Investing your hard-earned money in the right financial instruments is extremely important to grow your money rather than keeping your money lying in the banks. One such attractive instrument is the Stock Market. Many people have the misconception that keeping your money in the banks is also one type of investment.
But that is not true.
In my opinion, keeping your money in the banks is not an investment but it is just a safe box to keep your money. Just like putting your money in the safe box would not increase your money similarly keeping your money in the banks doesn’t grow your money.
You just get a nominal return on your savings in the banks which hardly beat inflation. I know that saving is important but investing your savings in good financial instruments is more important.
In this article, I will discuss why the participation of Indians in the stock market is very low? I will talk about the top 8 reasons to start investing in the stock market as soon as possible. Apart from that, I will also share some bonus tips with you which I found while investing in the stock market.
Lack of Participation of Indians in the Stock Market vis-a-vis World
Many people still have more confidence in keeping the savings in the form of bank deposits than investing their money in good financial instruments. They still prefer to keep their money in a traditional option. They keep their excess money in banks’ Saving Accounts, Fixed Deposits, Provident Funds, etc.
That is the reason, In India, less than 2 % of the population are investing in the stock market. While in the USA more than 50 % of households have their investment in the stock market.
So the next question is-
Why is participation in the stock market so low in India?
There are many reasons for low stock market participation in India. Some of the significant reasons are –
Lack of Stock Market Awareness:
I am sure you all would have heard one of the best dialogues of a movie “3 idiots” that “Bada hoke Mera beta Doctor Banega or Engineer Banega”. This mind-set is still common in India. This is the reason most of the people in India choose to have either science or Arts for higher studies and have very little knowledge of financial instruments.
That is why they consider the stock market is only for people with commerce or finance backgrounds like -Chartered Accountant, Financial planners, Commerce Graduates, etc. This is one of the most important factors for Indians not investing in the stock market.
Love for fixed and safer Investment options:
We are by heart have more love for fixed and safer investment options like – gold, land, FDs, etc. While growing up we used to see our elders always discussing how much land their friends have or how many flats their colleagues have. We had seen their love for gold.
We never heard about the Stock Market until we had self-realization. This is the reason that our love for traditional investment options is embedded in our heart.
There is always an inherent risk in the stock market. But it is also true that without risk you cannot create wealth. We never taught to take risks. And that is the reason, most of us do not believe in taking undue risk and always try to play safe.
A stock market is a place where there is always a risk involved. People with less knowledge think the stock market as a gambling zone. That is why most people are more than happy with less but safe returns from fixed income instruments.
Love for physical assets:
This the common psychology of most of us. Something that we can touch or see like Gold, Land, Cash, etc is considered a safe and attractive option. In the case of stock, you cannot see it physically and further the risk of capital depreciation adds to the fear.
Well, guys, these are the most common reasons that the percentage of people investing in the stock market is very low.
So the next question is –
Why should everyone invest in the stock market?.
I am going to discuss the top 8 reasons why you should start investing today…
Reason-1: Wealth Creation.
Do you want to create wealth to secure your and your family’s life?
Do you want to be in the club of the rich?
Do you want your future generations to never have to think about money for living?
If the answer to any of the questions is Yes.
Then the stock market investment could be one of the best ways you could start with. If you keep all of your savings lying in the banks then you are not creating wealth. You are actually losing your wealth.
If you just want to save money then bank’s deposits are good. But if you want wealth creation and become rich one day then investing your money in good financial instruments is very essential.
And the earlier you start investing in the stock market, the more wealth you would have in future. Let us understand the benefit of an early start of stock market investment with examples:-
Advantages of an early start of investing.
|Starting Age (in Years)||Amount of investment per month||Expected monthly Return||Maturity Amount at the age of 60|
As detailed above, if a person X starts investing Rs.20000/month at the age of 25 and keeps investing the same amount till the age of 60, the net worth of X would be Rs.7.60 Crore.
However, if a person Y starts investing the same amount per month late at the age of 40 and remains invested till he turns 60, his net worth would be approx. Rs.1.52 Crore.
So you can clearly see that there is a huge difference of Rs.5.08 Crore between the wealth of X and Y. Here, Y lost the wealth creation opportunity just because of a late start.
BONUS TIPs #1: In my opinion, everyone should open his/her DEMAT Account with his/her first months’ salary and start investing in the stock market with as little amount as one can. Good news is that there is no minimum limit for investment in the stock market.
Reason- 2: Help to achieve Financial Freedom.
If your aim is to become financially independent by a certain age and become your own boss. If you want to retire by the age of 50 and get to financial freedom, you need to build a corpus to live the rest of your life after retirement. You cannot build the Retirement Corpus with your savings only as the amount required is much more than your savings.
Further, you also have to invest your savings wisely to get a handsome return on investment. The more return you get on investment the more wealth you would have and sooner you would achieve your goal of financial freedom.
Reason-3: Tastes the Power of Compounding.
The Power of Compounding of money is considered eight wonders in the world. One who tastes the power of compounding knows the real secrets of becoming rich. This can play a major role in your journey to be rich and wealthy.
You can create wealth in the stock market only when you remain invested for the long term. This is where the Power of Compounding plays a significant role to multiply your return on investment.
You get the benefit of compounding only when you start investing early in the Stock Market. Earlier you start, the more return on investment you would get and the sooner you would achieve your financial goal.
Let us understand the power of compounding through the example:-
Power of Compounding with respect of starting age of investment.
|Starting Age (in Years)||Target age to be a crorepati |
|Expected rate of yearly Return||Amount of investment required per month|
Let us consider there are two people X and Y who want to be a Crorepati by the age of 50. Person X started investing his money in the stock market at the age of 25 and Person Y started his investment at the age of 40.
When you focus on the above table, you will realize that X needs only an investment of approx. Rs.7537/month to be a Crorepati while Y will need a monthly investment of Rs.48817 to achieve his goal which is more than 6X of the amount person X needs. This is the advantage of the power of compounding to start early.
BONUS TIPS #2: Power of compounding is directly proportional to the term of the investment. The more no. of years you remain invested in the stock market, the more ROI you would achieve. So you should consider the stock market as a long term investment option.
Reason-4: Beat the Inflation
Inflation is the single most important factor which actually leads to depreciation of the value of your savings. If you really want to create wealth for yourself then your return on investment should consistently beat the inflation by a handsome margin.
In my opinion, the Stock market is the only financial instrument through which you can consistently beat inflation.
Before you start investing you should understand what is the effect of Inflation on our savings. You keep your money in the banks to earn a fixed and safe return. But in the real sense, your net return is negative.
Are you shocked?
Sadly that is true.
Let us understand the effect of inflation on our return with an example:-
Suppose you keep Rs.100,000 in your bank account with an interest of 5% on your deposits. The average inflation rate in India is around 6%.
So your net return on deposit = Interest – Inflation = 5 % – 6 % = -1 %.
Which means instead of appreciation of your assets, your investment is actually depreciating @ 1 % per annum.
However, in the stock market, there is no fixed income. Here if you invest wisely then there is no upper limit for return. You can get a return as high as 20 % per annum or more. But I will consider an average return of 10% per annum.
You can easily get around 10% return on stock market investment with some smart and disciplined strategy. Here, I am talking about investing not trading. I am saying this from my own experience in the Stock Market. So your net return = RoI-Inflation = 10-6 = 4% which means you beat the Inflation by 4%.
BONUS TIPS #3: If you really want to beat the Inflation rate and get a positive net return on your savings and can manage the risk associated with the stock market then investing in the stock market is the best option.
Reason-5: Could be the best source of Earning Passive Income.
Passive income is the earnings you generate without working actively. Having a good source of Passive Income will help you to achieve financial freedom early and be your own boss.
In the stock market, not only your capital gets appreciated but you also get dividends from the companies whose stocks are in your portfolio. Some of the companies have been consistently giving more than 5% dividends annually which is higher than the interest given by some of the banks on deposits.
So Dividend income from the stock market investment could become a good source of passive income over time. In this way, you also get regular income from the stock market investment along with capital appreciation which will keep you motivated for further investment.
BONUS TIPs #4: If your goal is to become financially Independent you should think for the long term (i. e. more than 15 years). Further, your portfolio should have at least 25% of shares of companies with a history of good dividends pay-outs.
Reason-6: Makes you more disciplined.
This is the one area which is very simple and effective yet the most neglected one. We waste our time by focusing on more complicated things like how to get a high return on investment, how to find right financial instruments, how to pick right stocks, right mutual funds, etc. and complicate the whole journey.
But we overlook the simplest strategy i.e Disciplined approach to investment. Regular investment in the stock market makes you disciplined in handling the money and personal finance because there is always a risk of losing your capital.
You take an example of any successful person, you would find they are much disciplined in life and their secret to success is also very simple but effective.
BONUS TIPS #5: The fear of losing your capital in the stock market always keeps you motivated and forces you to learn new things which result in wealth creation in the long run.
Reason-7: Gives the Courage to fight uncertainties of life.
When you start investing early you have no serious responsibilities in life so you can take more risk in the stock market. At a younger age, you can easily take risks and you have enough time to recover your losses. However, Once your responsibility increases with age your risk-taking ability also decreases.
And there is a popular saying in the stock market “High-Risk High-Gain and Less-Risk Less-Gain”. So if you have to get high gain then you have to be ready to take high risk.
This is a life lesson which you learn in the stock market if you remain invested for the long term. And you would never have a fear of uncertainties in life as it becomes a habit for you.
Reason-8: Improves your Spending habit and makes you more efficient.
While investing in the stock market you develop a sense of discipline in life which also transfers into your spending habits. In the stock market, you lose money if you don’t plan your investment efficiently.
For example, let us suppose you start investing a fixed sum of money through SIP on a monthly basis. Once you decide your SIP amount, it automatically gets invested on a certain date.
So you plan your monthly expenses with the remaining amount in your account and in this way you develop a habit of keeping track of your day to day spendings. It finally improves your spending habits and enhances your saving rate and financial situation.
Everyone should invest some part of their savings in the Stock Market. Investing in the Stock Market is like investing in the economy of your country. If you don’t invest in the economy then the economy will not grow and if the economy will not grow then you will not grow.
So with this, I would conclude my article. I hope you understand why you should start investing in the Stock Market early.
If you like the article please share the article with friends and family so that they can also get benefitted.
If anybody has his own experiences or reason for investing in the stock market, I would love to know your views through a comment.
Further, you can also share your any suggestions if I have missed out any significant points.
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