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The Power of Compounding- Secret of Making Money

The Power of Compounding- Secret of Making Money: Benjamin Franklin once wrote somewhere: ”’tis the stone that will turn all your lead into gold Remember that money is of a prolific, generating nature. Money can beget money, and its offspring can beget more.

At a very young age, I was introduced to the concept of the power of compounding by my grandfather. He told me a story to explain it better which I am going to narrate here:

One upon a time, there lived an honorable king in a prosperous country. He was well known all over the country for his trustworthy words as he always kept his promise no matter what. Because of this nature of the King, he was widely regarded by people in his kingdom.

All the people in his kingdom were very happy and leading a peaceful life. However, there was a cunning burglar in his capital city. Once, when he was trying to steal some jewels from one of his minister’s house, he was caught red handed. He was presented in front of the King. At that time, the king was playing ‘CHESS’ with one of his minister.
The punishment for stealing in that country was death. Nevertheless, the burglar knew about the honorable nature of the king. He demanded one last wish from the king. The king agreed and said that if it was in his power and good will, he will fulfill his wish.

The burglar said, “O Brave and honorable King! I knew that the punishment for stealing in this country is death. However, I tried to steal some jewels only because I could not see my family suffering from hunger. After I am gone, I just wish them to have enough food to carry on their lives for few days before they manage it themselves.”

Then he further added, “My wish is simple. As I disturbed you while you were playing chess, I want my wish to be related your game. I only wish for one grain of rice for the first square of the chessboard, two grains for the second square, four grains for the third square, eight for the fourth square and so on for all 64 squares.“

The King granted the burglar’s wish without much thinking and regarded it as a small wish. He happily accepted his wish and promised that he will only be prosceuted after his last wish was fulfilled. However, a week later, the king’s treasurer informed the King that even his whole kingdom doesn’t produce as much rice as promised. The quantity of rice promised might not even be produced by combining many countries.

In the end, the King was forced to give his kingdom and all his possessions to the burglar, as he could not keep his promise. That is the power of compounding.

I was amazed when I realized what wonders compounding can do. I still remember my grandfather’s words after the story “The strongest force in the universe is Compound Interest.” Although later, I found out that these words weren’t his words but were originally Einstein’s words. However, hearing this from my grandfather at that young age was quite inspiring.

Another book that I read at a young age- ‘Think and Grow Rich’ by Napoleon Hill. This is the number one self help motivational book that I have came across. I definitely recommend everyone to read this book.

The Power of Compounding:

The power of compounding can be explained as: “Power of compounding is reinvesting or compounding of income on the initial amount invested and also on the accumulated interest over previous years to grow the amount invested year over year.”

Now, you might be thinking what’s so great about the power of compounding. Even a fifth grader knows the term. Yes, you might argue that. However, there are things that the fifth grader doesn’t know and if he understands it, he can set the whole world on fire.

Let’s see how the concept of compounding works. Suppose Rajat invested Rs 1,00,000 at the age of 20 and locks all his investments till retirement. Arvind, however, doesn’t make any investment till he is 40. At 40, he invested Rs 1,00,000 and locks it till the age of 60. The table below tells you how their investments would turn out when they both are 60, assuming that the growth rate is 15 percent per annum. The results are eye-opening.

the power of compounding

On retirement, Rajat will get over Rs 2.6 Crores while Arvind will only get Rs 16 lakhs. Therefore, over 16 Times Growth in the Investment for Rajat compared to Arvind. That’s the power of compounding

Compounding is a simple, but a very powerful concept. Why powerful? Because compounding is similar to a multiplier effect since the interest that is earned by the initial capital also earns an interest, the value of the investment grows at an exponential rate rather than an arithmetic linear rate. The higher the rate of return, the steeper the curve.

Here is a chart of returns on compound interest vs simple interest. The principal amount is Rs 1 lakhs and an annual returns on both simple and compound interest is 15%.

the power of compounding trade brains

I am glad that I received this financial advice at a very young age. This financial knowledge has changed my life and still changing. I hope you understand this concept and the next time you plan to borrow money on credit cards, remember that compounding is working against you.

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!

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

10 Common Stocks at Rs 100 or less as Market Price

10 Common Stocks at Rs 100 or less as Market Price.

10 Common Stocks at Rs 100 or less as Market Price. Many people think that they require huge lot of money to invest in share market. But it is not so true.There are lots of company in Indian stock market whose market price is even less than the cost of a burger.

There are a number of penny stocks trading between Rs 1 to 10 (find more here). Even, big companies like Ashok leyland, Tata Power, Steel Authority etc are also selling at a market price lower that Rs 100. So, today I am listing the list of such 10 Common Stocks at Rs 100 or less as Market Price.

10 Common Stocks at Rs 100 or less as Market Price

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

Funny, the stock prices of these companies are even less than the Ola or Uber ride fare.  Still people speculate that buying stocks are expensive.

In addition, you can further find a list of large number of stocks, who range from RS 1 to 100  here: http://money.rediff.com/companies/price-sorted/10-100

Disclaimer: Please note that I am not recommending  you to buy these stocks just because their price is low. You should always buy a stock only when its selling at a bargain price. Bargain stocks are not such stocks whose share price is low. Its those stocks which are trading at a much lower than its intrinsic value.

Tags: 10 Common Stocks at Rs 100 or less, Indian stock market 10 Common Stocks at Rs 100 or less as Market Price, 10 Common Stocks at Rs 100 or less as Market Price in India

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

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,

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

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 for their dividends. A regular, consistent and increasing dividend per year is what these investors are looking for. In general, those investors who are planning for their retirement or a long-term investment with some yearly returns 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: Invetopedia (http://www.investopedia.com/terms/d/dividend.asp)

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. 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 by the company’s board of directors. It’s during the press conference (corporate announcements) when the company announces how much dividends they will give to the shareholders and the dates when the stockholders will get 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 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

Dividend Dates Explained.

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 post here: http://www.thehindubusinessline.com/markets/stock-markets/hindustan-zinc-to-turn-exdividend/article9604920.ece

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

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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

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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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

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!

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