Hello there readers, this is your thamizh for the blog today. Hope you all are doing well with your life. Today's topic is going to be all about investments. We all love money and we need it anyway for our survival. First of all, let me kick off the intro with the question,
What is money? why do we need it?
Money is just a transaction medium for exchanging goods and commodities for the survival of individuals in a society. But later, it turned out to be a social standard that provides respect for an individual but, the harsh truth is that this powerful money loses its value over time.
This phenomenon of money is known as "Money inflation". Let me explain these phenomena with an example, If you have 50,000.Rs today, you can buy 8g of gold but, that same 8g of gold might cost about 1 lakh rupees after a few years. These values are approximate, but the key here is that the product's value will not remain the same. A 1 lakh money (today) will not have the same value after a few years as it is today.
To escape from this money inflation what do we have to do???
Most of you would think that the answer would be saving money in the bank under a savings account. The bank provides interest rates that are lesser than the inflation rates. Year by year the inflation rate increases rapidly but the interest rates given in the banks are nearly 2-3%.
To grow your money over some time and escape inflation, the best choice would be to invest your money in the share market to compound your money over the period. Hearing the word share market, most of us are confused with trading and investment. Let me explain what is share market at first.
How does the share market work???
There are a lot of companies in this world. Every company needs funds to grow its business. Indeed of that fund, they would go over investors. If the investor trusts that the company would grow, then he would give that fund to that company. As an agreement, the company provides him shares of that company. If that company expands and gains profit. The investor also gains profit and his stock value increases. This implies negative too, as if the company doesn't perform well.
Trading vs Investments:
Trading requires a lot of things such as technical analysis and daily study analysis of the market to predict the rise/fall in the stock market and thus buy and sell shares accordingly to earn and gain money. It requires a lot of analysis of multiple variables to choose the correct stock and the correct time to buy and sell it. A trader would buy a stock and sells the stock at the right time within a short time such as a day or within a week.
Investments require less technical knowledge about the share market compared to trading. Unlike trading, here we invest in a particular company for a long period like 5-10 years through SIP (Systematic investment plan). Through SIP we will be investing a small amount of money regularly such as monthly or weekly to let the money compound over time.
Strength of compounding:
Compounding is nothing but, letting your interest rate or the value of your stocks get multiplied over a long period. For example, currently, I am investing in one of the companies from index funds. I will be investing 250.Rs each month. That company gives me interest-rate returns of about 10-12% yearly. If I Invest the same amount 250.Rs every single month for a year then, at the end of the year I would be having 3300.Rs (approx). The actual money that I would have invested would be 3000.Rs (250.Rs*12 months) only but, the extra 300.rs are from the interest.
From the second year of investing that first year total money 3300.Rs would be taken as initial capital and the interest rate also includes that whole money giving higher returns in the next year. The only key here in compounding your money is to not disrupt the money between the process.
with this, I conclude this part-1 of the trip to the stock market. let me explain how to open a Trading account, a Demat account, and the technical terms of the stock market such as IPO, SIP, S&P, Index funds, KYC, Brokerage, Nifty50, Sensex, and how to invest, buy and sell stocks in the stock market in the Part -2 next week. If you have any queries do comment in the comment section below, I will answer that in my next blog. Until then this is your thamizh signing off.
Peace out💸
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