Indians are great savers but poor investors.
What are the reasons?
In most cases they are unaware about:
As per the World Bank report, India’s gross domestic savings as a percentage of GDP have gone up from 24.9% in 1997 to 29.8% in 2017.
Nearly 80% of Indian adults now have a bank account but not even 5% Indians have demat accounts. Despite strong tailwinds, there are only about 8 crore mutual fund folios, of which 6.7 crore are under equity-oriented schemes.
According to RBI data, financial household savings as a percentage of gross national disposable income were 11.1% in FY 2017-18.
What deters Indians from investing in one of the best asset classes—equity?
Here’re primary reasons:
But keeping money in Fixed Deposits (FDs) offered by banks isn’t an intelligent option either.
If you earn 7.5% interest on bank FDs and the rate of inflation is 5% your post tax returns reduce to barely 2.4%. If you adjust it for applicable income tax rate, returns would be paltry.
Not having adequate money to live a peaceful life post-retirement is also a risk, isn’t it?
Why be so scared of markets then?
“How many millionaires do you know who have become Wealthy by investing in Saving Accounts? I rest my case.” Robert g Allen
There’s a long-held misconception—only experienced and seasoned investors can make money in the stock market. And you really have to be a geek to learn the art of equity and mutual fund investing.
What’s the way out?
Step-by-step approach to DIY investing
This involves assessment of two important aspects of your personality with respect to investments: -
> Risk appetite – It refers to the amount of money that you can afford to lose without altering your lifestyle. This can be tricky and the best way to do it is by putting yourself in a ‘what if’ situation.
“What if I made losses worth Rs 10 lakhs in 5 years? What if valuation of my portfolio goes down by 35%? Can I take the risk and still meet my financial objectives?”
Doing this exercise will help you rightly analyse the risk that you can take.
> Return expectations – The percentage returns that you expect over a period of time is termed as return expectations.
Like risk appetite, this varies with every individual and it is important that you decide what suits you best.
While working this out, do consider your age, income, responsibility matrix and investment horizon for better outcomes.
For example, if you are 25 years old, haven’t started a family yet and earn reasonably well, you can afford to take higher risk compared to someone who is 40 years old and has a family to support.
Also, ensure that your profile is in line with your monthly savings and long-term goals. For instance, if your monthly savings are low, long-term goals are aggressive but you are averse to risk, you will either have to increase your monthly savings or agree to take more risks to meet your financial goals. If required, revisit the earlier steps and make necessary changes.
Once the risk-return profile is decided and aligned with your goals, you should factor in the tax-related aspect of investing.
You may also consider investing in direct equities and pay just 10% long-term tax on your returns.
> How to select the right mutual fund?
A wide range of online tools can help you select the most promising mutual fund to invest in. You may choose to open one or more of the popular web portals like Ventura MF portal, Value Research or Morning Star and browse through the available list of mutual funds. The size of Asset Under Management (AUM) and a consistent increase in it over past three months along with a deeper glance on the fund’s past returns can be used as indicators of its performance. Once you shortlist the fund, the best way to start is by investing in monthly instalments or start a Systematic Investment Plan (SIP)
> How to select the right stock?
You must develop the understanding about companies, choose the right one and know when to enter and exit. For this, you should cautiously look around yourself. As a layman, first check out the brands that are selling exceptionally well or those that have been enjoying a consistent upward reach.
For instance, let’s take ‘Bata India’. We all know that the company has launched a new trend of shoes and the rise in its number of stores across the country is also quite evident.
With this observation, it is likely that the company is doing well. So, the next step is to find out more by flipping through the company’s balance sheet. Also see if the quarterly sale volumes are going uphill and Profit After Tax (PAT) is improving.
If, the answer to all points in the checklist is an assertive, shortlist the stock. Now, you may cross-check for recommendations from various online reports and call your broker to ensure that you have made the right choice.
Start ASAP (As Soon As Possible)
The sooner the better is an old saying which truly pays off when it comes to investing.
If you start investing Rs. 1 lakh p.a in equities today, you would have built a corpus of Rs. 2.7 crores at the end of 30 years (assuming the compounded annualised return of 12%). However, if you start 10 years later, your portfolio valuation would be just Rs. 81 lakh. So is the case with direct equities.
The power of compounding can produce unmatched results.
Hence, don’t waste time. Now is the right time to embark on you DIY investment plan.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company.
We do not individually or collectively hold 1% or more of the securities of the company.
We do not have any other material conflict of interest in the company.
We do not act as a market maker in securities of the company.
We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company.
We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships.
We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.