There are many ways to earn money. One of them is to work hard while another is to invest in the best investment option that can multiply your wealth quickly.
Given the numerous investment options available for investors today, it is very imperative to choose the best investment option wisely.
Let’s take a look at different investment options available in the market:
Fixed deposit (FD)
Investing in fixed deposits is a popular option for those looking for assured returns with low risk. However, fixed deposits are subject to the risk of falling interest rates which are linked to the RBI repo rates. Besides, bank fixed deposits are secured only to the extent of five lakh rupees as per DICGC norms in case of a default.
Gold
Whether it is in the form of coins, bars or jewellery, investing in gold in different forms has been one of the most preferred investment options in India from time immemorial. However being an unproductive asset, gold does not generate periodic returns like other investments, and one can make a profit only when the price of gold increases and it is sold.
Real estate
Investing in real estate generates returns either through the rental of the property or appreciation of the property value. However, post the implementation of the RERA act and demonetization property prices have become stagnant over the last few years.
Direct equity
Equity as an asset class has generated the highest returns till date among all asset classes in India.
Here’s a comparison of how equity has performed vis-a-vis various investment options for a period between March 1981 – 2021.
|
Investment Channels |
Average returns |
Inflation |
Returns adjusted to inflation |
|
Equity (Sensex) |
22% |
7.14% |
15% |
|
Gold |
9.06% |
1.92% |
|
|
Silver |
10.09% |
2.95% |
|
|
LIC |
5.21% |
-1.93% |
|
|
Fixed Deposits |
8.69% |
1.82% |
As you can see clearly, the stock market has delivered far superior returns over the past 40 years. Had you invested Rs. 1 Lakh in the stock market, its value today would have been around 4 crore rupees adjusted to inflation.
When you compare the different investment options mentioned above, it is quite evident that equity is the best investment option for long-term wealth creation. Equity has not only beaten the returns offered by investments in other instruments consistently but also managed to beat inflation. For long-term wealth creation, equity is definitely the best investment option.
The dynamics of the Indian economy have changed over time. Traditional investment options like gold, real estate, and bank FDs have lost their charm over time.
How To Invest In Equities?
Many investors don\’t invest in equities thinking it is risky. Yes, equities are risky, but in the short. In the long term, the risk decreases, while the returns increase. We have penned down 4 best practices to follow while investing in equities.
Invest in tranches:
This is an effective way to reduce your risk exposure. When you invest in tranches, you can take advantage of cost averaging, which works best for cautious investors. In this way, you can take advantage of market corrections by buying more at a lower price, thereby reducing your overall cost price.
Avoid greed and fear at any cost:
Don\’t be in a hurry to invest because the stock market is in a bull phase or exit a stock when the stock market is in correction mode. When you invest in the right opportunities, it can withstand any kind of uncertainty and outperform with time.
Invest only after detailed research:
Before investing in any stock, it is important to understand why you are buying it. It is essential to check the profitability, debt, and future growth prospects of the company before investing. This will give you confidence, as you know the actual reasons which will bolster the growth of your investment. When you invest in fundamentally solid companies such as Maruti Suzuki, Eicher Motors, Pidilite, Reliance, HUL, TCS, Wipro, etc., the returns are more lucrative.
The early you start, the better are the returns.
We\’ve heard this before as well – The longer you stay invested, the more lucrative are the returns.
To understand this, let\’s take an instance of two cases, Sahil and Akash. Sahil starts investing at the age of 25. He invests Rs. 5,000 a month. Akash starts investing at the age of 35. By the age of 50, Sahil can accumulate a huge corpus of Rs. 94.88 lakhs, while Akash can accumulate only Rs. 25.22 lakhs by investing the same amount for 15 years. By starting investing 10 years before Akash, Sahil managed to gain an additional Rs. 68 lakhs.
(Assuming the value of an investment at 12% p.a)
To conclude, it all comes to how you respond to fear. The stock market is not an easy way to create wealth. There will be ups and downs. Investors should be psychologically prepared to remain invested and have the patience to bear the temporary losses for long-term gains.
And lastly (and most obvious), don\’t time the market. Rather than that – trust the market. If markets have rewarded many investors in the past, there\’s no reason it would not reward you if you:
- Remain patient
- Adopt a systematic approach
- Take research-backed decision
For expert help with investing in equities click here.
