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What is Bitcoin? How to buy bitcoin in India?

What is Bitcoin? How to buy bitcoin in India?

What is Bitcoin? How to buy bitcoin in India?

From $800 USD to $18,000 USD in just 1 year. An appreciation of over 2250%. Wouldn’t you want to make such investments?

This is BITCOIN!!

By now you all might have heard about it. Even the terms ‘cryptocurrency’ and ‘blockchain’ are consistently in news a lot lately.

However, people are still confused about its real purpose. What is a bitcoin? Is it a currency, asset class (to invest) or simply a transformation factor from the old monetary system to new one.

I am going to answer all the important questions regarding bitcoin in this post.

Here is what we will cover:

  • What is bitcoin?
  • How does bitcoin works?
  • How is bitcoin generated? (What is mining)
  • What are the advantages of bitcoin?
  • Few facts and data related to bitcoin.
  • Is bitcoin legal in India?
  • How can you buy bitcoin in India?
  • What is the capital gain tax in bitcoin?
  • Other cryptocurrencies to watch out.

bitcoin meme

Source: The 10 Funniest Bitcoin Memes Ever

It’s gonna be a long post. But will definitely worth reading. So, let’s get started.

What is bitcoin?

In simple words, bitcoin is a virtual currency made by people with no central authority.

Huh, what does it mean? To understand it better, let’s compare it first with the normal currency.

In India, we have a fiat money.

Fiat money is a currency without intrinsic value established as money by government regulation. It has an assigned value only because the government uses its power to enforce the value of a fiat currency. Source: Wikipedia

The Indian currency is printed in the name of RBI and people believe in this currency because of it and exchange in the name of the government.

On the other hand, bitcoin is not generated by any government or authority. People exchange bitcoin only because they believe this as a kind of money (no central authority to implement it). It has no physical value.

Therefore, we can define bitcoin as a new form of digital currency that does not require any bank, government agency or a third party to operate.

People inside the system carry out transactions among each other over a decentralized network.

Now, let us understand bitcoin in details.

Bitcoin is a purely peer-to-peer version of electronic cash that would allow online payments sent directly from one party to another without going through a main institutional institution.

It is the first and the most popular cryptocurrency. However, it’s not the only one as there are a number of other cryptocurrencies available in the world.

Bitcoin was invented in 2008 by Satoshi Nakomoto. However, no one knows who is Satoshi Nakomoto. It might be a dummy name used by the creators of the bitcoin.

Bitcoin is a decentralized currency, which means that no central bank or government is controlling it.

In India, we have a fiat system. This means RBI decides the number of notes to print. They have their own rules on how much notes can be printed and when to print next notes.

However, for bitcoin, there will only be 21 million coins (This restriction is imposed by the creators to limit the bitcoin that can be generated).

Hence, it can be considered similar in attribute to gold (which is also finite). As there is fixed number of bitcoins, hence it’s worth will be more over time.

Didn’t understood? Let me explain.

The current fiat system leads to inflation. The currency notes can be printed more in future. Hence, their number will keep on increasing an, therefore, the currency notes value will worth less in future.

On the other hand, bitcoins are limited in number. It cannot be created more once a fixed number of coins has been generated. Hence, this will lead to ‘deflation’ which means that the bitcoins will worth more in future.

Also read: Where should I invest my money?

How does bitcoin works?

Source: SciShow

To understand how does bitcoin works, you first need to understand what is cryptocurrency.

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Source: Wikipedia

The bitcoins are generated and stored in a form of mathematical code called cryptography. This is the private encoding of the data.

Similar to bank accounts, wallets are used to store bitcoins. Wallets have a unique address which is a personal crypto address that only the individual can access.

This unique address helps to confirm that the money has been sent/received to the right address. Further, the transactions can be checked but cannot be altered or tempered.

Now, if there is no central authority, how to confirm that the transaction happened between two people? What if one lied?

Can’t a person just lie that he didn’t receive the coins if there is no central authority to check and the transaction happened peer-to-peer?

Or he can just say that he sent the coin (although he didn’t in actual). If there is no central authority, how will one proof the transactions between people-to-people?

Well, all the transactions are recorded in ledgers which you (or anyone) can see. 

When you perform a transaction, you send this information to a number of people. Although there is no single centralized authority, however, this group of people maintains the transactions record. The best point is that anyone can become one of these people who keeps the track of transactions.

In this way, no one can cheat. If one people changes the transaction record, then it won’t match with the remaining other’s record and the dissimilarity will be found. Hence, this makes bitcoin one of the most secure currency.

And this is also the core concept of the blockchain.

What is Blockchain? The blockchain is a decentralized peer-to-peer system.

In simple words, millions of computes agree to keep a global record of the history of all the transactions that have ever placed in the system. This is called ledger.

How are bitcoins generated? What is mining?

When you transfer bitcoins, everyone knows about the transactions and writes it in their ledger. Hence, it is impossible to cheat.

The people who use their computer to look after the ledgers and keep the system running are called miners. They solve complex problems to put together all the transactions.

But why will anyone use his computer, pay the electricity bill and solve complex mathematical problems to keep the records of all the transactions taking place in the world?

This is because miners are awarded BITCOINS for their efforts. Each time they solve a complex problem to keep track of transactions, they receive few bitcoins.

And this is how bitcoins are generated.

Moreover, these miners also receive a small reward/concession per transactions for keeping the record alongside newly generated bitcoin.

Therefore, mining helps these people to generate new coins.

This is way similar to mining of gold. Both are limited in number and both are mined so that the miner will get the benefit.

What are the advantages of bitcoin?

Here are few of the advantages of bitcoin:

  1. There is no middleman involved in the transactions and hence the fees are lower.
  2. Bitcoins are hard to track. Although the records are maintained by the miners, however, the transactions are recorded in the form of cryptography.
  3. Bitcoins are global with no barrier to join: Anyone can buy/sell bitcoin. There’s no fee, no government permission required and no bank account required.
  4. The transactions are fast and transferred directly from person to person without going through a bank or clearing house.
  5. Accounts cannot be frozen (unlike bank accounts)
  6. Transparent and secured.

Image source: 99bitcoins

Few facts and data related to bitcoins:

Here are few important facts and data related to bitcoins that you should know:

  • There will be total of 21 million bitcoins only that can be generated. Currently, over 16.8 million bitcoins have been mined.
  • To limit the total number of coins being generated by the miners, the creators of the bitcoins made a rule that after every 210,000 blocks, the number of the bitcoins generated will be half of the last time.

In the starting, 50 bitcoins were rewarded to the miners every time they solved a blockchain problem.

Then it reduced to 25. Currently, 12.5 new bitcoins are created and awarded to the miner’s account after solving a blockchain puzzle.

  • By 2140, all the bitcoins will be mined.
  • The market capitalization of bitcoin has crossed over $300 USD (by December 2017), which is more than that of Visa, Wal-mart, Intel, Coca-cola etc.
  • There are over 14 million users of bitcoins worldwide.
  • Price chart of Bitcoin: Here is the price chart of bitcoin since inception:

Price of bitcoin in 2011: $0.05 USD
The Price of bitcoin in Jan 2017: $800 USD
Price of bitcoin (Dec 2017): $18,000 USD

bitcoin price chart

Source: Coindesk

  • Bitcoin can be divided into smaller parts. It is named after the creator and is called ‘Satoshi’ (1 Satoshi= 0.00000001 Bitcoin).

UPDATE: Bitcoin Price (June 2018) – $6108 USD

bitcoin june

Is bitcoin legal in India?

Yes, bitcoin is legal in India.

Can you make ‘internet’ illegal? The internet is also decentralized which means it is not authorized/regulated by any central government/authority. And that’s why the government has no control over it. The same goes for bitcoin.

The government of a country can restrict it but cannot make it illegal.

Bitcoin is not regulated by any authority in India. This means that nor government or any authority makes rules, regulations or guidelines for resolving any disputes regarding bitcoins. You cannot approach the government if you have any mis-happenings while dealing with bitcoins.

rbi india guidelines for bitcoin

Source: RBI Press releases

In March, RBI Deputy Governor R Gandhi warned against crypto-currencies such as Bitcoin. “They pose potential financial, legal, customer protection and security-related risks,” Gandhi said. 

“Payments by such currencies are on a peer-to- peer basis and there is no established framework for recourse to customer problems, disputes, etc. Legal status is definitely not there,” he added.

Nevertheless, Bitcoin is legal and there are no restrictions on the transactions of the bitcoins. There is no ban or regulation on bitcoins.

Moreover, many developed countries like Japan, Russia etc have already legalized the use of bitcoin.

How to buy bitcoin in India?

You can buy the bitcoin against real current price from digital currency exchanges. Just pay the price and get the quantity of bitcoins that you want.

You can use your credit card to buy bitcoins from coinbase or coindesk. Further, there are few mobile apps that you can use in India to buy/sell bitcoins:

Mobile apps to buy bitcoin in India:

  • Zebpay —>

Source: Zebpay

  • Unocoin —>

Source: Unocoin

How are gains from bitcoin taxed in India?

The taxes for the capital gains are decided differently depending on generating factor:

  • For the miners, who get the bitcoins directly from mining, there are no capital gain taxes.
  • On the other hand, those who get bitcoins from the exchanges, they have to pay a capital gain tax of 20% for long-term and tax according to their income slab for short-term gains.

Read more here: Cleartax

Other cryptocurrencies to watch out:

Here are few other cryptocurrencies (besides bitcoin) that you should watch out:

  • ETHEREUM
  • RIPPLE
  • BITCOIN CASH
  • LITECOIN
  • DASH
  • ZCASH

Conclusion:

It’s logical to consider cryptocurrency as the currency of the future. Bitcoin is certainly one of the most popular cryptocurrency and has played a big role in creating space in the hearts of the people against the traditional currencies.

The transaction of bitcoins are definitely legal in India and you can buy/sell bitcoins using the mobile apps like Zebpay or Unocoin.

However, bitcoin is not regulated by the Indian government. Hence, invest at your own risk.

Footnotes:

Tags: What is bitcoin, how bitcoin works, what is bitcoin India, what is bitcoin and how does it works, what is bitcoin and how to buy it

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

Where should you invest your money

Where Should You Invest Your Money?

Where should you invest your money? This is one of the most popular questions for anyone new to the investment world.

Everyone has their own living style and financial dreams. Some people are frugal while many are spendthrift.Some people live their life below their means and save money. While there is another group of people who spend a lot of money every weekend in parties and outings. They do not care about savings and have a huge credit card debt.

However, there are not only two kinds of people in this world. There are also many people whose spending habits lies between that of the extremes.

Anyways, when it comes to investing, all these kind of people are confused and have the same question- “Where should I invest my money? Where can I get the best returns on my investments?”

In this post, I am going to give a simple answer to this question- ‘Where should you invest your money?’ So buckle up and plan your financial journey ahead.

Factors affecting your investment decision:

Before discussing the various investment options available in India, first, we are going to understand the factors that can affect your financial decisions. Here are the four pillars for making a sound investment decision:

1. Investment goal:

Before you decide where should you invest your money, you need to define your investment goal. Your investment amount will depend a lot on your goals.

Your goal can be anything like buying a new car, buying a new house, savings for marriage, to fund your higher education, retirement or even just for fun.

Now depending on your goal, you will have to adjust your investment amount. If you are investing to fund your higher education (after 2-3 years), then you need to ‘save more’ and ‘invest frequently’. Here the time horizon is small and hence the power of compounding will not be that helpful.

On the other hand, if you investing for your retirement, then even the small investments will add up to a huge sum when compounded over a large period of time.

2. Risk appetite:

This is the amount of risk that you are willing to take. Not everyone believes in ‘high risk and high reward’. Many people want minimum risk for their investment so that they can a sound sleep.

Your risk appetite will decide your investment style. We will discuss the risks involved in different investment options later in this post.

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

3. Current financial situation:

If you have a huge debt like education loan, car loan, house loan etc, they pay it off first. There’s no point getting returns from your investment and directly giving it back to your lender. Therefore, get rid of your debts first.

Next, your investment decision will depend a lot on your financial situations. If you have dependents, then you might first need to have insurances, LICs etc. If you are single with no dependents, then you can invest without any worry.

Moreover, you will also need emergency fund so that you can have some financial flexibility.

4. Time Horizon:

The longer you remain invested, the greater will be the returns. The time horizon of your investment will vary with your age. If you are in your 20s you will have long time horizon compared to people who are in their 40s and just starting to invest.

There is a famous thumb rule of asset allocation while investing. This is called ‘100 minus your age’.It says that the total percentage of your investment should be equal to 100 minus the age times of your net worth.

For example, let’s say that you are 28 years old, then you should invest (100-28)= 72% of your net worth and keep the remaining in your saving account.

This rule is based on the philosophy that as you grow old, your needs will increase (like children’s tuition fee, children’s marriage, house debts etc) and hence you won’t be able to invest much. Therefore you should invest more when you are young and have minimum liability.

Where should you invest your money?

Now that you have understood the different factors affecting your investment decisions, here are the few of the common investment options available in India-

1. Fixed deposit (FD):

This is a low risk and low return investment. You can expect a return of 6-8% per annum by investing in FDs. The capital invested in FDs are considered to be safe if you do not count inflation and taxes.

2. Stocks:

Investing in the stock market involves high risk and high returns. You can expect a return of 15-20% per annum by investing in stocks.

Investing in stocks has been a life changer for many people. Although a number of people have lost money in stocks, however, many of the billionaires in India created huge wealth by investing in stock market.

New to stocks? Here is an amazing course on the stock market for beginners: How to pick winning stocks? Enroll now.

3. Mutual funds:

This is a moderate risk and high return investment. You can expect a return of 10-14% by investing in mutual funds. These funds are managed by highly qualified fund managers and hence it doesn’t require much involvement of the investors. However, these funds are also subjected to market risk.

4. Gold:

This is one of the conventional ways of investing which has been followed over thousands of years. This is a low risk and low return investment. The best part of investing in gold is that- it will always retain its face value.

Moreover, it is easily acceptable and highly liquid. You can sell your gold jewelry, gold bar or gold coin to any of your neighbor jewelry shop. The only disadvantage of investing in physical gold is its safety.

Nevertheless, after coming of GOLD ETFs, even this problem has been solved.

Also read: Getting Smart With Investment in Gold.

5. Real estate:

This is a low risk and high return investment. One of the best option available in a growing economy like India.

If you buy a property and hold it for 10-15 years, your initial investment can give multiple times returns. In many developing cities, the prices of a flat double itself just in 2-3 years.

Overall, the returns from real estate investment are tremendous.

However, the two big problems with real estate investment are high initial investment amount and liquidity. You cannot find a seller for your property in a day and it takes time for the paper works.

Nevertheless, don’t stop yourself from investing in real estate just because of these two reasons. The return on this investment is amazing. Moreover, if you do not own a house, it can be one of your biggest investment.

Few other points to know:

Stocks and real estate investment are the ones which have given the best returns in the past.

You can find a number of millionaires who made their fortune by investing in stocks and real estate. However, you will hardly find anyone who created huge wealth by investing in FDs, mutual funds or gold.

Also read: 3 Insanely Successful Stock Market Investors in India that you need to Know.

The other options available in India for investments are currencies, commodities like silver, metals, crude oil etc.

In addition, it’s better to invest in more than one option. You can own a property and remain invested in stocks at the same time.

Like the elders say -’Do not put all your eggs in one basket’. This is one of the best advice of all time.

Conclusion:

Risk Reward
Fixed Deposits LOW LOW
Mutual Funds MODERATE HIGH
Stocks HIGH HIGH
Gold LOW LOW
Real estate LOW HIGH

No investment is completely risk-free. However, the severity of the risks is different in different investment options. Select the investment option carefully depending on your investment goal, risk appetite, time horizon and current financial situation.

Take advice from your financial advisor or knowledgeable friends. But make your own financial decisions. Remember, no one cares more about your money than you do.

That’s all. I hope this post on ‘Where should you invest your money?’ is useful to the readers.

Also read: How to Invest in Share Market? A Beginner’s guide

Please comment below if you have any questions. I will be glad to help you.

Happy Investing.

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Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

#5 Things Warren Buffett looks for before investing.

#5 Things Warren Buffett looks for before investing

Warren Buffett, the veteran investor and one of the richest man on this planet, is certainly an icon to look for in the investing world. The success and wealth that Warren Buffett has accumulated are really galvanizing.

In this post, we are going to discuss the five important factors that Warren buffet looks for before investing in any company.

#5 Things Warren Buffett looks for before investing

1. Circle of competence:

Warren Buffet looks for the business he can understand and analyze. He only invests in the company that is in his circle of competence. (And it makes sense because if you can’t understand the business, then you can not forecast its future business performance.)

For example, during the technology boom in the 1990s, everyone was investing in the technology stocks. It didn’t matter to the investors to understand the underlying business of the company they were investing in it. However, Warren Buffett didn’t invest in technology stocks simply saying that he cannot understand them.

He said- ‘I can understand the business behind coca-cola, automobile or textile industry. I know how they work and how they can generate profit. I can predict their growth. However, I do not understand technology companies. These companies do not lie inside my circle of competence, therefore I do not invest in them’

The technology sector was a boom in those time and gave amazing returns to everyone that invested in that sector. However, if you fast forward a few years, you will know that there was a big crash in the technology sector which destroyed the wealth of lots of people who were just following the herd mentality.

His advice to other investors- Stick to your circle of competence and do not take an irrational decision by investing in companies that you do not understand. Expand your circle of competence but do not cross it.

Also read: Top 10 Warren Buffett Quotes on Investing.

2. Management:

Warren Buffett gives a lot of weight to an efficient management. He evaluates the management’s rationality towards reinvesting for growth along with rewarding its shareholders. Further, he is very stern about the honesty of a management.

warren buffet on management

3. Value:

‘Price is what you pay, Value is what you get.’.

Warren Buffet spends a lot of time reading the financials of the company. He goes through all the annual reports of the company to find its profitability, returnability,  liquidity, valuation etc.

Warren Buffett always analyses the value of the company before looking at its market price. This is because he does not want to get biased by knowing the company’s market price before analyzing its financial statements.

4. Moat:

The concept of the moat was popularised by Warren Buffett.

A moat is a deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack. Some stocks have a similar moat around them. That’s why it’s really tough for its competitors to defeat them in its sector.

Warren Buffett always looks for a company with a wide economic moat. This moat helps the company’s business to outperform its competitors. The moat can be anything like brand value, license, patent, switching cost etc

In addition, Warren Buffett also prefers older companies which have been public for over 10 years. He avoids buying shares in Initial public offerings.

Also read: 10 Must Read Books For Stock Market Investors.

5. The margin of safety:

‘A good business is not a good investment if you overpay for it’.

The concept of margin of safety was originally introduced by Benjamin Graham, the father of value investing. He was also the mentor of WarreBuffetet.

This is the central concept of value investing.  Basically, this concept states that 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 (if you are wrong about this calculation) and buy at Rs 70, Rs 80 or Rs 90 instead. Here, the difference in the amount is your margin of safety.

Warren Buffett looks carefully for a margin of safety in a company before investing. He only invests if the company is currently selling at a discount.

To calculate the margin of safety, he first finds the intrinsic value or true value of the company. The current market value should be less than the intrinsic value of the company. Generally, he prefers to buy a. company with a margin of safety of at least 25%.

These are the five things that Warren Buffett looks in a company before investing. I hope you have learned a lot from this legendary investor’s way of investing.

Related Post: 3 Insanely Successful Stock Market Investors in India that you need to Know.

Comment below what factor you give most weight while evaluating a stock?

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

6 Surprisingly Common Financial Mistakes People Make in Their 20’s

6 Surprisingly Common Financial Mistakes People Make in Their 20’s: It is often said that the mistakes you make in your early days come back revolving around to you in future. We all have been a spectator of how lifestyle standards have been raised to a whole another level. Statistics say that we tend to indulge in the reckless shopping’s mostly in our 20’s. Keeping up with the standards of style quotient might be one of the reasons for the adults to not pay attention at their savings. It is a matter of time when you get to realise how roughly life can strike you with its lows.

We don’t mean to scare you in the first place but in this article we have managed to gather some of the most common financial mistakes that people do in their 20’s that can end up making them financially vulnerable in the near future. You can pay your attention at them to know money mistakes to avoid in your 20’s. So, let’s get started.

Common Financial Mistakes People Make in Their 20’s

1. Pursuing a degree you don’t want to on a student loan:

Common Financial Mistakes People Make in Their 20's student loan

You have to admit that in your teen years, you find it very hard to decide what you want to pursue and make your career in. In countries like India we get influenced by the aspirations of our parents and society that eventually ends up getting us admitted in colleges for a degree that doesn’t even ring a bell to us. Most people choose to pay their college fee through loans that they have to repay at a considerable interest rate which can be really burdensome sometimes.

2. Getting influenced by big fat Indian wedding:

Common Financial Mistakes People Make in Their 20's wedding

Accept it or not, it is just one day party in which you blow your entire life savings just by being fascinated by that glittery and sugar coated wedding idea and plan. This is one of the major money mistakes to avoid in your 20’s. The wedding industry is one of the biggest industries of the country with an annual turnover of billions. Now, you need to understand that there are other important things in your life which you can spend wisely on. Have a good wedding but don’t put in your entire financial savings at stake.

3. Not being in a habit to save:

Common Financial Mistakes People Make in Their 20's no savings

Trust us; it is very easy to save a part of your income. With this habit, you would be able to make your future much better. Spending your entire income on things and services could insure you a luxurious lifestyle for now but at the same time, it is also putting you at a risky position in future. Life is really unpredictable and uncertain and you never know what you are going to need in future. Moreover, if you will look for a switch of job in future, you will definitely need some cash in hand to keep your stomach full for a couple of days until you get a hold of your new job.

4. Not keeping an emergency fund:

Common Financial Mistakes People Make in Their 20's no emergency fund

Most people choose to spend their money on shares and stock market without even knowing a bit of it. Instead you should maintain and put enough money in your emergency fund that will back you up in the odd times that might act as a hurdle in your life in future. You must put enough money in the fund for medical expenses and at least 6 month of unemployment. There are various ways and schemes provided by different insurance companies to ensure such funds for you. Sadly, most of the people in their 20’s fail to keep an emergency fund for themselves.

5. Not saving for your retirement:

Common Financial Mistakes People Make in Their 20's

The age group of 20’s is also known as the carefree zone. As the name suggests, most people are unaware and seem careless about their retirement plans. Of course, they must find the time of their retirement far enough to be out of scope but it is actually not. 20’s is the correct time to start your retirement fund. You must make sure to put a little every month in your retirement that would yield an amount adequate enough to feed you and fulfil your needs after your retirement. Another money mistakes to avoid in your 20 is not paying attention on your retirement fund.

6. Spending recklessly on credit cards:

Common Financial Mistakes People Make in Their 20's credit cards

Getting your hands on a credit card is very easy these days. Seems like teenagers in their 20’s cannot keep their hands off these credit cards! With amazing schemes, cash backs and numerous deals going on every day at various places make you spend a fortune through these easy cards. Now, you must remember that the money has to be paid by you only at the end. Most people get caught in their debts of credit cards bill and keep on paying for months and years to completely get rid of those debts. That is why one should remember to spend wisely in their 20’s.

I hope this post on “6 Surprisingly Common Financial Mistakes People Make in Their 20’s” helps the newbies in early 20’s to avoid these common mistakes.

Further, do comment below if you had made any big financial mistake in your 20’s.

Why You Should Start Saving Early featured image

7 Worth-It Reasons Why You Should Start Saving Early?

7 Worth-It Reasons Why You Should Start Saving Early? You may be a good spender or a hoarder of fancy things that grace up the lifestyle of yours but saving a little from what you get every month, comes in very handy for your future endeavours. Major problems in life always come unannounced and offer you a wee time to prepare for it. Nevertheless, it is never too late to figure out a little plan for your saving as it is said that as soon as you start saving, the better are the advantages. Let us guide you with the impeccable benefits of early savings.

Why You Should Start Saving Early?

1. More Saving = Less Unnecessary Spending

Why You Should Start Saving Early

The number of gadgets that you have won’t matter but the savings would. We all know how recklessly we get to spend as soon as we get our hands on those big fat pay checks. Also, half the things you buy aren’t even worth the money and therefore they just increase your reckless spending. If you stay firm on saving a part of your income as soon as you get it, you will make sure that you keep it safe and untouched until when in need. Therefore your own money is actually getting saved from being spent unnecessarily.

2. Gives you a way to live your dreams:

Why You Should Start Saving Early - Enjoying

We tend to have lots of dreams since our childhood to the time when life actually strikes us. Amidst of our busy schedules, those dream plans of ours start fading away. It never actually matter about the number you make but what matters is how much you have lived up to your own dreams. A little spending from the beginning helps in funding us to live our dreams in future to the full extent and worth a reason why you should start saving early. As you see, absolutely nothing comes cheap in the 21st century.

3. Chip in for your own education:

Why You Should Start Saving Early- Education

A good education is termed as an investment and not as expenditure. Anything that you spend for useless things for now can be saved in a fund that will provide you a quality education in future. Even if you are done with your under graduation, does it mean that it is the end of the ‘scope of your learning curve?’ NO. You can go ahead and pursue the degree you always wanted to in your post graduation and can follow your dreams. Nothing worth having comes easy and also for free. Save some money yourself to treat yourself with good education in future!

4. Bad times come without an alarm:

Why You Should Start Saving Early- Uninvited stress

Losing jobs, going downhill on health and family problems are some of the tit bits that life offers to everyone. You never know when you would have to experience the lows of life. All you can do as for now is to prepare yourself for the worst. Speaking of which, you should also make sure to have a strong financial back up for these toxic circumstances. Fixed deposits and saving accounts come in handy for the savings that you need to do. Being financially stable even during the bad times of life gives a great motivation to move forward.

5. Let the bank serve you with interest:

Why You Should Start Saving Early power of compounding

The principal amount that you deposit as your savings in bank is interested after a particular span of time. Moreover, if the interest is compound, you will get to save a heck of money if you will be consistent. The best idea would be to choose a bank that offers you a good interest rate on your savings. The sooner you start to save and deposit in bank, the better will be the final amount. That’s an easy math you can do yourself.

6. Be Ready with Your Retirement Fund:

Why You Should Start Saving Early- retirement

It often gets very hard to maintain your luxurious lifestyle after your retirement. That is going to be the time when you will regret not maintaining a retirement fund in your early days. You must know that there are a number of mutual fund retirement schemes provided by different firms across the globe but choosing the one that is most appropriate to you and at the same time, serve your needs to the fullest should be your pick. You must also make sure to read their policy agreement well enough before going with them.

7. You will be willing to take risks:

Why You Should Start Saving Early- risk taking

Life is all about taking risks but you should be smart enough from the beginning to be able to take the decision of risking things that don’t matter to you anymore. For instance, if you will be looking for a switch to a more decent company in future then you must have a financial backup already. Not having one actually stops you taking worth taking risks in life that have the potential of turning your world around. This way, you would be able to concentrate on your switch and won’t worry about the money.

That’s all. I hope this post on why you should start saving early changes your extravagant lifestyle. Further, do comment below any other reasons that you think should be mentioned on why you should start saving early list.

getting-smart with investment in gold

Getting Smart With Investment in Gold.

Gold Investment Quotes by Famous Investors:

“If ever there was an area in which to do the exact opposite of that which government and the media urge you to do, that area is the purchasing of gold.”— Robert Ringer

“People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they are going to say ‘We really should own some of that’. The question will then change to ‘Where do we get the gold’?” – Thomas Kaplan (Over $2 Billion Invested in Gold)

Do you know that India Ranks 1 in the highest gold jewellery consumption in the world? India and China account for 44% gold jewelry consumption globally.

This alone proves that the Indian men and women are highly interested in buying gold jewelry. Further, gold is also treated as a sign of royalty in India. However, when it comes to investing in gold, now a day, people do not consider it as a good option. With the increase in the paper assets, the gold investment is slightly fading away.

Moreover, most of the investors think that investment in gold is not as rewarding compared to stocks, bonds, and real estates.

Here is what Warren Buffet used to say about gold:

“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money, and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.

“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what it’s worth at current gold prices, you could buy — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils (XOM), plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

Also Read: Why Buffett thinks investing in gold is stupid

However, being born in a middle-class family, and listening to my mother continuously talking about the jewellery & rising prices of gold, I differ a little with Warren Buffet’s idea of investing in gold.

Gold has been used as a currency for over centuries in this world. Gold is assumed to be first found in Egypt in 3000 BC. However, gold started acting as a currency only since 560 BC. Nevertheless, gold is one of such rare items which has consistently been in the market and used to buy/exchange items.

I believe that everyone should have a small portion of his portfolio invested in gold. There are various reasons why I believe this, however there are few main points:

Why should you Invest in Gold?

1. Gold has high liquidity:

No matter which part of the country you live in, gold can easily be converted in cash and readily be bought and sold. However, such option is not available with other paper assets like stocks and bonds or physical assets like real estates. Further, there is no or minimal paperwork required in gold investment.

2. Gold preserves wealth:

Here is a chart showing the upwards trend of gold over the last few centuries.

gold investment trade brains

Source: http://goldprice.org/gold-price-india.html

From the year 2006 to 2011, gold has given a return of 29% per annum. Further, if we consider long term, it has given a return of 10% per annum. Overall, gold will preserve your wealth if you hold it for a long-term duration.

3. Hedge against inflation:
Gold acts a great investment to protect your money from inflation. Over the past couple of years, as the purchasing power of Rupee is declining; on the contrary, the price of gold is consistently increasing.

4. Portfolio Diversification:
Gold acts as a great asset for diversification. As gold has a negative correlation with other asset types like stocks bonds etc, gold moves in the opposite direction than these assets. Let me explain this with an example:

Here is a chart of SENSEX over the past few years.

In the above chart, please notice that when the SENSEX was sharply falling in 2008-09, the prices of the gold kept skyrocketing during this duration. Hence, if you had diversified your portfolio with gold investment, you wouldn’t have faced so much loss compared to concentrated investment in stocks.

In short, gold investment can help investors to avoid financial disasters.

Also read: 6 Reasons Why Most People Lose Money in Stock Market

Apart from the above four reasons, there are few other reasons also which favors gold investment.

For example, in the 21st century, every country has a different currency. Nevertheless, gold can act a commonly acceptable asset anywhere in the world. Further, it’s much beneficial to keep a gold in your pocket than a currency which is not acceptable.

In addition, gold is also a great investment to pass on to your next generation who might not have such luxuries to find gold in abundance.

How to invest in Gold in India?

Now that you have understood the importance of gold investment, I would like to highlight the simple ways by which you can invest in gold in India.

Typically, there are two ways to invest in gold:

1. Physical Gold Investment:

  • Jewellery Buying:

gold investment in jewellery

This is the old and conventional way of gold investment. You might have seen the jewellery of your mother, sister or other members of the family, which is the best example of gold investment through jewelry. Although these pieces of jewellery act more like ornaments, still they are worth considering as an investment.

The pros of buying gold jewelry are its easy feasibility along with zero paperwork.

However, there are also few cons while investing in gold jewelry.  For example, first of all, you need to pay the making charges (10-20% of total cost) along with the price of the original gold. Second, when you will sell the jewelry, the buyer will not consider the making charge. In addition, he will also demand a purchase discount (5-10%). Lastly, there is a high risk of theft and burglary in storing gold jewelry.

  • Gold Coins and Bars:

gold investment in bars and coins

These are a better option for gold investment compared to buying jewelry. There are no making charges involved here. You can buy or sell the gold coins and bars from any Jewellery shops. Further, some banks also sell them.

One of the biggest benefits of investing in physical gold assets is that you won’t need to open an account to start investing. No demat or trading account is required for this type of gold investment, unlike paper assets like stocks or bonds.

2. Paper Gold Investment Options:

  • Gold ETF:

gold investment by gold etf

ETF stands for Exchange traded funds. Gold ETF is a type of mutual fund which invests in gold and units of this mutual funds scheme is listed on the stock exchange.

You can invest in Gold ETF through a demat account. However, this type of investment of gold involves assets management and brokerage charges. Brokerage fee for gold ETF is around 0.25-0.5% and the fund management charges are approximately 0.5-1%.

Because of these charges, the returns on Gold ETF are less than the actual increased value of gold. Gold ETF is directly proportional to the price movement of gold and is not affected by market fluctuations.

  • Equity-based Gold funds:

This type of gold investment involves investing in companies related to mining, extracting and marketing of gold. Market fluctuations affect equity-based gold funds. Further, equity-based gold funds are susceptible to different risks like gold price risk and equity-based risks.

The biggest benefit of paper gold investment options is that there is no risk of theft or burglary here; as compared to physical gold.

How much to invest in Gold?

The portfolio allocation for gold investment varies for different investors according to their investment strategies. In general, small investors should keep 5-10% of their portfolio invested in gold. Gold doesn’t give an as high return as stocks or real estate. Nevertheless, gold investment will help to mitigate the risks in your portfolio.

How to start investing in Gold online?

You can buy gold ETF or gold fund online just like a mutual fund. However, you need to research carefully about the different ETF’s available. Here is the list of few gold ETF schemes available in India:

  1. Birla Sun Life Gold ETF
  2. Goldman Sachs Gold ETF
  3. SBI Gold ETF
  4. IDBI Gold ETF
  5. R*Shares Gold ETF
  6. Axis Gold ETF
  7. Kotak Gold ETF
  8. ICICI Prudential Gold ETF

Also read: Top 10 Gold ETFs in India

That’s all. I hope this post on ‘Getting smart with Investment in Gold’ is useful to the readers. Further, please comment below your opinion about investment in gold.

Is Gold Investment good for a small investor?

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

mutual funds trade brains3

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

What is a Mutual Fund?

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.

mutual funds trade brains5

Major Types of Mutual Funds:

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.

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.

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 sell their mutual funds whenever they want
    There is also a great flexibility to for the investors to sell their mutual funds whenever they want. Please note that it’s suggested to read the mutual fund prospectus carefully before subscribing as some mutual funds are closed one and have a locking period.

If you want to read about mutal funds from scratch, I highly recommed you to read this book: Indian Mutual Funds Handbook: A Guide for Industry Professionals and Intelligent Investors

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 the suitable mutual fund according to your goal. Here are the two few sites where you can search online:

http://www.moneycontrol.com/mutualfundindia/
https://www.valueresearchonline.com/

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 a fund like management fees, transaction fees, sales fees etc.
  • 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:
    mutual funds trade brains 1
  • Poor Performance: On an average, 75% mutual funds are not able to beat the market indices and hence the returns on the mutual funds are by no means guaranteed.
  • 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 should also remember that you are trusting someone else with your money when you invest in a mutual fund.

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. Many mutual funds does not give the dividends or reinvest the dividends in the original fund.

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.

Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst. I’m 23-year old and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting