds, mutual funds, and insurance. Sticking to only could possibly mess things up.
Patience
Investing is like a marathon, and it is not a one time sprint. In India, where we are a developing nation, like we said previously, the longer you wait, the better your returns would be. Also, in whatever commodity you invest in, there could be booms and bust phases throughout the entire span of your investment. It is to keep in mind that during the bust phases you need not worry too much, and during the boom phases do be patient and don’t take decisions in excitement.
Conclusion
Investing is such a vast topic, that there have been books written on the same. But that being said, investing is investing. The rules remain the same, no matter what market you talk about. Yes, when we strictly reside in the Indian Markets, there are a few key tips which we discussed thoroughly, but in all practicality, everyone needs to learn how to invest, and once they do, they can do it in any market. It is like driving a car. Once you learn how to drive, you can drive any car in the world, on any road!
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