10 Reasons To Start Investing In Stock Market Today

10 Reasons To Start Investing In Stock Market Today.

10 Reasons to start investing in stock market. Most of the people at some time have thought to start investing in stock market. However, they are afraid to take next steps as they have always heard how a closed kin or Uncle has lost almost all his money in stock market.

Since, a very long time our family members, friends and media have told us to stay away from the market. The common misconception that ‘Stock investing is like GAMBLING’ has become more of a fact than myth. Moreover, maybe this could be the reason why even less than 2% population of India is actively investing in the stock market.

Hence, today I am going to give you 10 great reasons to break this barrier and start investing in stock market. So, be with me for the next few couple of minutes to enjoy this roller coaster ride that may open your eyes towards investing in stock market.

Top 10 reasons to start investing in stock market.

1. To keep pace with inflation:

Inflation is a state where the prices are rising and value of purchasing power of money is decreasing. Inflation occurs in an economy when there is an expansion of the total amount of money. Overall, Inflation is not desirable for an economy.

Let us understand inflation with an example. Suppose you have Rs 5 lakhs in your account and you want to buy a car, which also costs Rs 5 lakhs currently. Then you changed your mind, deciding to buy the car next year, and kept your money in the saving account. The bank is giving you a decent interest of 5% pa. Now, let us fast forward to next year. You went to the bank and came home happily with your money that has become Rs 5.25 lakhs now. Then you went to the car showroom. But boom! You get the shock. The price of that car has now increased to Rs 5.3 lakhs. The car, which you could have easily bought last year, is now not affordable to you. That is inflation.

The inflation in India for last few years has been around 4-5%. The return on the saving account (Interest rate) is around 4-6% per annum. Hence, a saving account cannot beat the inflation. Overall, if you want to beat the inflation, you have to invest your money intelligently. And the stock market is the best place for intelligent investors. If you buy stocks of decent companies, you can easily get a return of between 10-25% depending on how good the stock is and how much time you invested in choosing the stock. Therefore, investing in stock market is a great option if you want to keep pace with the rising inflation.

2. Most growth potential:

For the past couple of decades, Stocks and real estate are the two investments, which have constantly beat all other forms of investment. Whether it is bonds or commodities like gold, silver, petroleum etc. stock market has been able to outperform all these investments with the best returns on the investments. Hence, with the tremendous growth potential in the stock market, it is always advisable to invest in stocks.

3. Investing makes your money work for you:

Money is important. We need money in every aspect of life. Most people say that they do not work for money and money is the cause of most problems. However, lack of money is the cause of most problems and investing is the solution to this problem. If you invest your money in good companies, you just have to sit idly and do nothing. Your money will grow itself as the company prospers. In the meanwhile, when your money is growing by itself, you can use your time in whatever way you want. In this way, you can make your money work for you.

4. Stock Investing takes as little amount as buying a burger:

There is a common misconception among many people that they need a huge sum to start investing in the stock market. However, that is not true. You can start investing with as little money as required to buy a burger. There are a number of stocks whose price is less than Rs 100. You can invest an even very small amount of money and start getting good returns. This option is not available in other for other forms of investments like gold or real estate. In addition, remember a little bit of things everyday ads up to a big result.

5. You do not need to be a genius to invest in the stock market:

If you can understand 5th standard math, then you can understand stock market’- Peter Lynch.

Lynch is one of the most renowned fund managers famous for giving around 30% return for a continuous period of 13 years at Fidelity. He always motivates common people to invest in stocks and believes the stock market is for everyone. You do not need to be a mastermind or rocket scientist to invest in stock market. Unlike starting most business or start-ups, the stock market requires only a little money, math, time and interest. Anyone can get huge returns by investing in the stock market.

If you are new to investing and want to stay away from common myths and mistakes in stock market, I will highly recommend you to read this book: One Up On Wall Street: How To Use What You Already Know To Make Money In the Market. It is one of my favourite books on stock market.

6. Stock investing is a lot easier now:

It is easy to invest in stocks in India now and hardly requires any expertise to buy stocks online. Trading with the online brokerage account is a lot simpler now. Moreover, with the increase in financial websites and apps; finding and selecting stocks is also easy now. You do not need to go through all the boring financial newspaper and magazines now and need not to rely on newsletters to get companies financial reports now. Now, you can easily find them on the company’s website or on the financial websites.

7. Tax benefits from the government:

There are a number of tax benefits in investing in stock market. India has the provisions of tax-free return from equity, in case share is held for more than 1 year. The long-term capital gains tax in India is zero. From the updated rules in Budget 2018, the long-term capital gain tax is 10% for gains exceeding Rs 1 lakh. Still, this is better than the return of 6.5% from FDs, which is again taxable up to 10-30% depending on your tax slab. That’s why it is a popular quote- ‘The rich pay less tax’.

8. You do not have to dig deep.

Everyone knows about Eicher motors, the parent company of ‘Royal Enfield’. The company makes famous ‘bullet’ bikes. Many old and young people have a dream to own a ‘bullet’. If only people have bought a large volume of stocks of ‘Eicher motors’ when it launched the ‘Royal Enfield’ bikes, they would have been a millionaire by now. Eicher motors have given around 129,000% return since 2002; The price appreciated from Rs 22 (in September 2000) to Rs 29,000 current price (May 2017).

There are a number of other examples of common stocks as well that has given more than several hundred percents returns over the last few years. For example, Symphony, Suzuki, HPCL, Titan Company etc. These companies are well-known to the common people. Overall, people can easily find such growing companies around them. Even a famous company like Titan can give you great returns. You are not supposed to find a very rare and un-heard petroleum or metal company. You just have to be willing to look around enough and notice them.

9. To create a secondary source of income:

It has always been taught in our school- ‘Get a high paid safe and secure job’. What is not taught is what will happen if the company is shut down or you are fired. We should always have a backup. For public in India, stocks help to create this additional source of income. Most of the people are entirely busy with their office their entire life. For those people, Investing in the stock market can be their second source of income. Through the value appreciation and dividends, they can steadily grow additional income. That is why people need to start investing in stock market.

10. The power of compound interest:

Stock Investing allows you to take advantage of compound interest, which grows your wealth exponentially. Most of the bank savings account gives you a linear simple interest. However, with investing in stock, you can get compounded returns. The famous scientist Albert Einstein once said- “Compounding is the eighth wonder of the world”. The world greatest investor, Warren Buffett, is known to have a compounded return of around 22% for the last 5 decades. Moreover, this compounded return for a long time has made him one of the richest men on earth. The power of compounding is one of the major reasons why people should invest in stock market.

Apart there 10 reasons, there are also other couples of reasons to start investing in stock market. Nevertheless, they are out of the scope for the beginners and you can only realize them once you enter the stock market world.

I hope the post is useful for the readers. If there is an additional reason to invest in the stock market that I missed or you want to add to the list, feel free to comment below. I will be happy to include them also. Happy investing!

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Tags: 10 Reasons to start investing in stock market, Reasons to start investing, Reasons to start investing in stock market, top reasons to start investing,

Different Charges on Share Trading

Different Charges on Share Trading Explained- Brokerage, STT & More

Different Charges on Share Trading Explained. Brokerage, STT, DP & More- There are a number of charges involved while trading in India i.e. buying or selling of shares. Some of them are common like brokerage charge & STT, while there are many whom the investors are not afraid of. In this post, I am going to explain all of the different charges on share trading. Some of them are brokerage charge, Security transaction charge, stamp duty etc. But before we learn about them, there are few basics things that we need to understand first.

So, be with me for the next 8-10 minutes to understand the explanation of all the different charges on share trading.

Following are the things that you need to know first:

1. Intraday Trading and Delivery:

  • When you buy & sell a share on the same day, then it’s called an Intraday trading. For example, you bought a share in the morning and sold it before the market closes on the same day, then it will be considered as an intraday
  • On the other hand, when you buy a share and hold it for at least one day, then it’s called a delivery. For example, you bought a share today and sold it any day but today then it will be considered it as a delivery. Here you can sell the stock tomorrow, or the day after that, or a week later, a year later or 20 years later.

 2. Full-Service Brokers and Discount Brokers:

  • Full-Service brokers are the traditional brokers who offer full-service trading like stocks, commodities, currency along with research and advisory, sales and asset management, investment banking all in one account. For example, ICICI Direct, Kotak Securities etc.
  • Discount brokers are who offer high speed and the state-of-the-art execution platform for trading in stocks, commodities and currency derivatives. They charge a reduced commission and do not provide investment advice. For example, Pro stocks, Zerodha, Trade Smart Online etc.
  • In general, a full-service broker charge between 0.01% – 0.50% brokerage charge on Intraday and delivery.
  • The discount brokers charge a flat fee (fixed fee of Rs 10 or Rs 20 per trade) on intraday and delivery trading. There are also a couple of discount brokers who do not charge any fee on delivery trading.

It is important to note that you have to pay a brokerage charge on both times of trading i.e. while buying a share and selling a share. There are some brokers (very few) who charge brokerage fee only at one side of transaction i.e. either on buying or selling.

Let’s take an example to understand the brokerage charge better. Suppose there is a brokerage firm called – ABC. Now, ABC charges a brokerage fee of 0.05% on intraday trading and 0.30% on delivery trading. The total charges on both tradings can be given as-

Intraday Trading Delivery
Brokerage charge= 0.05% of total turnover Brokerage charge= 0.30% of total turnover
If we buy a single stock worth Rs 100, then
Brokerage charge = 0.05% of Rs 100 = Rs 0.05
If we buy a single stock worth Rs 100, then brokerage charge = 0.30% of Rs 100 = Rs 0.30
Total brokerage charge on trading (for both buying and selling) = 2 * 0.05 = Rs 0.10 Total brokerage charge on trading (for both buying and selling) = 2 * 0.30 = Rs 0.60

As the competitions in the brokers are increasing, the brokerage charges are decreasing. In coming days, these rates can even reduce further.

Apart from brokerage charge, there are also an additional couple of charges and taxes to be paid while share trading. For example, Security transaction tax, service tax, stamps duty, transaction charges, SEBI turnover charges, depository participant (DP) charges and capital gain tax.

Let’s understand the other different charges on share trading and taxes involved first. Then we will see an example for further understanding.

Different Charges on Share Trading-

Security Transaction Tax (STT):

  • This is the second biggest charge after the brokerage charge.
  • For delivery trading, STT is charged on both sides (buy & sell) of trading.
  • For intraday trading, STT is charged only when you sell the stock.
  • In general, for delivery, the STT charge is around 0.1% of total transaction (on each side of trading)
  • For intraday, the STT charge is around 0.025% of the total transaction (while selling).

Service Tax:

It is same for intraday and delivery trading. Service tax is equal to the 15% of whatever brokerage charge you paid.

Stamp Duty:

This is charged by the state government. Different states have different stamp duty. Here is the stamp duty of two of the Indian states-

  Intraday Delivery
Maharashtra 0.002% 0.01%
Delhi 0.0025% 0.0025%

Stamp duty is also charged on both sides of trading (buying & selling) and are charged on the total amount (turnover).

Transaction Charges:

  • This is charged by the stock exchanges. Transaction charges are charged on both sides of the trading and are same for both intraday & delivery.
  • National stock exchange (NSE) charges a transaction fee of 0.00325% of the total amount.
  • Bombay stock exchange (BSE) charges a transaction fee of 0.00275% on total amount.

SEBI Turnover Charges:

  • Here, SEBI stands for Securities exchange board of India and it is the security market regulator. SEBI makes the rules and regulations for the exchanges.
  • It is charged on both sides of transaction i.e. while buying and selling.
  • The SEBI turnover charge is 0.0002% of the total amount and is same for both intraday and delivery trading.

Depository Participant (DP) Charges:

  • There are two stock depositories in India- NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
  • Whenever you buy a share, it is kept in an electronic form in a depository. For this service, the depositories charge some fixed amount.
  • They don’t charge the investors directory but charge the depository participant. Here, the broker company or your demat account company is the depository participant (DP).
  • DP acts as a linkage between the depository and the investor as the investors cannot approach depository directly. So, overall the depository charges the depository participant and then the depository participant (DP) charges the investors.
  • DP charges are a flat of between Rs 10 to 35 depending on your broker and this is also charged only for delivery trading (not for intraday)

Capital Gain Tax:

  • This is the most important tax to understand for a trader.
  • There are two types of Capital gain tax – Short-term capital gain tax and Long-term capital gain tax.
  • When you sell a stock before 1 year of buying, then it is considered as a Short-term. Here a flat 15% of the profit is charged as short-term capital gain tax.
  • When you sell a stock after 1 year of buying, then it is called long-term capital gain tax. There is no tax on long-term capital gain.
  • For a short-term capital gain tax, the delivery trader has to pay flat 15% and it doesn’t matter what tax slab they are in. But this doesn’t apply to an intraday trader as they have to pay capital gain tax according to their tax slab.
  • As the long-term capital gain tax is nil, the big investors try to get maximum profit from it by investing for long term.

If you want to read further in details, I will recommend you to read this book: Everything You Wanted to Know About Stock Market Investing -Best selling book for stock market beginners. 

Now, let us see an example to understand these different charges on share trading and taxes involved better. Suppose there are two traders- Rajat and Prasad. Here Rajat is a delivery trader who invests in long-term i.e. for 2-3 years. On the other hand, Prasad is an intraday trader.

They both have their accounts in same brokerage company named ABC. The brokerage charge for ABC is 0.05% on intraday trading and 0.30% on delivery trading. Also, let us suppose that both Rajat and Prasad have invested a total of Rs 10,000 in the shares of Tata Motors. In addition, they both live in Maharastra.

Now the different charges and taxes paid by them for complete trading i.e. from buying to selling the shares can be given as-

Rajat

Delivery Trader (Long term)

Prasad
(Intraday Trader)
Total Investment Rs 10,000 Rs 10,000
Exchange NSE NSE
Brokerage Charge 0.30% of Total Amount
= 0.30% of Rs 10,000 = Rs 30
Total brokerage charge= 2*30 = Rs 60
0.05% of Total Amount
= 0.0% of Rs 10,000 = Rs 5
Total brokerage charge= 2*5 = Rs 10
STT 0.1% of total amount
= 0.1 % of Rs 10,000 = Rs 10
Total STT = 2*10 = Rs 20
0.025% of total amount
= 0.025 % of Rs 10,000 = Rs 2.5
Total STT = 1*2.5 = Rs 2.5
Service Tax 15% of brokerage charge
=15% of Rs 60 = Rs 9
15% of brokerage charge
=15% of Rs 10= Rs 1.5
Stamp Duty (Maharashtra) 0.01% of total amount
= 0.01% of Rs 10,000= Rs 1
Total stamp duty = 2*1= Rs 2
0.002% of total amount
= 0.002% of Rs 10,000= Rs 0.2
Total stamp duty = 2*0.2= Rs 0.4
Transaction Charges 0.00325% of total amount
= 0.00325% of Rs 10,000= Rs 0.325
Total stamp duty = 2*0.325= Rs 0.65
0.00325% of total amount
= 0.00325% of Rs 10,000= Rs 0.325
Total stamp duty = 2*0.325= Rs 0.65
SEBI Turnover Charge 0.0002% of total amount
= 0.0002% of Rs 10,000= Rs 0.02
Total stamp duty = 2*0.02= Rs 0.04
0.0002% of total amount
= 0.0002% of Rs 10,000= Rs 0.02
Total stamp duty = 2*0.02= Rs 0.04
DP Charge Rs 15 NIL
Capital Gain Tax 0 Pays according to tax slab

 

Overall, here is the summary of all the charges and taxes paid by Rajat and Prasad.

  Rajat Prasad
Brokerage Charge Rs 60 Rs 10
STT Rs 20 Rs 2.5
Service Tax Rs 9 Rs 1.5
Stamp Duty (Maharashtra) Rs 2 Rs 0.4
Transaction Charges Rs 0.65 Rs 0.65
SEBI Turnover Charge Rs 0.04 Rs 0.04
DP Charge Rs 15 0
Capital Gain Tax 0 Pays according to tax slab
Total Charges Rs 106.69 15.09 + Capital Gain Tax

On the first glance, it looks cheap to invest in intraday as the total charges are comparatively less here. But you should note that the frequency of trading for intraday traders is quite high. So, they have to pay these charges again and again.

Also, let us take a scenario where Prasad chooses to sell his stocks after 2-3 days as the prices were quite low on that day and he was expecting some price increase on next days. In such case, Prasad turns from an intraday trader to delivery trader. Hence, his total charges also changes from Rs 15.09 to Rs 169.69.

Let us also assume that Prasad makes a profit of Rs 100 on selling. So, the capital gain tax that he has to pay will be equal to 15% of Rs 100 i.e. Rs 15. Now his situation turns out like this-

Total Charges Rs 106.69
Short term capital gain tax Rs 15
Total Charges Rs 124.63
Profit Rs 100

Here, although Prasad’s profit is Rs 100, still his expenditure is Rs 124.69 on different charges. Overall, Prasad is in loss of Rs 24.69.

Hence, charges and taxes are a very important part of trading and should not be ignored. You might think that you are in profit, but the real profit is the one which is left after deducting the charges and profit. I hope the traders will keep this in mind before trading the next time.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Tags: Different Charges on Share Trading Explained, Different Charges on Share Trading Intraday, Different Charges on Share Trading long term, Different Charges on Share Trading in delivery trading, common different Charges on Share Trading 

What is Mutual Fund? Definition, Types, Benefits & More.

A mutual fund is a collective investment that pools together the money of a large number of investors to purchase a number of securities like stocks, bonds etc.

When you purchase a share in the mutual fund, you have a small stake in all investments included in that fund. Hence, by owning a mutual fund, the investor participates in gains or losses of all the companies in the fund. For instance, you can take a mutual fund as a basket of investments. When you purchase a share of that mutual fund, you are buying one share of this basket and hence has an ownership in the all the investments in one such basket.

how mutual funds work

Image source: Corporatefinanceinstitute.com

Major Types of Mutual Funds:

Based on Asset Class

  1. Equity FundsThese funds invest the amassed money from investors in equities i.e. the stocks of different companies. The associated risks for these funds are comparatively higher as they invest in the market. However, they also provide higher returns.
  2. Debt Funds: These funds invest in debt instruments like bonds, securities, fixed income assets, the company’s debentures etc. They provide a safer investment option for investors looking for small regular returns with low risk.
  3. Hybrid Funds: As the name suggests, Hybrid or balanced funds invests in both equity and debt instruments like stocks, bonds etc. This ratio can be variable or fixed depending on the fund. This fund helps to bridge the gap between entirely equity or debt fund and suitable for investors looking to take higher risk than debt funds in order to get bigger rewards.
  4. Money Market Funds: These funds invest in liquid instruments such as bonds, T-bills, certificate of deposits etc. The risks associated with these funds are relatively low and suitable for short-term investments, less than 12 months.

Based on Structure

  1. Open End Funds: The majority of mutual funds in India are open-end funds. These funds are not listed on the stock exchanges are available for subscription through the fund. Hence, the investors have the flexibility to buy and sell these funds at any time at the current asset value price indicated by the mutual fund.
  2. Closed-End Funds:- These funds are listed on the stock exchange. They have a fixed number of outstanding shares and operate for a fixed duration. The fund is open for subscription only during a specified period. These funds also terminate on a specified date. Hence, the investors can redeem their units only on a specified date.

types of mutual funds

(Image Credits: Kotak Securities)

Benefits of Mutual funds:

There are a couple of benefits in investing in a mutual fund.

For example, if there is an investor who wants to invest in stocks but has no time to analyze and create a portfolio. Then he can be benefited from the mutual fund. This investor just has to buy a mutual fund and hence, in a single purchase he gets an investment similar to purchasing the entire portfolio of stocks.

mutual funds trade brains5

The various benefits of investing in a mutual fund are described below:

  • A simple way to make a diversified investment: A mutual fund has a number of securities like stocks, bonds, fixed etc already in its portfolio. Therefore, buying a mutual fund is a simple way to make a diversified investment. Further, diversification also reduces risk which is an added benefit of buying a mutual fund.
  • Managed by a financial professional: The Fund manager or managers actively manage a mutual fund. They try to give the maximum returns to the investors using their professional expertise. Hence, those investors who don’t have time to invest by their own can get benefits from the expertise of these fund managers.
  • Allow investors to participate in a wide variety of investments: This is one of the greatest advantages of buying a mutual fund. There are a variety of mutual funds available to invest in equity fund (Index funds, growth funds, etc.), fixed income funds, income tax saver funds, balanced funds etc. An investor can easily select the best one which suits his strategy.
  • Investors can buy/sell/increase/decrease their mutual funds whenever they want: There is great flexibility to for the investors while investing in mutual funds. They can easily buy, sell, increase or decrease their investment in different funds within seconds. However, please note that it’s suggested to read the mutual fund prospectus carefully before subscribing as some mutual funds have an entry or exit-load.

If you are new to mutual fund investing and want to learn from scratch, I highly recommed you to check out this online course: Investing in Mutual Funds? A Beginner’s Course.

Which mutual fund to buy?

After understanding the benefits of a mutual fund, the next question is which mutual fund to buy? There is a variety of mutual funds available in the market which you can find online. These mutual funds have different ratings & rankings and you can choose a suitable mutual fund according to your goal. Here are the two few sites where you can search online:

Generally, you need to read the prospectus of a mutual fund which gives a wide variety of information about the fund. The fund prospectus has details like fee & charges, minimum investment amount, performance history, risks, and other particulars. Here are the few examples of mutual funds (provided by moneycontrol website):mutual funds trade brains2

Disadvantages of Mutual Funds:

Here are the few disadvantages of buying a mutual fund:

  • Fees and Expenses: There are a couple of possible fees in mutual funds like expense fee, exit fees etc which might reduce the overall returns.
  • No Insurance: There is no guarantee of success in the mutual funds. The mutual fund providing companies always state the following in the declaimer in their advertisements:
  • Mediocre Performance: On an average, a majority of mutual funds are not able to beat the market indices.
  • Loss of Control: The fund managers are responsible for buying and selling of the securities and you have no say in managing the portfolio. You are trusting someone else with your money when you invest in mutual funds.

mutual funds trade brains 1

How to make money by the mutual fund?

There are basically two ways to make money by a mutual fund –

  1. Appreciation: When the mutual fund appreciates i.e. when the fund grows in value. You can sell the mutual fund at the appreciated value and get a good return on your investment.
  2. Dividend Payment: Mutual funds also provide dividends to the investors when they receive the dividend from the companies they own in their portfolio. Please read the prospectus carefully if you are buying a mutual fund for dividend payments.

Also read: Growth vs Dividend Mutual Funds: Which one is better?

So, that’s all for the basics of the mutual fund. In the next post, I will describe how to buy a mutual fund.

In the meantime, if you need any help or have any doubts, feel free to comment below. I will be happy to help you.

The Intelligent Investor by Benjamin Graham Summary & Book Review COVER

The Intelligent Investor by Benjamin Graham Summary & Book Review

The Intelligent Investor by Benjamin Graham, also referred as the bible of the stock market, was originally written in 1949 by Benjamin Graham, a legendary investor and also known as the father of value investingBen Graham was also the mentor and professor of well-known billionaire investor, Warren Buffett.

The 2006 revised edition of the book ‘The Intelligent Investor’ has added commentary by Jason Zweig, a famous wall-street investor, and editor. These added commentaries are used to relate Graham’s idea to the present world. It highlights that the book has time-tested techniques. The book has over 600 pages (although originally around 450-500 page but the added commentaries in revised edition increased the width of the book). Overall, it’s a classic book with added quick notes.

Why You Should Read This Book:

Warren Buffett (worth over 73.1 billion dollars) says- ‘This book is by far the best book on investing ever written’. Needless to mention that this book is Warren Buffett’s all-time favorite. He also admitted that the book helped him in developing a conceptual framework for his future investments and capital allocations. Further, he made the following remarks about the book in its preface:

  • Investing doesn’t require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework.
  • Pay special attention to chapters 8 & 20.
  • Outstanding results are based on three things – Effort, Research, amplitudes of the market (This book will allow you to profit from them, not participate)

NOTE: If you want to buy this book, I highly recommend you to buy through Amazon at this link. It’s currently on sale here- THE INTELLIGENT INVESTOR by Benjamin Graham

The Intelligent Investor by Benjamin Graham book has many valuable concepts and a must read for all the stock market investors. The first few chapters of the book are dedicated to the general concepts of the market. As the book was originally written in 1949, the book also consists of lots of details about the bonds, preferred stocks & inflation.

The next few chapters describe the methods to analyze stocks using ratios, balance sheet, cash flow etc. The second half of the book is of more importance for the stock investors as it explains the different strategies of the defensive & enterprising investors, along with chapters on management, dividend policy, and case studies.

Please also read: 10 Must Read books for the Stock Market Investors

The three main points covered in the books:

Although there are lots of proven concepts covered in the book, however, the key three points in the book- the intelligent investor by Benjamin Graham is summarized here:

1. Investing vs. Speculating:

“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” – Benjamin Graham

Let’s understand this concept with the help of an example. Imagine you are planning to buy a printing press. Now, to buy this company you can use two approaches.

First, you visited the company, calculated the asset value of the printing shops, checked the total income and cash flow of the company, verified the effectiveness of the managers, calculated the total assets & liabilities and then lastly come up with a final price for the printing company.

The second approach is that you met with the owner and decided to pay the price whatever he is asking for.

From the example, we can establish the difference between an investor and a speculator. The Investor follows the first approach while the speculator follows the other. Here is the key difference between these two:

Investor Speculator
Goes through proper analysis Does not meet these standards.
Considers the safety of principle ——–
Gets adequate returns ——–

Here is the quote about Speculators by Benjamin Graham:

the intelligent investor summary 5

2. The margin of Safety:

This is another one of the pronounced concept introduced by Benjamin Franklin. He says that one should always invest with a margin of safety. Let us understand this by an example.

Imagine you are in a construction business. You took an order to make a bridge, which can hold up to 8 tons. Now, as a constructor, you might consider making the bridge with an additional 2 tons of holding capacity so that it will not collapse in some extraordinary situation. Overall, you will make the bridge with a total of 10 tons of holding capacity.

Here, your additional 2 tons is the margin of safety.

In the same way, while investing we should consider this margin of safety. It is the central concept of value investing.  If you think a stock is valued at Rs 100 per share (fairly), there is no harm in giving yourself some benefit of the doubt that you may be wrong with this calculation. And hence, you should buy at Rs 70, Rs 80 or Rs 90 instead of Rs 100. Here, the difference in the calculated amount and your final price is your margin of safety.

Here is the quote about the importance of margin of safety by Benjamin Graham:

The Intelligent Investor by Benjamin Graham

3. Mr. Market

In the book ‘The Intelligent Investor’, Graham tells a story about a man he calls Mr. Market. In the story, Mr. Market is a business partner of yours (Investors). Every day Mr. Market comes to your door and offers to either buy your stake of the partnership or sell you his stake to you.

But here’s the catch: Mr. Market is an emotional man who lets his enthusiasm and despair affect the price he is willing to buy/sell shares on any given day. Because of this, on some days he’ll come to the door feeling jubilant and will offer you a high price for your share of the business and demand a similarly high price if you want to buy his. On other days, Mr. Market will be inconsolably depressed and will be willing to sell you his stake for a very low price, but will also only give you the same lowball offer if you want to sell your stake.

On any given day, you can obviously buy or sell to Mr. Market. But, you also have the option of completely ignoring him i.e. you don’t need to trade at all with Mr. Market. If you do ignore him, he never holds it against you and always comes back the following day.

The intelligent investor will attempt to take advantage of Mr. Market by buying low and selling high.  There is no need to feel guilty for ripping off Mr. Market; after all, he is setting the price. As an intelligent investor, you are doing business with him only when it’s to your advantage. That’s all.

The key point to note here is that though Mr. Market offers some great deals from time to time. Investors just have to remain alert and ready when the offers come up.

Now, like Mr. Market, the stock market also behaves in the same manner. The market swings give an intelligent investor the opportunities to buy low and sell high. Every day we can pull up quotes for various stocks or for the entire market as a whole. If you think the prices are low in relation to value, you can buy. If you think prices are high in relation to value, you can sell. Lastly, if prices fall somewhere in the grey area in between, you’re never forced to do either.Mr. Market and Stock Market:

So, this is a value-oriented disciplined investing. Don’t fall victim to irrational exuberance if the underlying fundamentals of the company are strong. In short, do not react to the hyperboles of the market’s daily fluctuations. Don’t panic, don’t sell.

The Intelligent Investor by Benjamin Graham

Other key points from the book The Intelligent Investor by Benjamin Graham on the Investor and market fluctuations:

  • A common stock portfolio is certain to fluctuate over any period of time. The investor should be prepared financially and psychologically for this fluctuation. Investors might want to make a profit from market level changes. But this can lead to speculative attitudes and activities which can be dangerous. Anyways, if you want to speculate do so with eyes open, and knowledge that you will probably lose money in the end.
  • Graham’s Opinion on aggressive investing: The low probability of aggressive picks will out-weigh the gains collected over a long period of time. ‘The aggressive investor will expect to fare better than his passive equivalent, but his results may well be worse.’

That’s all. I hope this post about the ‘The Intelligent Investor Summary & Book Review’ is helpful to you. I will highly recommend you to get a copy of this book and start reading. There are many valuable concepts by Benjamin Graham that new and old stock investors should learn.

If you need any further help with the book or have any doubts- feel free to comment below. I will be happy to help you. Happy Investing!

The Intelligent Investor by Benjamin Graham

 
financial ratio analysis 1

8 Financial Ratio Analysis that Every Stock Investor Should Know

8 Financial Ratio Analysis that Every Stock Investor Should Know. The valuation of a company is a very tedious job. It’s not easy to evaluate the true worth of a company as the process takes the reading of company’s several years’ financial statements like balance sheet, profit and loss statements, cash-flow statement, Income statement etc.

Although it really tough to go through all these information, however, there are various financial ratios available which can make the life of a stock investor really simple. Using these ratios they can choose right companies to invest in or to compare the financials of two companies to find out which one is better.

This post about ‘8 Financial Ratio Analysis that Every Stock Investor Should Know’ is divided into two parts. In the first part, I will give you the definitions and examples of these 8 financial ratios. In the second part, after financial ratio analysis, I will tell you how and where to find these ratios. So, be with me for the next 8-10 minutes to enhance your financial knowledge.

So, let’s start the first part of this post with the financial ratio analysis.

If you are a beginner and want to learn stock market, I will highly recommend you to read this book first: Everything You Wanted to Know About Stock Market Investing


Quick note: You don’t need to worry about how to calculate these ratios or remember the formulas by-heart, as it will be already given in the financial websites. However, I will recommend you to go through this financial ratio analysis as it’s always beneficial to have good financial knowledge.


financial ratio analysis trade brains

Financial Ratio Analysis that Every Stock Investor Should Know:

  1. Earnings Per Share (EPS):

    This is one of the key ratios and is really important to understand Earnings per share (EPS) before we study other ratios. EPS is basically the profit that a company has made over the last year divided by how many shares are on the market. Preferred shares are not included while calculating EPS.

    Earnings Per Share (EPS) = (Net income – dividends from preferred stock)/(Average outstanding shares)

    From the perspective of an investor, it’s always better to invest in a company with higher EPS as it means that the company is generating greater profits. Also, before investing in a company, you should check it’s EPS for the last 5 years. If the EPS is growing for these years, it’s a good sign and if the EPS is regularly falling or is erratic, then you should start searching another company.

  2. Price to Earnings Ratio (P/E)

    The Price to Earnings ratio is one of the most widely used financial ratio analysis among the investors for a very long time. A high P/E ratio generally shows that the investor is paying more for the share. As a thumb rule, a low P/E ratio is preferred while buying a stock, but the definition of ‘low’ varies from industries to industries. So, different sectors (Ex Automobile, Banks etc) have different P/E ratios for the companies in their sector, and comparing the P/E ratio of the company of one sector with P/E ratio of the company of another sector will be insignificant. However, you can use P/E ratio to compare the companies in the same sector, preferring one with low P/E. The P/E ratio is calculated using this formula:

    Price to Earnings Ratio= (Price Per Share)/( Earnings Per Share)

    It’s easier to find the find the price of the share as you can find it at the current closing stock price. For the earning per share, we can have either trailing EPS (earnings per share based on the past 12 months) or Forward EPS (Estimated basic earnings per share based on a forward 12-month projection. It’s easier to find the trailing EPS as we already have the result of the past 12 month’s performance of the company.

  3. Price to Book Ratio (P/B)

    Price to Book Ratio (P/B) is calculated by dividing the current price of the stock by the latest quarter’s book value per share. P/B ratio is an indication of how much shareholders are paying for the net assets of a company. Generally, a lower P/B ratio could mean that the stock is undervalued, but again the definition of lower varies from sector to sector.

    Price to Book Ratio = (Price per Share)/( Book Value per Share)

  4. Debt to Equity Ratio

    The debt-to-equity ratio measures the relationship between the amount of capital that has been borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity). Generally, as a firm’s debt-to-equity ratio increases, it becomes riskier A lower debt-to-equity number means that a company is using less leverage and has a stronger equity position.

    Debt to Equity Ratio =(Total Liabilities)/(Total Shareholder Equity)

    As a thumb of rule, companies with a debt-to-equity ratio more than 1 are risky and should be considered carefully before investing.

  5. Return on Equity (ROE)

    Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders has invested. In other words, ROE tells you how good a company is at rewarding its shareholders for their investment.

    Return on Equity = (Net Income)/(Average Stockholder Equity)

    As a thumb rule, always invest in a company with ROE greater than 20% for at least last 3 years. A yearly increase in ROE is also a good sign.

  6. Price to Sales Ratio (P/S)

    The stock’s price/sales ratio (P/S) ratio measures the price of a company’s stock against its annual sales. P/S ratio is another stock valuation indicator similar to the P/E ratio.

    Price to Sales Ratio = (Price per Share)/(Annual Sales Per Share)

    The P/S ratio is a great tool because sales figures are considered to be relatively reliable while other income statement items, like earnings, can be easily manipulated by using different accounting rules.

  7. Current Ratio

    The current ratio is a key financial ratio for evaluating a company’s liquidity. It measures the proportion of current assets available to cover current liabilities. It is a company’s ability to pay its short-term liabilities with its short-term assets. If the ratio is over 1.0, the firm has more short-term assets than short-term debts. But if the current ratio is less than 1.0, the opposite is true and the company could be vulnerable

    Current Ratio = (Current Assets)/(Current Liabilities)

    As a thumb rule, always invest in a company with a current ratio greater than 1.

  8. Dividend Yield

    A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current price of the stock and is expressed in annual percentage.

    Dividend Yield = (Dividend per Share)/(Price per Share)*100

    For Example, If the share price of a company is Rs 100 and it is giving a dividend of Rs 10, then the dividend yield will be 10%. It totally depends on the investor whether he wants to invest in a high or a low dividend yielding company.

    Also Read: 4 Must-Know Dates for a Dividend Stock Investor

If you want to read further in details, I will recommend you to read this book: Everything You Wanted to Know About Stock Market Investing -Best selling book for stock market beginners. 

Now that we have completed the key financial ratio analysis, we should move towards where and how to find these financial ratios.

For an Indian Investor, you these are 3 big financial websites where you can find all the key ratios mentioned above along with other important financial information:

I, generally use money control to find the key financial ratio analysis. The mobile app for Money control is also very efficient and friendly and I will recommend you to use the mobile app.

Now, let me show you how to find these key ratios in Money Control. Let’s take a company, Say ‘Tata Motors’. Now, we will dig deep to find all the above-mentioned rations.

Financial ratio analysis -Steps to find the Key Ratios in Money Control:

  • Open http://www.moneycontrol.com/ and search for ‘Tata Motors’.
    financial ratio analysis 3
  • This will take you to the Tata Motor’s stock quote page.
    Scroll down to find the P/E, P/B, and Dividend Yield.
    financial ratio analysis 4financial ratio analysis 2
  • Now go to the ‘Financials’ tab and select ‘Ratio’ option [i.e. Financial  Ratio]
    Scroll down to find all the remaining financial ratios.
    financial ratio analysis 5

That’s all! These are the steps to do the key financial ratio analysis. Now, let me give you a quick summary of all the key financial ratios mentioned in the post.


Summary:

8 Financial Ratio Analysis that Every Stock Investor Should Know:

  1. Earnings Per Share (EPS) – Increasing for last 5 years
  2. Price to Earnings Ratio (P/E) – Low compared to companies in the same sector
  3. Price to Book Ratio (P/B) – Low compared companies in the same sector
  4. Debt to Equity Ratio – Should be less than 1
  5. Return on Equity (ROE) – Should be greater than 20% 
  6. Price to Sales Ratio (P/S) – Smaller ratio (less than 1) is preferred
  7. Current Ratio – Should be greater than 1
  8. Dividend Yield – Depends on Investor/ Increasing preferred

In addition, here is a checklist (that you should download) which can help you to select a fundamentally strong company based on the financial ratios.

Feel free to share this image with ones whom you think can get benefit from the checklist.

5 simple financial ratios for stock picking

I hope this post on ‘8 Financial Ratio Analysis that Every Stock Investor Should Know’ is useful for the readers. If you have any doubt or need any further clarifications, feel free to comment below. I will be happy to help you.

dividend dates explained

Dividend Dates Explained – Must Know Dates for Investors

Dividend Dates Explained – Must Know Dates for Investors:

There are lots of investors in the stock market who buys a stock only to receive dividends. A regular, consistent and increasing dividend per year is what these investors are looking for. In general, those investors who are planning for a long-term investment with some yearly income invest in dividend stocks.

What is a ‘Dividend’?

A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property. A company’s net profits can be allocated to shareholders via a dividend. Larger, established companies tend to issue regular dividends as they seek to maximize shareholder wealth in ways aside from supernormal growth.

Souce: Investopedia

Here is the list of some of the highest dividend paying companies in India: 10 Best Dividend Stocks in India That Will Make Your Portfolio Rich.

The timing of buying/selling is the most important factor for receiving dividends. You don’t want to buy these stocks if you won’t be getting any dividend, right? For example, if you buy these stocks after a certain time, the previous seller might get the dividend as he was holding the stock when the company was recording the name of the shareholder before distribution of dividends.

Therefore, it’s very important that you monitor the dates during the press conference (corporate announcements) by the company’s board of directors. It’s during the press conference when the company announces how much dividends they will give to the shareholders and the dates when the stockholders will receive their dividends.

Also read: How to follow stock Market, 10 Must-Read books for Stock Market Investors

Understanding the dates mentioned in the corporate announcement is quite important for the investors as it decides the timing of trading of these dividend stocks. And this post is for explaining those dates only. So, be with me for the next 5-8 minutes to understand the dividend dates explained for newbies.

Want to learn more? Here is a best selling book on stock market which I highly recommend to read: Beating the street by Peter Lynch

Must Know Dividend Dates for Investors

In general, there are 4 important dividend dates that every investor should know. They are:

  1. Dividend Declaration Date
  2. Record Date
  3. Ex-Dividend Date
  4. Payment Date

Among the all four, the Ex-Dividend day is of uttermost importance. You will understand the importance of this date as you read this complete article on the dividend dates explained.

dividend dates explained 2

For now, let’s understand all these dates first:

1. Dividend Declaration Date:

This is the date on which the company’s board of directors declares the dividends for the stockholders. The conference includes the date of dividend distribution, size of the dividend and the record date.

2. Record Date:

On the dividend declaration day, the company also announces the record date. The record date is the date on which your name should be present on the company’s list of shareholders i.e. record book, to get the dividend. Shareholders who are not registered as of this date on the company’s record book will not receive the dividend. According to the company, you are only eligible to get the dividends, if your name is on their book till this record date.

3. Ex-Dividend Date:

The Ex-dividend date is usually two days before the record date. In order to be able to get the dividend, you will have to purchase the stock before the ex-dividend date. If you buy the stock on or after the Ex-dividend date, then you won’t get the dividend, instead, the previous seller will get the dividend.

After the company sets the date of record, the ex-dividend date is set by the stock exchange. So, the two days before the record date is generally used by the stock exchange to give the name of the shareholders to the company. The investors who buy the stock on or after the ex-dividend date won’t be listed in the record book of the company. So, if you purchase a stock on or after the ex-dividend date, you won’t receive a dividend until it is declared for the next time period.

4. Payment Date:

This is the date set the by the company, on which the dividends deposited are paid to the stockholders. Only those stockholders who bought the stock before the Ex-dividend date are entitled to get the dividend.

So, I hope you have understood all the dividend dates explained above. As I already mentioned earlier, the Ex-dividend date is the most important date among all. I will summarize the above dividend dates explained here:

Type Declaration Date Ex-Dividend Date Record Date Payment Date
Notes The date the dividend is announced by the company The date before which you must own the stock to be entitled to the dividend. The date by which you must be on the company’s record books as a shareholder to receive the dividend. The date the dividend is paid to shareholders.

Now, let me give you an example of the company’s board of director’s press conference so that you get a good knowledge of the above dividend dates explained.

Hindustan Zinc Dividend:

“Shares of Hindustan Zinc will turn ex-dividend on Wednesday. The company is paying ₹27.50 a share as second interim dividend for fiscal 2016-17. The record date for the dividend is March 30. 2017” (You can read the complete news here.)

In the above announcement, the company announced two important points-

  • Dividend =  ₹27.50 per share
  • Record date = March 30, 2017

The expected Ex-dividend date should be 28th march, 2017 i.e. those investors who buy the stock of Hindustan zinc before 28th Match will be entitled to receive the dividend.

Further, if you want to know the dates of the upcoming dividends payment date, you can get it from the money control website: www.moneycontrol.com/stocks/marketinfo/dividends_declared/

I hope this post about ‘Dividend dates explained’ is helpful to the readers. If you have any doubts or need any further help on the topic ‘dividend dates explained’ feel free to comment below. I will be happy to help you out.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

dividend dates explained 3

What is the minimum money I need to start stock trading in India

What is the minimum money I need to start stock trading in India?

What is the minimum money I need to start stock trading in India?

This is one of the most asked questions by the beginners when they start investing in stock market. Different newbie investors  ask the same questionin different formats. It goes like this:

What should be the ideal amount to start investing in the Stock Market?

What is the minimum money I need to start stock trading in India?

I want to invest in stock market but I do not know how much to invest?

What should be the minimum amount can I invest in stock market for long term?

I want to invest in stock market, but I don’t have much money. Is there any any minimum number of stocks that I must buy?

The general answer to all these questions is ‘there is no minimum money required to start investing in the stock market in India.

You can buy stocks for even less than Rs 10 also if you find an interesting one (Indian stock exchanges BSE & NSE has a number of stocks pricing less than even Rs 10). You don’t need to have thousands or lakhs to start trading in India. Any amount from which you can buy a stock is decent enough to start trading, no minimum money to start trading in stock market required.

Here is a list of 10 popular companies whose stock prices are less than Rs 100 (as time of writing this post).

S.No Company Price (In Rs)
1 Idea Cellular 86.70
2 Federal Bank 92.70
3 Ashok Leyland 82.50
4 Tata Power 85.55
5 Crompton Greaves 79.50
6 IDBI Bank 75.10
7 National HyroElectric Power Corporation (NHPC) 32.25
8 Reliance comm 36.80
9 SAIL (Steel Authority India Ltd) 63.85
10 Bombay Dyeing 83.50

You can easily invest in these companies.  Funny, the stock prices of these companies are even less than the Ola or Uber ride fare that you take in your hometown.  Still, people speculate that buying stocks are expensive. In addition, you can also find a complete list of stocks who price range from Rs 1 to 100  here: http://money.rediff.com/companies/price-sorted/10-100

So, the answer to the question of ‘what is the minimum money I need to start stock trading in India?’ is that there is no minimum money limit required for starting stock trading in India.

minimum money I need to start stock trading-2

However, is this all that you wanted to learn from the topic of the post? I don’t think so.

The next big question should be then ‘How much should I invest in the stock initially -if there is no minimum money I need to start stock trading?.

The answer is that if you are new to the market and still in the learning phase, it is always recommended to start small. Invest as low as possible and focus on learning. Anything between Rs 500- Rs 1000 is good enough. You really don’t want to lose thousand of money at the start of your investment journey (and then promising angrily to yourself that you won’t ever return to the market).

But, this doesn’t mean that you should take this amount as a strict rule for your initial investment. Suppose, if you found a stock, which is bit costlier, say Rs 1200. But you have done your homework, read the stock fundamentals, and are confident that the stock will give a good return in the future, then, you should go for it. Anyways, as a thumb rule for the beginners, anything between Rs 500- Rs 1000 can be used as the first stock market investment amount.

Want to learn more? Here is a best selling book on stock market which I highly recommend to read: Beating the street by Peter Lynch

The best advantage of this thumb rule is that you won’t lose too much if the things don’t work out as you imagined. Maybe, you misinterpreted the stock or did the fundamental study wrong, or the stock price fell due to some bad fortune. Still, you won’t be affected too much financially by the loss. Nonetheless, this investment will teach you a few lessons. As the saying goes:

Failures are the best teachers.

From your first investment, you will learn a lot. Remember, it’s not always about winning. You should always remember this famous quote ‘Sometimes you win, & sometimes you learn’. Further, from your first investment, you will learn more important things. You will learn what things to do and moreover, you will learn what things not to do. Besides, losing a small money won’t affect your morale and you can come back in the game again, and next time even more prepared and informed.

On the other hand, if you win i.e. the stock performed well, then congratulations. You have done a good job! 

Your first investment teaches you a great lesson if it is a failure. On the other hand, if your first stock is a winner, it gives a tremendous joy and becomes a memory for the lifetime. Both ways, you’re gonna receive something. Either a lesson or joy.

For my case, I bought three stocks during my first investment. Out of three, two performed well and the third underperformed for three continuous months. Although the overall portfolio was in profit, still the returns were not as good as I expected. Therefore, I sold the third stock after the third month. (Quick spoiler: The third stock became a multi-bagger in next two year. But, I don’t have any regrets.)

For beginners, I will suggest following their stock portfolio for three-five months before investing heavily in the market. The initial big profits on your stock might give you a great confidence to keep buying additional stocks. But you shouldn’t be greedy at that moment.  You must remember that for beginners, it’s more important to learn how to do value investing, that to earn money. And once you have learned the basics, the game is yours.

Also read :

minimum money I need to start stock trading-4

100 minus your age rule

There is a famous rule regarding how much you should invest in the stock market and widely known as ‘100 minus your age rule’. The rule is based on the principle of gradually reducing your risk as you get older. The rules go like this. The percentage of the stock holding in your net worth should be equal to 100 minus your age.’

For example, Let’s say your age is 20 and your total savings till date is Rs 1000. Then, the amount that you should invest in the stock market should be (100-20) = 80% of your total net worth. In other words, you should invest Rs 800 in the stock market if you are of age 20 from a total saving of Rs 1000.

You can read the complete post about ‘100 minus your age rule’ here.

The X/3 Rule:

This is another popular rule for beginners to reduce the risk while investing. The rule says to invest the only x/3 amount in the beginning if x is the total amount you intended to invest in a stock. After a few weeks, you can invest your next x/3 amount to the stock if it’s doing good. And finally the last x/3 again after another few months.

For example, if you intend to invest Rs 10,000 in a stock, don’t buy from the whole amount all in one go. Invest only 10,000/3=  Rs 3,333 initially. If you find your investment growing, then you can add Rs 3,333 in the next round of investment and the last Rs 3,334 in the final round. The rule greatly minimizes the risk and helps in averaging out the purchase price.

Anyways, a minor problem with this rule it that it reduces the focused amount. Therefore, the final profit might be little less than expected if the whole amount was invested at the same time. Still, it’s a great rule for a stock market beginners and helped a lot of newbies to reduce their risk and losses significantly.

There is one more rule called the ‘75% profit rule’. However, it is more like a hypothesis that a rule. It states that if 75% of stocks in your portfolio are doing good, then you can invest further. For example, if you have bought 4 stocks and 3 of them are doing good, then it means that your strategy is working and you can increase your investment. The chances of all the stocks in your portfolio(4/4) working great is very limited. Even Warren Buffett, the greatest investor of all time, has some stocks in the portfolio which gives him negative returns.

In short, if 75% of your stocks are doing great, it means that your strategy is good and it’s not the luck that is driving your portfolio. In other words, if you have only one stock in your portfolio and its growing fast, there might be a luck factor. But if 7 out of 10 stocks in your portfolio are growing, it’s more because you did your research correctly.

That’s all. These are the basics tips and tricks for the beginners to invest in the stock market.  Also remember the answer to the original question ‘what is the minimum money I need to start stock trading?’ is that there is no minimum money you need to start stock trading. That is no lower limit for that minimum money you need to start stock trading.

One more thing I would like to add to this post. There are also some additional charges while buying a stock online and the buyer has to pay them. They are generally less than 1% of the amount of the transaction. The additional charges are brokerage charge, Service charge, STT etc. Therefore, you also have to keep these charges in mind during buying a stock. Although these are a very small amount, still they will add up in the final amount of the stock that you bought.

Hence, for all those who are asking ‘What is the minimum money I need to start stock trading in India?’, the answer is that there isn’t a minimum money you need to start trading in India. Anything that suits you is good enough for the market. Any money at which you can buy a stock works fine for entering the market. Any amount that you are ready to invest, is great to start stock trading in India.

minimum money I need to start stock trading-3

Lastly, I hope my post ‘What is the minimum money I need to start stock trading in India’ is useful for the readers. If you need any further clarification or have any doubts, feel free to comment below. I’ll be happy to help you out.

If you are new to stocks and confused where to start, here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

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top 10 warren buffett quotes on investing

Top 10 Warren Buffett Quotes on Investing.

Top 10 Warren Buffett Quotes on Investing:

Warren Buffett, the most renowned investor of all time and one of the richest man on earth. He’s is probably the most famous figure when it comes to investment. The veteran investor and CEO of the Berkshire Hathaway, the American multinational conglomerate holding company are known for his investing prowess. This clever stock picker has also an amazing his wit & sense of humour.

As the world’s best investor, the people are constantly looking at Warren Buffett for investment advice. A quick google search will give you millions of results about the famous quotations by the legendary investor. The philanthropist investor, who is pledged to give 99% of his total worth to the philanthropic cause, has many of the famous quotations on investing which are worth sharing. So, today I have brought these list of the top 10 Warren Buffett quotes on Investing. Here it goes.

 Top 10 Warren Buffett Quotes on Investing.

“Price is what you pay. Value is what you get.”


“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”


“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”


“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”


“Risk comes from not knowing what you’re doing.”


“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.”


“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”


“Cash combined with courage in a time of crisis is priceless.”


“If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.”


“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”


Wanna read more from the greatest investors himself. Here is a book that I highly recommend you to read: Gems from Warren Buffett – Wit and Wisdom from 34 Years of Letters to Shareholders

I hope the quotes from this oracle of Omaha has some impact on the readers and they can also brighten their path from the lights of this great investor. I have included most of the best quotes by Warren Buffett in the top 10 Warren Buffett quotes on investing list.

Further, if you think of any other quote which you want to add to the list, please comment below. I will be happy to respond to the comments on the post ‘the top 10 Warren Buffett quotes on investing’.

top 10 warren buffett quotes on investing

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How to trade in ICICI Direct? Buy:Sell Stocks

How to trade in ICICI Direct? Buy/Sell Stocks

How to trade in ICICI Direct? Buy/Sell Stocks– ICICI direct is one of the best online broker websites for buying or selling a stock on the stock market. Using ICICI direct, you can buy or sell a stock within two minutes using your phone/laptop. The brokerage charge for the ICICI direct is decent and the interface is very user-friendly to easily understand how to trade in ICICI direct.

In this post, we are going to discuss how to trade in ICICI direct. So, be with me for the next 5-10 minutes to learn the basics of trading with ICICI direct.

For those of you who are here for a quick answer, here is the video on how to trade in ICICI direct which can help you to learn the trading process fast. But, I do recommend you to read the complete post in order to get an in-depth knowledge of trading in ICICI Direct. Here it the video –

Youtube Video:

Source: ICICI Direct

First of all, you need to know that the market opens from 9:30 AM to 3:30 PM from Monday to Friday, excluding a few national holidays like Independence day, Republic day etc. You can get the complete list of holidays in a year from BSE/NSE website. So, basically, you can place an order to buy the stocks during market days when the market is opened from 9:30 Am to 3:30 PM. At this time you can place orders to buy the stock at the current market price or you can set a limit price (Say you want to buy a stock whose market price is 90, only when the price falls to 88. Then you place a limit price 88 against the market price which is 90).

You can also place orders outside the market timings i.e. before 9:30 AM or after 3:30 PM. But the order will be executed only when the stock market opens. Although these are advantageous for those who can’t place an order during the market time, there are few disadvantages of placing the orders after market timings.

For example, you won’t know the opening price of the stocks for the next day, so it might open at a higher price the next day which may lead you to reset your order price or cancel (and you might even not be able to buy the stock). So, it would be preferable to place orders for the stocks only during the market time so that you have the full information on the current market price of the stock.

Now that you know about the background of the stock market timings, let’s move towards the topic of the post – how to trade in ICICI direct? Buy and sell stocks.

If you need help in opening your stock brokerage account, feel free to check out this awesome website- Nifty Brokers

Step by step guide for How to trade in ICICI direct:

Step 1: Login to your ICICI Direct account

First, you need your account credentials to login in the ICICI direct. If you open a 3-in-1 (Saving+Demat+Trading) account in ICICI Direct, you can have the access to buy/sell and hold your stocks using the same account. Therefore, if you are new to trading, I will suggest you open a 3-in-1 account in ICICI Direct.

After you have opened your account in the ICICI direct, you will get your username and password to log in. The first step is to the google and search, ‘ICICI Direct’. Open the first link that comes in the search engine (www.icicidirect.com). Then click on login in the top right-hand corner. The website will ask your credentials like username, password, and date of birth/pan card. After entering the correct details, you can enter inside your ICICI direct account.

STEP 2: Allocate funds for buying stocks

The next step after logging in your ICICI direct account is to allocate funds in the trading account.

The concept of allocating funds in very simple. Let’s say you have Rs 50,000 in your saving accounts in ICICI bank (or any other bank linked to your trading and demat account). And you want to buy stocks worth Rs 500. Then, you need to transfer that amount from your saving account to the trading account so that you can place the order of the stock worth Rs 500. This can be done by allocating the fund.

‘Allocate fund’ option can be found on the landing page after logging and is highlighted here.

Typically, this step of allocating funds can be done within a minute if you have a 3-in-1 ICICI Direct account. The steps are as follows:

  • Go to the option Secondary, Market Equity, ETF (Note: if you want to buy IPO, Mutual funds then you have to go to other option).
  • Select ‘ADD’ option and enter the amount you need to add.
  • Then, click on ‘Submit’.
  • You can see the allocated fund in the ‘Current Allocation’ after submitting.

Step 3: Place order for the stock

This is the third and final step for purchasing stocks using ICICI direct. After allocating the fund, you should select the option ‘Place order’, which is present in the equity option. This option is highlighted here:

After selecting the place order, you have to follow the following steps. The steps are simple and can be performed within a minute:

  1. First, select the ‘Cash’ option in the Product.
  2. Next, you have the option to select the stock exchange. You have two options- NSE (National stock exchange) or BSE (Bombay stock exchange). You can choose anyone and it doesn’t make much difference as prices are almost the same on both exchanges and follows an almost the same trend. (I generally prefer NSE.)
  3. Then you can view your limit on how much money you have to buy the stocks. This is the allocated money which you added in step 2. If you need more money, you can add amount by allocating extra funds.
  4. Now enter the stock. For example, if you want to buy a stock of ‘Tata Motors’, start typing ‘tata mot..’ on the stock option. The drop-down options will appear and you can select your stock from the list.
  5. Next, you need to enter the quantity. the number of stocks that you want to buy.
  6. After that, you have to select that option for order validity. Here you have three options – DAY, IOC or VTC. If you want to place an order for that day only, you should select Day. If you are placing a limit price and want to continue the placed order for the next few days, then you can select VTC 0valid till cancellation. (Prefer ‘day’ order)
  7. Next, you have to select the Order Type. There are two options here – Market and Limit. I have already explained these earlier in this post. If you want to buy the stock at the current market price select ‘Market’ option. If you want to buy the stock at a limit price, select the ‘Limit’ option.
    For example, let’s say that Tata motor’s stocks are currently trading at a market price of Rs 469.10. If you want to buy that stock at market price, then you should select the ‘Market’ option. If you want to buy the tata motors stock only when the price is Rs 465 or lower, select ‘limit’ option.
  8. If you have selected ‘limit option’ in the Order Type, then you need to enter the ‘Limit Price’ in the next step. (This is Rs 465 in the previous example of Tata motors).
  9. The last option is the stop loss trigger price. You can leave this option blank and is not a must-fill option. This is an order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security. You can study more about stop trigger price here.
  10. Finally, select ‘Buy Now’

After clicking on ‘Buy Now’, you will be directed to a confirmation page. You need to confirm the details. And Tada!!!! You have bought a stock! Congratulations!!!!

If you want to re-confirm the stock that you’ve bought, you can do check by selecting the option ‘TRADE BOOK’ in equity. The option is highlighted here.

So, that’s all. This is the process of How to Trade in ICICI Direct.

Quick Note: After the trade in complete, it generally takes two-three days for the stock to reflect in your portfolio. Do not worry if can’t find the stock in your portfolio on the very next day since you executed the trade. It will eventually show up. The process takes T+2 days for transferring it from the previous owner to your account.

That’s all. I hope this post is useful to the readers. If you have any doubts or need any additional help, feel free to comment below. I will be happy to help you out.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Tags: How to trade in ICICI Direct, How to trade in ICICI Direct in India, buy stocks how to trade in ICICI Direct, How to trade in ICICI Direct demat account, How to trade in ICICI Direct trading account

10 Must Read Books For Stock Market Investors.

10 Must Read Books For Stock Market Investors

Although there are tons of website and millions of books on the topic ‘stock market’, however for the beginners (and sometimes even for the seasoned investors), it’s really hard to find a decent book that can build good fundamental knowledge on the stock market basics.

It’s really important to understand the basics regarding stocks before entering the market as lack of knowledge in this field almost always leads to a huge financial loss. Further, many times, loss of capital also leads to a decline in the morale of the investor.

Therefore, today I am going to present the names of 10 must read books for the stock market investors. So, be with me for the next few minutes while I give you a brief introduction (and short review) for each of the 10 must read books for stock market investors that are listed in this post. Here it goes:

Note: Please read this article until the end as there is a bonus waiting for you in the last section.

10 Must Read Books For Stock Market Investors:

1. One Up On Wall Street

This book is ranked one on my list of 10 must read books for stock market investors.

Peter Lynch, the author of this book, is one of the most successful fund managers with an average annual return of 30% on his portfolio for a period of 13 years. (A great record for a mutual fund manager).

This classic book explains all the important basics that a beginner should know before investing. From preparing to invest, how, when, whys to the long-term investment approach, everything is covered in this book. Here, Peter Lynch describes his stock picking approach for winning stocks.

In the book, Peter Lynch also describes the 6 different types of stocks in the market and how to approach them. You can read regarding the Peter lynch’s stock categories in details here: Six Different Types of Stock in Indian Market according to Peter Lynch

In short, go to amazon and buy this book. This book needs to be in your hand if you want to learn all about stock investment basics from scratch.

You can read a detailed review of this book here.

2. The Intelligent Investor


This is also known as the bible of the stock market. A must-read book written by the legendary Benjamin Graham, a.k.a. the mentor of the greatest investor of all time- Warren Buffet.

The book explains the fundamentals of the stock market from the view-point of value investors. There are three main concepts covered in this book.

First, the investing approach for a defensive investor and enterprising (aggressive) investor. The other two concepts introduced by Graham in this book are- Mr. Market and Margin of Safety for easy explanation of the market behavior and risk management.

I will highly recommend you to read this evergreen classic book on the stock market. There are many concepts that you can learn by reading this book. I have already read this book 2 times.

A little advise. This is the oldest book in my list of ’10 Must Read Books For Stock Market Investors’, compared to the publication date of other books. As this book was written way back, you might feel like reading the 1940’s story. Further, it might be a little tough to maintain the momentum in the starting as few chapters are irrelevant to Indian stock market (you can ignore those chapters). However, the knowledge gained from completing the book will be worth it.

You can read a detailed review of ‘The Intelligent Investor’ here.

3. Beating the street


Another classic by Peter Lynch, the star mutual fund manager of the Magellan fund at Fidelity Investments. An Excellent book for individual investors looking to tap the stock market for long-term value investment opportunities. A good reference to go back to when trying out investing on your own.

It explains the fundamentals of picking your stock in a very simple language and hence listed in my 10 must read books for the stock market investors.

4. Common Stocks and Uncommon Profits


One of my favorite book regarding growth stock investment appraoch. This book was published almost the same time as ‘The Intelligent Investor’ by Ben Graham.

  • The book explains the investment philosophy of how ‘Philip Fisher’ finds growth stocks that lead to massive gains if held for long term.
  • The important chapters is the book- What to buy, where to buy & When to sell.
  • Philip Fisher also explains about the 15 points to look for in a common stock.
  • A great read for growth stock investors.

When most of the stock market investors were focusing on value, Philip Fisher was the one of the first investors to focus more on growth. I won’t go into too much detail as to spoil the fun reading this book. This amazing book finds forth rank in my list of the 10 must read books for stock market investors.

You can read a detailed review of this book here.

5. The little book that beats the market


The book ‘The little book that beats the market’ describes a ‘MAGIC FORMULA’ for selecting stocks. This formula gave brilliant returns when applied by determined and patient investors.

The magic formula given by the author is an efficient way of selecting the stocks. The formula consists of two key factors. They are: Earning yield & Return on Capital. If you consider these two key factors for any stock market before investing, then the result will surely be amazing. Bdw, this formula is also applicable in the Indian stock market.

(Note: The book is really small with just 176 pages and hence the smallest book in our list of 10 must read books for stock market investors. A good read for short vacation or a weekend.)

You can read a detailed review of this little book here.

6. The Warren Buffet Way


This was one of the best books to learn Warren Buffett investing strategy! It gives a deep insight into the Warren Buffett way of investing in stocks.

Hagstrom covers all the necessary aspects to achieve similar success like Buffett that you can apply immediately to your own portfolio. The good thing about The Warren Buffett Way is the author tends to stay away from high faulting words that makes it understandable to anyone willing learn value investment.

With the classic Warren buffett investment strategies, the book found its way in the list of the 10 must read books for the stock market investors.

7. Stocks to Riches


A must-read book for Indian Investors. This book is written in a very simple and understandable language. The author ‘Parag Parikh’, writes the whole truth about stock markets in this book.

If you want to avoid the stock market beginner’s mistakes, then you should definitely read this book before entering the market. Remember, learning from your own mistakes is not free in the stock market world as a lot of money is at the stake.

This book is written in such a manner that even a fifth grader can understand. This makes this book a classic book of all time and in my list of 10 must read books for stock market investors.

8. Learn to Earn


This book gives you a great insight into the market, economy, and capitalization. Very well written & can be easily understood by people who don’t have commerce background. A great book to read if you are starting your journey in the stock market world.

9. How to avoid loss and earn consistently in the stock market


The author of the book Prasenjit Paul, explains the scenario of the Indian stock market and the winning strategies used by him for consistent returns from the market.

The book explains the basic of Investing in Stock in very simple and lucid terms. It also gives you a 2-min strategy to shorlist/reject stocks before detailed analysis. It’s good to first read this book and then invest. The book found a definite spot on our list of 10 must read books for the stock market investors.

Note: You can read a detailed interview with the author Prasenjit Paul here.

10. Stocks for the long run


One of the best book for the practical advice on investment which includes valuable excursion into the history of markets –

  • A good read for anyone wanting to invest for their long-term future without going to the other extreme of ‘buy and hold’ forever.
  • The book gives the reader a deep appreciation of the historical returns on stocks and bonds.
  • The author, Jeremy Siegel, makes a convincing case, that for long-term growth stocks are the best asset class to hold.
  • The book also states that actively managing a portfolio or trying to time the market is counterproductive, which can be indicated by historical returns of actively managed funds versus passive indices.

A very informative book and the last book in my top 10 must read books for stock market investors list.

Summary:

Here is a quick recap of all the books listed above.

Feel free to share it with your friends who you think can get benefits from this video:

Note: If you want to buy these books, I highly recommend you purchase online through Amazon at this affiliate link. They are currently at best price at sale here only through Amazon.

Books Amazon Link
One up on the wall street Buy Now
The Intelligent Investor Buy Now
Beating the Street Buy Now
Common Stocks and Uncommon Profits Buy Now
The Little Book That Beats the Street Buy Now
The Warren Buffet Way Buy Now
Stocks to Riches Buy Now
Learn to Earn Buy Now
How to Avoid Loss & Earn Consistently Buy Now
Stocks for the Long Run Buy Now

BONUS:

Here are few other books for investors which are also worth checking out. (Although this post is about 10 must-read books, however, I just cannot miss mentioning these books here).

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

That’s all. I hope that this post is useful to the readers.

If you think I missed any important book or recommend any additional book in the list, feel free to comment below. I will be happy to read it and write a review about it.

How to buy a stock in Stock Market? Step-By-Step Explanation.

How to buy a stock in stock market? Now a day, buying a stock is as simple as recharging your mobile or transferring money. All you need is a computer with internet connection, a bank account and some money in that account, obviously.

If you have seen movie Guru (in which Abhishek Bachchan was in leading role based on the life of Dhirubhai Ambani), the scenario of the stock market might scare you. But it was something like 50-60 years back. Now, no physical appearance, no much paper works are required. You can buy a stock sitting in your room in front of your laptop and that too within 2 minutes. How? That’s what I am going to teach you now. How to buy a stock in stock market? Just be with me for the next 5-10 minutes.

Buying shares online is the easy task, but I believe first you need to find that right stock that you should buy. There are few basic works which you should go through to find the best stock for you:

Read and Research:

There are tons of websites on the internet where you can get tutorials for stock market basics and about how to buy a stock in Stock Market? For beginners, I will recommend following websites of moneycontrol, economic times and Investopedia – Sharper Insight. Smarter Investing, Learn how to follow Stock Market and trends- Trade Brains

There are few books which are must-read for the beginners in the stock market. They are:

  • The Intelligent Investor
  • One Up on the wall street
  • Beating the street
  • Common Stocks and uncommon profits

You can read further about Indian stock market from the following useful links:

Now after learning the basics, the main tasks begins. You need to learn how to follow the stock market, their trends, their fluctuations etc.

Get good financial knowledge:

A good financial knowledge is a key for the success in the stock market. You need to understand the fundamentals before entering the stock world. The basics of Earnings per share(EPS), P/E Ratio, Book Value, P/BV, Dividend, Return on Equity(ROE), Return on capital employed(ROCE), debt/equity ratio etc should be known to you before you analyze a stock. You can read further about from these links: Investment BasicsSix Different Types of Stock in Indian Market according to Peter Lynch

Make your dummy portfolio:

A portfolio is nothing but your collection of stocks from different or same sectors. A portfolio shows how many shares you are owning from which sector. Generally, a good portfolio maximizes the profit and minimizes the risk. You can learn how to create your portfolio from this link: How to create your Stock Portfolio?

Follow the stock you’re interested in for few days:

The last step before buying a stock from the stock market is to learn how to follow stocks in the stock market. You should know how to track stocks so that you can buy/sell them at the best time. I advise the beginners to at least follow the stocks for 1 month before buying them. You can learn how to follow a stock from this link: Learn how to follow Stock Market and trends- Trade Brains.

Want to learn more? Here is a best selling book on stock market which I will highly recommend to read: Beating the street by Peter Lynch

Now that you know all the basics for the stock market, you can move further on How to buy a stock in Stock Market?


How to buy a stock in Stock Market?

The basics requirements for buying a stock in the stock market are:

  1. Stockbroker: General people can’t go to a stock exchange and buy/sell stocks. Only members of the stock exchange can buy and sell and they are called the brokers. Every broker should be registered on the Securities and exchange board of India(SEBI). There are a number of brokers/ sub-brokers which you can choose for trading. Some online brokers are Sharekhan, Kotak Securities, ICICI Direct, 5paise and India Bulls.
  2. Saving Account: Obviously you need a saving account for trading in the stock market.
  3. Demat A/C: It’s very simple to open a demat account. Now a day, the banks even offer you to open a 3-in-1 account, i.e. all three Saving+ Demat+ Trading account, by filling few forms just once. The 3-in-1 account will save your timing a lot and I recommend you to open a 3-in-1 account if you want to start trading in the stocks. You can open it in banks like ICICI, SBI, Kotak etc.

    You can decide your online broker for opening demat account depending on the different factors like brokerage charges, facilities offered, annual maintenance charges etc. Here is a link which you may find useful: Compare Online Share Brokers In India And Find Best Stock Broker In India.


    Note: If you open a 3-in-1 account you won’t need to find a stockbroker as the trading account is already included in it.

  4. Laptop and Internet connection: Obviously, the soul of modern era which is a must for all the online facilities.

how-to-buy-a-stock-in-stock-market

NOTE:

The documents required to open a 3-in-1 account are PAN card, Aadhar Card (for address proof) and an ID proof (generally Aadhar/Pan card can also be used as ID card). Once you opened your demat account, you will receive your username and password, and then you can start trading using your account

Also Read:

How to trade in ICICI Direct? Buy/Sell Stocks
How to buy a Stock using SBI demat account?

I hope this post about ‘how to buy a stock in Stock Market’ is useful for the readers. Feel free to comment below or message me if you have any doubts or if you need any further help.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Six Different Types of Stock in Indian Market according to Peter Lynch

Six Different Types of Stock in Indian Market according to Peter Lynch:

Peter Lynch is the renowned American investor and ex-manager of Magellan fund at Fidelity investment. He is famous for his averaged 29.2% annual return for the duration of 13 years. The prodigal mutual fund manager divided the stocks into six categories during his investment experience. Namely: slow growers, stalwarts, fast growers, cyclical, asset plays, and turnarounds.

We are also going to follow lynch’s path.  Here are the categories with the examples of stocks from Indian markets so that they are easier to understand.

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Six Different Types of Stock in Indian Market according to Peter Lynch:

1. Slow growers / Sluggards

Slow growers, which originally once were fast growers, can be identified easily with a slow growth rate i.e. a low upward slope of earnings growth and stock price. The growth is usually between 2-5%. They can also be identified by the size and generosity of their dividend.

Peter Lynch did not like to spend time on these ‘sluggards’ and his portfolio consisted of very less percentage of slow growers. According to him, the only reason to buy these stocks is their dividends. They generally give a very good dividend (about 4-6%) and are a good asset during the recession as its very unlikely for their stock to feel too hard.

Example: Reliance, Power Grid Corp

2. The Stalwarts

They are the second type of categories of the Six Different Types of Stock in Indian Market according to Peter Lynch.

These stocks have average growth rate and are usually large companies that have earnings growth in the 10-12 percent range – higher than the slow growers.

According to Peter lynch, you can get a good return from these stocks if you wait for a long time. They generally end up from two-baggers (two times your buying price) to four-baggers. It’s good to have few stalwarts in your portfolio.

Example: HPCL, Bajaj Auto, Mahindra & Mahindra

Best book for Stock Market Beginners– If you are new to stocks, I will highly recommend to read ‘ONE UP ON THE WALL STREET‘ by Peter Lynch. It is available currently at the best price on Amazon.

3. The fast growers

The fast growers are everyone’s first choice. These stocks are generally small aggressive new enterprises and they grow at an impressive rate of 20-25% per year. But one should be open-eyed when they own a fast grower. There is a great likelihood for the fast growers to get hammered if they run out of steam and become a slow grower.

Peter lynch’s portfolio consisted mainly of the fast growers. He looks for fast growers with good balance sheets and which have good profitability. This category is also the lynch’s favorite among the Six Different Types of Stock in Indian Market according to Peter Lynch

Example: MRF, Eicher Motors, axis bank, Infosys, Maruti

4. The Cyclicals

The Cyclical can be distinguished from the fast growers as the cyclical keep on expanding and contracting and again repeating the same cycle (while the fast growers keep on expanding). They tend to flourish when coming out of a recession into a vigorous economy.

Automobiles, Metals, Chemicals, Tyres etc are the examples of the cyclical. Their charts tend to be very up and down over time. It is advised to owning the cyclical only on the right part of the cycle.  That is when they are expanding. Sometimes, it even takes them years before they perform. Timing is everything and you need to be able to detect the early signs that business is falling off or picking up.

Example: GAIL, Coal India, SBI

5. The turnarounds

The turnarounds are identified by Lynch as ‘no growers’ rather than ‘slow growers’. They are potential fatalities that have been badly hammered by the market for one or more of a variety of reasons. But they can make up lost ground very quickly.

Peter lynch identifies different types of turnarounds in his book ‘One up on the Wall Street’ and admits to being burnt by a number of them but suggests that the occasional success can be exciting and rewarding.

Example: Tata Steel, Phoenix Mills etc

6. The Asset Plays

This is the last category from the Six Different Types of Stock in Indian Market according to Peter Lynch.

The asset plays are those stocks whose stocks are greatly undervalued and those stocks that have assets overlooked by the market. These assets may be simply cash that the company is holding but which is not valued when there has been a general market downturn. The cash may be worth more than the market capitalization of the company.

Many of the PSUs are key asset plays because of the real estate property they are holding. For example- State bank of India. SBI has over 24,000 branches all over India. A similar example is ONGC.

Peter lynch understands the worth of the asset plays. He suggests owning few of these stocks in your portfolio as they are most likely to give you a good return in the future. The only significant thing in these stocks is to carefully find these stocks and right estimate for the worth of the assets. If you are able to do it, own that stock.

Try it out yourself!

So, these are the six different types of Stock in Indian Market according to Peter Lynch. If you followed the post, you can also easily categorize any stock in the six types given above. So, go on, play around different stocks and classify them accordingly to above categories.

NOTE: The research on Six Different Types of Stock in Indian Market according to Peter Lynch is derived from his Book ONE UP ON WALL STREET.

Further, please comment below with the name of stocks that fits the above categories. I will really appreciate it and it will be very beneficial for the other post viewers.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

How to follow Stock Market?

How to follow stock Market Have you ever tried searching stock market on google. If you did, I am sure you must have been dazzled with the search engines result.

There were over 11 crore results for the stock market search on google. Here is what it looks like like after googling:

how to follow stock market google 2

So, it must be easy to follow the stock market. But is it?

The answer is yes and no, both. It depends on your experience knowledge.

For the matured investors, it’s easier to follow the stock market as they have been doing it for years.

However, for the beginners, they get confused on how to follow stock market seeing so many websites on the internet.

Therefore, in this post, I am going to teach you how to follow stock market. These few simple tricks about following the stock market and its trends, which once known, even a beginner can follow the market as a pro.

Please note that this post about ‘how to follow stock market’ is basically for the beginners but the intermediate and advanced level investors can also get benefits from this post.

Further, do read the post till the end as there is a bonus tip for the readers in the last section.

How to follow Stock Market?

Here are few of the simple yet effective financial websites from where you can learn how to follow stock market. I have described how to easily navigate and use these sites. Here it goes:

1. Google : 

Google is the best source to follow a stock. Just type the name of the stock and the google will give you all the details about that stock.

For example, if you want to follow the stock of Tata Motors, just type ‘Tata motors share price’ on google. The result will be like this:

how to follow stock market google

On Google, you can track the share price movement of the stock for a given period of 1 day, 5day, 1 month, 1 year, 5 years or max, by simply clicking on different tabs.

For example, if you click on ‘1 month’ in the tab, you can see the price movement of that stock for the last 1 month.

The simplicity of the google makes it best for the beginners to start following the market.

The only disadvantage of tracking stock market price on Google is that you have to type the names of different stocks every time when you want to track that stocks. If you have many stocks to track, say more than 10 (Ex Reliance, Tata Steel, HPCL, ONGC, BPCL, Titan, Infosys…..) then it will become a hectic job for you as you have to type the stock name over and over again.

Nevertheless, this is the basic place for all the beginners when they start learning how to follow stock market. Therefore, you should also get used to it. Try googling the stock price of few stocks and indexes on google.

Exercise: Type NIFTY on google and see what appears.

Also, try different stocks which you are interested in. This is the first step to learn how to follow stock market. In case, you do not remember much names, here is the list of few major stocks which you can search:

RELIANCE DLF TCS
YESBANK TATASTEEL COALINDIA
AUROPHARMA RELCAPITAL TATAMOTORS
AXISBANK HINDPETRO M&M
ITC HDFCBANK IBULHSGFIN
POWERGRID BAJFINANCE LT
SBIN INFY GAIL
MARUTI SUNPHARMA ASHOKLEY

NOTE: Do not search Facebook, google, Apple’s stock price. There stock prices for these companies will be shown in dollars on google.

Only Indian companies are listed on Indian Stock Exchanges. Therefore, companies like Apple, Facebook, Samsung etc which are not Indian companies can’t be traded in India. They are listed in their respective country’s stock exchange.

For example- Facebook in New York Stock Exchange (NYSE), Samsung in Korea Exchange etc.

If you want to learn stocks from scratch, I will highly recommend you to read this book: ONE UP ON THE WALL STREET By Peter Lynch- best book for stock market beginners.

2. Money control:

Probably the best website in India if you want to learn how to follow stock market.

The website gives you all the info you want to know about a stock.

In addition, there is also a money control mobile app, which is even better than the website. You can easily follow the market using the mobile app.

how to follow stock market money control

how-to-follow-stock-market-stock-quotehow-to-follow-stock-market-stockquote2

Just play around the website/ app and you will easily learn how to follow the stock market.

On the top search box on the website, enter the stock name and you will get all the details which you wish to see.

3. Screener :

screener - how to follow stock market

Screener.in is another of the best financial website for fundamental analysis of stocks. One of the good features of this site is that it lists the pros and cons of the stocks that you are analyzing. All the financial reports of the company like balance sheet, income statement and cash flow are available here.

In addition, you can also download data from this website in excel form. Besides, you can add stocks to your Wishlist to get notifications in your mail if there is any corporate action on the stocks in your Wishlist.

Therefore, you can easily stay updated with the latest news like quarterly results, dividend dates etc once you log in to the site and add the stock names in your Wishlist.

4. Economics Times Market:

This is also one of the best websites to learn how to follow stock market. Just bookmark the website. Along with the stock details, the market news by the economic times also it’s salient feature.

how to follow stock market 2

5. Yahoo Finance :

One of the oldest and most searched finance website for the stock market. This website is very resourceful to learn how to follow stock market. It is very friendly and you will get all the major information which you want to learn about the stock here.

how to follow stock market

 

So, these are the major sources on how to follow stock market.

Surely, there are many other websites also to be followed if you want to keep up-to-date with the market trends. However, for beginners, I recommend you to first familiarize with these websites and get used to how to get the stock information form these sites.

Definitely, these websites will give you all the information that you want to learn about the stock market. Do play on the websites.

Bonus:

Here are the links of all the financial websites discussed in this post for your ease.

  1. Google: http://www.google.com
  2. Money control: http://www.moneycontrol.com
  3. Screener: https://www.screener.in
  4. Economic Times market: http://economictimes.indiatimes.com/markets
  5. Yahoo Finance: https://in.finance.yahoo.com

NOTE: How to follow stock market.

If you think I missed any significant website which needs to be mentioned in our post on how to follow stock market, please comment below. I will be happy to get a feedback.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

dividend dates explained 2

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How to create your Stock Portfolio?

How to create your stock portfolio? An intelligent investor knows the importance of a smart portfolio. Whether he is investing in stocks, bonds or mutual investment, he always chooses his portfolio smartly. Although most of the people have a different strategy for creating their portfolio, there are few main points that should be taken care when creating your portfolio.

  • Diversification

A smart portfolio is the one, which maximizes the profit and minimizes the risk. The first step of creating an intelligent portfolio is ‘Diversification’.

What diversification means, in general, is to buy stocks from different sectors (Banks, autos, FMCG, energy, IT etc) rather than buying a single or two stocks of huge amount. In short, it can be explained by the old saying- ‘Don’t put all your eggs in the same basket’.

While many people argue that, it makes a lot of sense to invest a huge sum of money on a sure-shot stock (which you are too confident about- example Microsoft, which gave 10 times or more returns). However, we like to differ from the argument.

There are various reasons we can give you to support our conclusion.

First, you never know which stock is next Microsoft. Stocks like Microsoft are only a few among more than 5000 stocks in the stock market. If by any chance you made a mistake or if by bad circumstances, the company is not able to perform as expected, and then your whole sum of money will be in vain & you may be in a tremendous loss. Second, for investing in such a company, you need to be 1000% sure. You need to do a lot of intense investment about the company (which is generally not possible for a retail investor), but if you have a diversified portfolio you can slight risks if you are confident about your other stocks.

For example, if you have 10 good stocks, you can be certain that most of them (8-9) will outperform the market and give you a good result. 1-2 bad stocks in a group of 10 will not affect your overall portfolio. However, in the case of a single stock, it is either win or lose.

If you want to learn more about stock market investing strategies, I will highly recommend you to read this best-selling book: One Up On Wall Street: How To Use What You Already Know To Make Money In the Market by Peter Lynch

Therefore, in this post about How to create your stock portfolio, we suggest our retail investors invest in a diversified portfolio. Do not buy 1 lakh shares of just one company in your portfolio.

The advantages of a diversified portfolio:

  1. Diversification helps you in giving liberty to choose a variety of stock. You need to do extraordinary in all the stocks you choose. If most of the stocks are performing well, then your portfolio will overall be in profit. Like the legendary investor Warren Buffett said ‘You only have to do a very few thing right in your life so long as you don’t do too many things wrong.’
  1. Sometimes some sectors underperform and because of which the stock will underperform. Say, if the bank sector is not performing then your bank stock will be in loss. However, it is very less likely that all other sectors (IT, autos, FMCG etc), will also not perform at the same time. During such times, diversification can help you to remain in profit withholding the stocks of other sectors.
  2. Further, if because of some unpredictable reason, one of your stock is not performing well, but you are confident that it will perform well in future, you can still keep the stock on the stake of your other good-performing stocks. You just need to balance out and be overall in profit. [In undiversified case, if your stock is not performing, you will be in overall loss and which might lead you to sell that potential stock.]

Hence, form the arguments that we just put forward, you must follow the diversified portfolio in the stock investment in order to minimize your losses.

Example of how to create a stock portfolio:

Now, we will give you an example of how to create your stock portfolio using diversified portfolio strategy so that you can get an idea of how to create one.

 

 

Stock Name Sector Price No of Stocks Investment** % in Portfolia
BPCL Oil & Gas 713.12 20 15000 21.28%
IndusInd Bank Bank 1334.22 10 13500 19.15%
Hero Motocorp Auto 3163.05 2 6300 8.94%
Tata Motors Auto 460.20 10 4700 6.67%
Infosys IT 990.45 10 10000 14.18%
Tata Steel Metals 485 20 10000 14.18%
Emami FMCG 1077.55 10 11000 15.60%
Total 70500 100%

 

**Investment is not just Price X (no of stocks). It also includes other charges like brokerage charge, transaction charge, STT, service charge etc.

There are other important points in our discussion about how to create your stock portfolio, which need to be taken care while creating your portfolio, and will be discussed in subsequent posts.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

What is Bull and Bear market? Stock Market Basics

What is Bull and Bear market?

Bull Market:

A bull market is a market financial situation which is characterized by the investor’s confidence, optimism and positive expectations that good results will continue.

The bull market is generally related to the stock market but it applies to all financial markets like currencies, bonds, commodities etc. During a bull market, everything in the economy is amazing like growing GDP, increased job, rising stock prices etc.

Bull markets often lead to the overvaluation of the stocks as the investors are highly optimistic and believe that the stock will always go up.

Bear Market:

The opposite of a bull market is a bear market, which is typically characterized by a bad economy, fewer jobs, recession, and falling share prices. The investor’s behavior during a bearish market is highly pessimistic as they fear that the stocks will go down and down.

Bear markets make it tough for investors to pick profitable stocks for the short term.

NOTE: The ‘bull’ and ‘bear’ words that are used in the market is derived from the way these animals attack their opponents. bull thrusts its horns up into the air upwards, while a bear swipes its paws downward. These actions are metaphors for the movement of a market. If the trend is upwards, it’s a bull market. And, if the trend is downwards, it’s a bear market.

If you want to read further in details, I will highly recommend to read the book- Bulls, Bears and Other Beasts: A Story of the Indian Stock Market by Santosh Nair, one of the best book on Indian Stock Market.


Bull and Bear market example for India:

India’s Bombay Stock Exchange Index, was in a bull market trend for about five years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points.

Examples of Bear Market in India are – the stock market crashes of 1992 and 1994 and the dotcom crash of 2000.

Further, the Great Depression of the 1930s is a famous example of a bear market in the US.

Like all other markets bull market or the bear market does not last endlessly as no market can last forever. Further, It is difficult to predict the changing trends in the market as it is much influenced by the psychological effects and speculations of investors.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

PM Modi Inaugurates the India International Exchange (INX) at GIFT city.

For an auspicious day for the India’s financial sector, Prime minister Narendra Modi inaugurated the India International Exchange (INX) located at the International Financial Services Centre (IFSC), Gujrat International Finance tech –city (GIFT City), Gandhinagar on Monday, Jan 9, 2017.

The INX is a owned subsidiary of Bombay Stock Exchange (BSE) Ltd and is expected to start trading from 15th January 2017. The new exchange will greatly improve the service and quality of transactions across the world.

Here are 5 important updates about India International Exchange (INX):

1) INX at will be open for trading for 22 hours every day. The trading will open daily at 4 am (when exchanges in Japan opens), and close at 2 am (when exchanges in the US closes).
2) World’s fastest international exchange: India INX will be the fastest international exchange in the world with a median trade speed of four microseconds, in terms of order response time,. This is way better than the second ranked Singapore International exchange (60 microseconds) and domestic BSE’s exchange at Mumbai (6 microseconds).

3) The India INX can trade securities and products other than Indian rupees. The securities and products that could be traded on the India INX are: equity shares of companies incorporated outside India, debt securities, depository receipts, index based derivatives, currency and interest rate derivatives, commodity derivatives and similar other securities.

4) A highly robust risk management system is in place to prevent money laundering and market manipulation.

5) A huge investment of Rs 500 Crore will be invested by the Bombay stock exchange in the upcoming three years. Further, INX will begin operations with 100 employees, most of whom have relocated from Mumbai, apart from local and foreign personnel.

What is Nifty? Nifty Meaning Explained for Beginners.

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What is Nifty? Nifty Meaning Explained– The NIFTY 50 index is National Stock Exchange of India’s benchmark stock market index for Indian equity market. Nifty is owned and managed by India Index Services and Products (IISL).

  • The base year is taken as 1995 and the base value is set to 1000.
  • Nifty is calculated on 50 stocks actively traded in the NSE
  • 50 top stocks are selected from 24 sectors.

Nifty Meaning: Just as the Sensex which was introduced by the Bombay stock exchange(BSE), Nifty is a major stock index in India introduced by the National stock exchange(NSE).

Also Read: What is Sensex?

NIFTY 50 Index is computed using free float market capitalization method. NIFTY 50 can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs, and structured products.

S. No Company Name Industry Symbol
1 ACC Ltd. CEMENT & CEMENT PRODUCTS ACC
2 Adani Ports and Special Economic Zone Ltd. SERVICES ADANIPORTS
3 Ambuja Cements Ltd. CEMENT & CEMENT PRODUCTS AMBUJACEM
4 Asian Paints Ltd. CONSUMER GOODS ASIANPAINT
5 Aurobindo Pharma Ltd. PHARMA AUROPHARMA
6 Axis Bank Ltd. FINANCIAL SERVICES AXISBANK
7 Bajaj Auto Ltd. AUTOMOBILE BAJAJ-AUTO
8 Bank of Baroda FINANCIAL SERVICES BANKBARODA
9 Bharat Heavy Electricals Ltd. INDUSTRIAL MANUFACTURING BHEL
10 Bharat Petroleum Corporation Ltd. ENERGY BPCL
11 Bharti Airtel Ltd. TELECOM BHARTIARTL
12 Bharti Infratel Ltd. TELECOM INFRATEL
13 Bosch Ltd. AUTOMOBILE BOSCHLTD
14 Cipla Ltd. PHARMA CIPLA
15 Coal India Ltd. METALS COALINDIA
16 Dr. Reddy’s Laboratories Ltd. PHARMA DRREDDY
17 Eicher Motors Ltd. AUTOMOBILE EICHERMOT
18 GAIL (India) Ltd. ENERGY GAIL
19 Grasim Industries Ltd. CEMENT & CEMENT PRODUCTS GRASIM
20 HCL Technologies Ltd. IT HCLTECH
21 HDFC Bank Ltd. FINANCIAL SERVICES HDFCBANK
22 Hero MotoCorp Ltd. AUTOMOBILE HEROMOTOCO
23 Hindalco Industries Ltd. METALS HINDALCO
24 Hindustan Unilever Ltd. CONSUMER GOODS HINDUNILVR
25 Housing Development Finance Corporation Ltd. FINANCIAL SERVICES HDFC
26 I T C Ltd. CONSUMER GOODS ITC
27 ICICI Bank Ltd. FINANCIAL SERVICES ICICIBANK
28 Idea Cellular Ltd. TELECOM IDEA
29 IndusInd Bank Ltd. FINANCIAL SERVICES INDUSINDBK
30 Infosys Ltd. IT INFY
31 Kotak Mahindra Bank Ltd. FINANCIAL SERVICES KOTAKBANK
32 Larsen & Toubro Ltd. CONSTRUCTION LT
33 Lupin Ltd. PHARMA LUPIN
34 Mahindra & Mahindra Ltd. AUTOMOBILE M&M
35 Maruti Suzuki India Ltd. AUTOMOBILE MARUTI
36 NTPC Ltd. ENERGY NTPC
37 Oil & Natural Gas Corporation Ltd. ENERGY ONGC
38 Power Grid Corporation of India Ltd. ENERGY POWERGRID
39 Reliance Industries Ltd. ENERGY RELIANCE
40 State Bank of India FINANCIAL SERVICES SBIN
41 Sun Pharmaceutical Industries Ltd. PHARMA SUNPHARMA
42 Tata Consultancy Services Ltd. IT TCS
43 Tata Motors Ltd DVR AUTOMOBILE TATAMTRDVR
44 Tata Motors Ltd. AUTOMOBILE TATAMOTORS
45 Tata Power Co. Ltd. ENERGY TATAPOWER
46 Tata Steel Ltd. METALS TATASTEEL
47 Tech Mahindra Ltd. IT TECHM
48 UltraTech Cement Ltd. CEMENT & CEMENT PRODUCTS ULTRACEMCO
49 Wipro Ltd. IT WIPRO
50 Yes Bank Ltd. FINANCIAL SERVICES YESBANK
51 Zee Entertainment Enterprises Ltd. MEDIA & ENTERTAINMENT ZEEL

*And the 51st stock is: The Tata Motors DVR. This is a differential voting rights share of Tata Motors. Which is already in the Nifty! Reference: https://www.nseindia.com/content/indices/Method_Nifty_50.pdf https://www.nseindia.com/content/indices/ind_nifty50list.csv https://www.nseindia.com/content/indices/ind_nifty50.pdf

If you want to read further, here is a great book about Indian Stock Market: Bulls, Bears and Other Beasts: A Story of the Indian Stock Market by Santosh Nair

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How is Sensex calculated?

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How is Sensex calculated? Sensex, also called BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on Bombay Stock Exchange (BSE).

The methodology used for calculating SENSEX is quite interesting. It is calculated using the ‘Free-float Market Capitalization’ method.

Free-float Market Capitalization:

It is defined as that proportion of the total shares issued by the company that is readily available for trading in the market. It excludes promoter’s holding.

 For example, suppose a company has 1000 shares in total. Out of this, 300 shares are held for the promoters. Hence, only 700 shares are available to the general public for trading. These 700 shares are called the ‘free-floating shares’

Suppose the price of each share is Rs 200.

Then, total market capitalization = 1000 Shares * Rs 200 = Rs 2,00,000

Free float market capitalization = 700 shares * Rs 200 = Rs 1,40,000

Now, for calculating the index, suppose the index consists of two stocks. Stock A and Stock B.

Details Company A Company B
Total Shares 1000 2000
Public holding 700 1000
Promoter’s holding 300 1000
Current Market price 200 300
Total market capitalization 2,00,000 6,00,000
Free float market capitalization 1,40,000 3,00,000
  • As of today, total free float market capitalization (of A & B) = 1,40,000 + 3,00,000 = 4,40,000
  • The year 1978-79 is considered as the base year of the index with a value set to 100.
  • Suppose at that time (1978-79), the total free float market capitalization of the stock was said 11,000.

By using simple maths,

Today Free-float Market Cap Index-Value
1978-79 11,000 100
Today 4,40,000 X

X = (100/11000) * 440000 = 4,000

  • Thus, the value of index today is 4000.
  • THIS IS HOW SENSEX IS CALCULATED.
  • The factor (100/11000) is called index divisor.
Index Formula:

INDEX = Base * (Current market capitalization/ Base market capitalization) 

Here, is the Sensex from 1991 to 2013. Note, the dip at 2008-09 during the great Indian recession.

If you are new to Indian stock market, I will highly recommend you to read this book: How to Avoid Loss and Earn Consistently in the Stock Market: An Easy-To-Understand and Practical Guide for Every Investor by Prasenjit Paul

how is sensex calculated

what is nifty and sensex share market

What is Nifty and Sensex? Stock Market Basics (For Beginners).

What is Nifty and Sensex? Stock market basics for beginners:

Have you ever heard of the Dalal street or the D-Street?

DALAL STREET

Dalal Street, in Mumbai, India is the address of the Bombay Stock Exchange, the biggest stock exchange in India and several related financial firms and institutions. When Bombay Stock Exchange was moved to this new location at the intersection of Bombay Samāchār Marg and Hammam Street, the street next to the building was renamed as Dalal Street.

In Hindi Dalal means “a broker”. The term “Dalal Street” is used in the same way as “Wall Street” in the U.S., referring to the country’s major stock exchanges and overall financial system.

What is Nifty and Sensex?

In order to understand what is nifty and sensex, you need to understand the Indian stock exchanges first. Now, let’s discuss the two major stock exchanges in India i.e the ‘Bombay stock exchange’ and the ‘National stock exchange’ along with their indexes.

Bombay Stock Exchange (BSE)

  • Bombay stock exchange is an Indian stock exchange located at Dalal Street, Mumbai, Maharashtra.
  • It was established in 1875 and is Asia’s oldest stock exchange.
  • It is the world’s fastest stock exchange, with a median trade speed of 6 microseconds.
  • The BSE is the world’s 11th largest stock exchange with an overall market capitalization of $1.43 Trillion as of March 2016.
  • More than 5500 companies are publicly listed on the BSE.

What is an Index? Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

SENSEX:

Sensex also called BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on Bombay Stock Exchange (BSE).

  • 30 companies are selected on the basis of the free-float market capitalization.
  • These are different companies from the different sectors representing a sample of large, liquid and representative companies.
  • The base year of Sensex is 1978-79 and the base value is 100.
  • It is an indicator of market movement.
  • If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE has gone down. If Sensex goes up, it means that most of the major stocks in BSE went up during the given period.

For example, suppose the Sensex is 26,000 today. If Sensex drops to 25,950 tomorrow, it means that the majority of the 30 companies financial condition is not good i.e. their share price is falling. 

Here is the list of 30 companies consisting of Sensex as of Jan’2018:

Adani Ports and Special Economic Zone ICICI Bank Ltd Power Grid Corp of India Ltd
Asian Paints Ltd IndusInd Bank Ltd Reliance Industries Ltd
Axis Bank Ltd Infosys Ltd State Bank of India
Bajaj Auto Ltd ITC Ltd Sun Pharmaceutical Industries Ltd
Bharti Airtel Ltd Kotak Mahindra Bank Ltd Tata Consultancy Services Ltd
Coal India Ltd Larsen & Toubro Ltd Tata Motors Ltd
Dr Reddy’s Laboratories Ltd Mahindra & Mahindra Ltd Tata Motors Ltd DVR
HDFC Bank Ltd Maruti Suzuki India Ltd Tata Steel Ltd
Hero MotoCorp Ltd NTPC Ltd Wipro Ltd
Hindustan Unilever Ltd Oil & Natural Gas Corp Ltd Yes Bank Ltd
Housing Development Finance Corp

Source: BSE India

National Stock Exchange (NSE):

The National Stock Exchange (NSE) is the leading stock exchange of India, located in Mumbai, Maharashtra, India. It was started to end the monopoly of the Bombay stock exchange in the Indian market.

  • NSE was established in 1992 as the first demutualized electronic exchange in the country.
  • It was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered the easy trading facility to the investors spread across the length and breadth of the country.
  • NSE has a total market capitalization of more than US$1.41 trillion, making it the world’s 12th-largest stock exchange as of March 2016.
  • NSE’s index, the NIFTY 50, is used extensively by investors in India and around the world as a barometer of the Indian capital markets.

Also read: How To Invest Rs 10,000 In India for High Returns?

NIFTY:

Nifty, also called NIFTY 50, is the market index consisting of 50 well-established and financially sound companies listed on National Stock Exchange of India (NSE).

  • The base year is taken as 1995 and the base value is set to 1000.
  • Nifty is calculated using 50 large stocks which are actively traded on the NSE.
  • The 50 companies are selected on the basis of the free float market capitalization.
  • Here, the 50 top stocks are selected from different 24 sectors.
  • Nifty is owned and managed by India Index Services and Products (IISL)

Since inception in 1995, Nifty has given a return of 11.13% CAGR (till April 30, 2018).

Also read: Nifty 50 fact sheet

Here is the list of 50 companies consisting of Nifty as of Jan’2018:

Adani Ports and Special Economic Zone Ltd. HDFC Bank Ltd. NTPC Ltd.
Ambuja Cements Ltd. Hero MotoCorp Ltd. Oil & Natural Gas Corporation Ltd.
Asian Paints Ltd. Hindalco Industries Ltd. Power Grid Corporation of India Ltd.
Aurobindo Pharma Ltd. Hindustan Petroleum Corporation Ltd. Reliance Industries Ltd.
Axis Bank Ltd. Hindustan Unilever Ltd. State Bank of India
Bajaj Auto Ltd. Housing Development Finance Corporation Ltd. Sun Pharmaceutical Industries Ltd.
Bajaj Finance Ltd. I T C Ltd. Tata Consultancy Services Ltd.
Bharat Petroleum Corporation Ltd. ICICI Bank Ltd. Tata Motors Ltd.
Bharti Airtel Ltd. Indiabulls Housing Finance Ltd. Tata Motors Ltd DVR
Bharti Infratel Ltd. Indian Oil Corporation Ltd. Tata Steel Ltd.
Bosch Ltd. IndusInd Bank Ltd. Tech Mahindra Ltd.
Cipla Ltd. Infosys Ltd. UPL Ltd.
Coal India Ltd. Kotak Mahindra Bank Ltd. UltraTech Cement Ltd.
Dr. Reddy’s Laboratories Ltd. Larsen & Toubro Ltd. Vedanta Ltd.
Eicher Motors Ltd. Lupin Ltd. Wipro Ltd.
GAIL (India) Ltd. Mahindra & Mahindra Ltd. Yes Bank Ltd.
HCL Technologies Ltd. Maruti Suzuki India Ltd. Zee Entertainment Enterprises Ltd.

Source: NSE India

Quick Note: Please notice that ‘Tata Motors Ltd‘ and ‘Tata Motors Ltd DVR‘ are mentioned separately here. That’s why Nifty has presently 51 stocks listed in it. Nevertheless, as the parent company of both these stocks is same, that’s why Nifty still consists of 50 companies. Do not get confused here!!

NOTE: The Sensex and Nifty are both indicators of market movement. If the Sensex or Nifty go up, it means that most of the stocks in India went up during the given period.  With respect to NIFTY and NSE, we can say that:

  • If Nifty goes up, this means that the stock price of most of the major stocks on NSE has gone up.
  • On the other hand, if nifty goes down, this tells you that the stock price of most of the major stocks on NSE has gone down.

When Sensex/Nifty increases, it shows the economic growth of the country. For example, during the Indian recession of 2008-09, the Sensex fell over 12000 points (-60%).  

  Before 2008-09 Recession After Recession
Sensex 21000 8900

The fall in the Sensex was analogous to the recession. Meaning, people were selling their shares and an economic crisis in the country.

Also read:

Importance of Market Index:

  • The market indexes are the barometer for the market behavior. It gives a general idea about whether most of the stocks have gone up or gone down.
  • Often, Market Index is used as a benchmark portfolio performance.
  • It is used as a reflector of investor’s sentiments.
  • Market indexes are used for sorting and comparison of the various companies.
  • Indices act as an underlying for Index Funds, Index Futures, and Options.
  • They are used in passive fund management by Index funds.
  • The index can give a comparison of returns on investments in stock markets as opposed to asset classes such as gold or debt.

That’s all. I hope this post ‘What is nifty and sensex? Stock market basics for beginners’ is helpful to the readers.

If you are new to stocks and want to learn from scratch, here is an amazing 7-day eCourse: HOW TO INVEST IN INDIAN SHARE MARKET. Enroll now and start your share market journey today (It’s FREE) #Happy Investing.

Please comment below if you have any doubts.

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What are stocks? And what is a Stock Market?

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What are stocks?

What is a stock market?

What is Bombay stock exchange (BSE)?

What is National stock exchange (NSE)?

What is Sensex?

What is Nifty?

What is meant be Sensex/Nifty is up or down?

How does upward or downward movement of Sensex/Nifty affect the growth of the country?

What is bull and bear market?

 These are the major questions which are repeatedly asked by the common people of India whenever they hear the financial news of the television or the newspapers or magazines. Although a simple definition of all the above terms can be found easily in a book or internet, it would be simpler and more interesting if we explain the whole scenario in the story form. Later, we will give the standard definition for all the above terms for your better understanding.

It all starts with a company. Let’s say there is a company X. It is a manufacturing company and is doing well in its sector. Now it wants to expand by doing some project or research and development(R&D) in his field. For this company requires capital (money).

 At first, the company will try to get the capital from all the owners to expand the company. Further, when the owners aren’t able to meet the capital needs, it will go the biggest money source, the banks. But this will only increase his debts along with the interests. So, what options the company X has now? Where can the company X get such a large capital from?

The answer is public. The company can collect a large sum of money by giving a little ownership of the company to the public.

 And here begins the journey of the company in the stock market. A stock market (ex BSE, NSE) is a place where the company will be able to present his ownership (in the form of the stocks) to the public. And why will the people buy the stocks of the company X? It totally depends on how positive the people is about the growth of the company in terms of sales, earnings, revenue etc. If the people think that the company will be able to grow to new heights, or if the people believe in the visions of the company X, then, they will buy the stocks to trade their money with the ownership of the company.

 Thus by giving the portion of the ownership, the company is able to pool a great amount of money for its growth and development.

Generally, the company does not offer its complete shares to the public. Almost all of the times the owners (promoters) keep a portion of the stock with them to keep the ownership in their hands.

For example, let’s say the company X decided to provide 10,00,000 shares. Out of the total, it decides to offer 7,00,000 shares to the public and remaining 3,00,000 shares with them. Here, the promoters share will be 30%.

 {We would also like to define the term free-float market capitalization here. It is the product of the total shares offered to the public and the price of per equity share. Let’s say the company X each share price costs Rs 50 and it offers 7,00,000 public shares. Then, the free float market capitalization here will be equal to 50*7,00,000. The total market capitalization (not-free float) will be 50*10,00,000}.

 Now that the company X has decided to enter the stock market. When, the first time the company enters the market, it has to provide an offering price for the shares. This is called initial public offering i.e. IPO (we will discuss IPO in details in later sections). The IPO is offered in the primary market, where the seller is the company and the buyer is the public.

 After the IPO, the stock goes to the secondary market, where the buyer and sellers both are the public. Here, the public generally exchanges the ownership of the company.

That’s the story of the stock and the company X. In the next section, we will discuss the two stock markets in India i.e. Bombay stock exchange (BSE) and National stock exchange (NSE) and their indexes (Sensex/Nifty).

If you want to learn Indian Stock market from scratch, I will highly recommend you to read this book: Bulls, Bears and Other Beasts: A Story of the Indian Stock Market by Santosh Nair

What are stocks? What is a stock market? -Summary

Stock:  A stock is a general term used to describe the ownership of any company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Shares, equity, or stock, all basically means the same thing.

Stock Market: The stock market is the market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets. It is a place where shares of publicly listed companies are traded.

The stock market can be split into two main sections: the primary market and the secondary market.

  • Primary Market: It’s where new issues are first sold through initial public offerings. Retail Investors, mutual funds, domestical and foreign institutional investors buy the share from the promoters. Institutional investors typically purchase most of these shares during this first-time issue by the company.
  • Secondary Market: All subsequent trading goes on in the secondary market where participants include both institutional and individual investors.

Initial Public Offering (IPO): An IPO is the first time that the stock of a private company is offered to the public. It is a source of collecting money from the public for the first time in the market to fund its projects. In return, the company gives the share to the investors in the company. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded.

Market Capitalization: Market Cap or Market capitalization refers the total market value of a company’s outstanding shares. It is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to using sales or total asset figures.