Kya SIP sahi hai?… because SIP also mostly goes into Stock Market… to buy shares of companies.
Lay people always protect their money a lot… but… when it comes to investment… do they hand over that money to somebody else… very easily?
This is the BIGGEST DIFFERENCE between Mutual funds and Shares (Equities).
Today there are so many Apps, AI and Google to defrentiate between good companies and bad companies… to see which companies have increasing Revenues and Profit… and which companies have flat or decreasing Revenue and Profit…. which companies have high ROCE and EPS… which companies have them low… which companies give Bonus and Stock Splits… which do not give.
They have option to invest in good High Div PSU stocks.
Usually there are 10 Parameters which show that if a company is worth investment. These can be searched on multiple APPs and AI… (pls note that all of these can have errors… so double and tripple checking on different APPs is very imp).
But they would rather like to know how many centuries Virat Kholi hit ot the number of hit movies a film star did.
Do LAY people always trust other people with their money? Is it why they get waylaid?
The whole concept of buying Shares in a Company is to buy a part of that business… you get a small percentage as Dividend… as the business grows… the company grows… the dividend grows… (In bank FDs the interest rate is fixed and does not grow.)…. Often Companies give birth to other smaller sister companies… sometimes listing them on the Stock Market … sometimes holding them as PVT Ltd companies…. but all of them add to the company’s Revenue and Profit.
Many people believe that the stock market are not REAL market and stock prices are imaginary and move randomly and fluctuate WIDELY… true 100%… but what is also true that Dividends are AS REAL AS RENT is in Real Estate.
This is because dividends are directly releated to the REAL performance of companies in the market… whennpeople are in a position to buy the product sells… when they dont buy the product dont sell… this changes their Revenue and Profit… and finally affects the Dividend Payout… IRRESPECTIVE whether the stock prices increases or decreases.
Most Layman would see this as… omg the div fluctuates while the Interest on FD is permanent… also the div is just 2% while the Interest is 6%… he doesnt see that Dividends grow as companies grow… (of course badly run companies perform badly and their sales fall)… and the new company either buys new companies or creates 5-6 other companies in say 20yrs… his 2% dividend per company is now together approx 12% (2% x 6 companies)… so in effect for the same initial investment he gets approx 12% returns.
In Stock Market there are Bad companies… Good Companies… and GREAT Companies.
Great companies are like Sector Leaders or Monopoly companies or almost monopoly companies… Some of them are Govt PSU Companies… some of them do stuff that others don’t do.
You don’t pick good companies… you pick great companies … that will last you a lifetime… you live off dividends just like you live off rents… then the HEIGHTS and LOW DOWNs or FLUCTUATIONS or CRASH in Stock Market dont bother you much.
This doesnt mean you completely switch off and dont follow the performance of the companies… you need to follow the market and pay attention… after all its your money.
Many times you will hear news that say… sell your shares… get out of the market… its going to crash… think of it like the owner of that company… what will he do? Sell his company? Will the bussiness stop earning profit just because the stock market crashed?
Tata, Birla and Ambani will sell their business and invest that money it in Bank FD and go sit on the beach to enjoy it?… think about it.
A safe way to invest in Stock Market is to invest EXACTLY like one does in REAL ESTATE… dont buy and sell often… sit on it and hatch eggs… till you get Bonus Shares and Stock Splits.
People dont do Intraday or Day Trade in Real Estate… nor do they do Futures and Options in Real Estate. So a safe way is to invest like you do in Real Estate:
- Estimate your TARGET INVESTMENT PRICE (eg Price of Your Dream House… lets say 1Cr).
- Pay a DOWNPAYMENT … in this case just 5%
- Invest this across best div paying companies of India… across all sectors (now you are getting Rent every 3mth or 6 mth or every 12 mths). With this You have opened another source of Income.
- Do this for Next 3 yr… by now you have 15L invested and getting a small amt as dividend.
- From 4th yr onwards you can invest just 1L (plus the div amt) in GROWTH (non-Dividend) Shares.
In 20 yrs you will have created enough dividend.
So as COMPANY grows… they either issue bonus shares or Split the stocks… this is PARAMOUNT in WEALTH CREATION… Many good companies reward their long term investors by giving them Bonus and Stock Splits… by doing this the share price of the company reduces by that much but becomes more affordable and its price start rising.
The rich Industrial class pass these shares down generations… creating GENERATIONAL WEALTH.
If you want to be extra safe… You can put 50% in a Mutual Fund SIP and 50% in direct investment in Stocks... then 5 Yrs later see which is performing better… and shift there entirely… or continue as you are doing.
