Where and how to invest your money in India (2019) || Stock Market Basics for beginners

Life of first-time investors is
generally very difficult because in many cases, they don’t have the basic knowledge of
how to start investing. And to add to the problem, lots of people keep giving them
different suggestions. Like, we have been listening
from our parents since childhood that FD is best to invest. A friend of yours may say that
you should invest in mutual funds, or lots of relative may keep informing you
about LIC or NPS too. But it rarely happens that someone understands
the problems you are facing in detail and tells you which plan is perfect
for you and why. So that’s what we will talk about
in this video that how we can solve the problems generally
faced by first-time investors and start their investing journey
with a small case. My name is Anugrah. And I head the Investment Product Scheme
at Smallcase. As I told you guys, in this video, we are going to focus
on first-time investors. So let’s start with
the biggest and main problem, i.e, where to invest. Right? As… we have talked in the starting of
this video, lots of options are available. You can invest in FD, PF, stock market, gold, or real estate. So how to determine
where your money should be invested. The first thing is, it is very important to compare
all of them. Let’s see a chart for that. So, as you can see in this chart, we have analyzed different asset classes for the period of
last two decades, i.e, 20 years and have seen how they have performed, and how they have generated
wealth or money for the investors. From this, you can clearly establish that if you are investing for long-term,
like, 10 or 20 years, then stock market
or equities, as we call it, have significantly outperformed
all the other asset classes. So, after this,
it is very easy to establish that if you always invest for
5, 10, or 15 years, then your money should be invested
in the stock market. Here, it is very important
to understand that before starting the investing journey,
the first and most important thing is to determine when
you will be needing the money back. You may need the money back
in 6 months or 1 year. And this need can be for anything. You may want to buy a car after 1 year,
or go on a holiday after 6 months, or buy a house after 5 years,
or plan for retirement after 15 years. So your goal for the end
of the time period can be anything. But it is very important to determine
the duration of your investment. If you want the money back in
6 months or a year, it is always safest to deposit it
in FD in a bank because it carries zero risk
to your money. You always get the money back
with a fixed return on your investment. But if you have a long-term horizon where you are investing for
5 years, or 10 years, or more, then you should always invest in
equities or the stock market because, as you saw in the chart, you can earn good returns in that period
compared to other asset classes. Now, given that we have estalished that the long-term investments
should go in the stock market, let’s look at the problems that you face
if you are a first-time investor. The most common problem is that you don’t understand
the lots of difficult financial terms. Like, some will come
and talk to you about CAGR, some will advise you to invest
in arbitrage schemes, some will ask about returns or risk-reward ratio. Understanding all this becomes a very difficult thing
for first-time investors. So this is a very common problem which we have always observed
in the case of first-time investors. The second problem is that, generally, first-time investors give
too much importance to returns, although you can always see a regulator
or disclaimer in a document that past returns never guarantee
future returns. It means that if anything has
performed well before, there is no guarantee that
it will perform well in the future too. If there is such a disclaimer, is it right to give too much importance
to the past returns or not? Because if anyone is trying to sell
any investment product to you, they will always talk about
past returns first of all. The third important thing
to understand is that how much risk is involved
in the investment. And if you want to avoid that risk,
protect yourself from it, what is diversification. Why do people say that
instead of a single stock, you should invest in
a portfolio of stocks. Right? And the fourth thing,
which is very important, but most people avoid it, is how much fees is involved in a product. Because you may think that
the fees is just 1% or 0.5%, but whenever you invest, compounding is always at work. You think it is 1%,
but if it is 1% for 10 years it won’t total to 10%.
It compounds to a much higher percent. It can total to 15% or 20% or even higher because compounding is always at work. So these are the four general problems
for first-time investors who have decided to invest into
the stock market. Firstly, there are a lot of jargons. Secondly, the risk or returns. Talking of returns,
how much important historical returns are, and how to see them. Thirdly, how to know,
understand, and avoid risk, and how much important fees is. When you invest in the stock market, your money is actually invested in a stock which can be of Reliance or HDFC, or it goes into an ETF. Now, there are different methods
to invest in those stocks or ETFs. You can invest through mutual funds. When you invest in mutual funds, you actually give your money
to a mutual fund company which invests your money in
different stocks on your behalf and transfers the returns
and losses that you earn to you. It is one of the ways to invest
in the stock market. A second way is to invest directly
through a broker. Through a stock market broker like,
HDFC Securities, or Axis Direct, or Zerodha, you can directly buy the stocks. You can buy stocks of any company
through these brokers, like, HDFC, Reliance, Kotak Mahindra Bank,
or any company. So I have told you two general ways. You can invest in stocks
either through mutual funds, or directly invest in stocks. A third way to invest in stocks
is smallcases. Let’s undestand what smallcases are. Smallcases are actually a group of stocks, or you can say it’s a basket of stocks which are related to each other
through a theme or an idea. Let’s understand it with an example. There is a smallcase on our platform
naming Brand Value. It represents those companies which
have quite strong brands. These can be the brands which
you are observing or using in your daily life,
or you have seen someone else using them. Essentially, these are the brands which people have either seen or experienced
in their day-to-day life. Okay? So it helps you to invest in
all those companies. So it is a readymade basket of stocks which is related to a theme or an idea which can either be of
investing in brands, or you may want to invest in the companies related to rural economy, or you may want to invest in the companies
working on the Smart City projects, or you may want to invest in the companies which are benefited from
the implementation of GST. So there can be different types of
ideas and themes. A readymade portfolio of stocks made for all those ideas and themes
is called a smallcase. Just like you buy stocks directly
through a broker, you can buy smallcases directly
through a broker. Just like mutual funds
and direct stock investing are ways to invest in the stock market, a smallcase is a new-age modern instrument that you can use to invest
in the stock market. If you want to understand how smallcases are better than
mutual funds or single stocks, then we have a video dedicated to that. You can find its link in the description. Now that we have understood
what smallcases broadly are, let’s see how a smallcase can solve all the problems
that we discussed earlier for first-time investors. So the first problem faced by
first-time investors that we discussed was the use of too many jargons
or financial terms which make it very difficult
to understand a product. For example, we were talking about
arbitrage. I’ve mentioned it a few times that if someone advise you to invest
in an arbitarge scheme, it becomes a bit difficult to
understand, right? On the other hand,
when you invest in smallcases, you are always investing in a theme. So you can easily understand in what type of companies
your money is being invested. But if you are investing
through mutual funds, if you are investing
in mid-cap mutual funds, or large-cap mutual funds, or any other type of mutual funds, then you will never be able to understand in what type of stocks
your money has been invested. But when you invest in a smallcase, you can clearly understand
where your money is being invested withour decoding
any financial terms or jargons. Let’s take the example of
the two smallcases that we discussed earlier. First is Brand Value. So you can easily understand
from the name of the smallcase that your money is being invested
in the companies having a strong brand. People have been using those brands
in their daily life, and these companies are
encashing this brand value. The second example that we took was a smallcase
called Rising Rural Demand. It has the companies having big exposure in the rural economy
or rural areas in India. So whenever rural economy or the people living in rural areas
have a rise in the income level, it leads to increase in their expenditure, and the companies catering to them
are benefited. So this smallcase is a group or basket of
such companies. Okay? Thus it becomes easy to understand
without knowing the returns and risk. The first and most important thing that
gets clear instantly while investing in a smallcase is where
your money has been actually invested. Has it been invested in the companies
with the strong brand, or in the companies serving rural economy, or in the companies
benefited from the GST? That’s how smallcases
tackle or solve the first problem for you. The second problem
that we talked about was that often too much emphasis is laid
on the returns. And there is always a regulator
or a disclaimer in the note. It says that past returns are never
a guarantee of future returns. It means that if a particular thing has performed well historically, it doesn’t guarantee that
it will keep performing well in future. So, will it be a right decision to invest in anything
on the basis of returns only. Obviously not. Because
there are changes in time, things, goverment policies, regulations. And different countries support
different sectors at different times. With all these things changing,
there is no guarantee that the sectors or companies
benefited from those policies, those comapnies, or ideas, or philosophies
will keep working well in the future. So it is very important for
first-time investors to understand that returns are not to be given
too much importance. The thing that is important for you is that you understand the thing in which
you invest, and you can relate to it so that when that thing performs well
or badly for you, you can understand why your money
increased or reduced. For example, if you invest in
Rising Rural Demand smallcase and that smallcase is performing good, and you are also reading in the newspaper that the government
has allocated a huge amount of the budget to rural economy, or the government has brought
a special scheme for rural economy, or a simple thing that we observe in India every year is
that the monsoon was good, a good monsoon always benefits
people in rural areas because, generally, these people are
connected to the agricultural economy, so you understand very quickly that how this case or the thing
you read or observed can affect your investment. So if you think that all the current programmes or schemes of
the government or India will benefit rural economy
in the next 2-3 years, in that case,
you should invest in this smallcase. So, the first crucial thing to note for
first-time investors is that never take an investment decision
on the basis of historical returns. Instead, understand
where your money is being invested. Do you understand the philosophy or the sector in which you are investing and can relate to it? If you can, do you think
it has a bright future? If you know, understand and relate to
the answers of all these three questions, you can invest in that particular
smallcase or sector. Now, the third problem we talked about
was the risk. Generally, first-time investors
fail to understand the risk involved in a security
or a stock, and how important is the diversification. We can understand that
with a small example. Let’s say, you have noticed
that the petrol prices are droping. The government may also have announced it
or you may have pin it. But if you know it and you think that if this is happening,
people will buy more cars. If people will buy more cars, it is obvious that
the automobile manufacturers, e.g, Maruti and Mahindra and Mahindra, wil see an increase in sales. So you decided that I should invest in these companies
because petrol prices are droping. But what you do is, let’s say,
you invest in Maruti. Till now, your hypothesis is
absolutely correct. But suppose Maruti’s plant catches fire, or someone in Maruti’s management resigns. There can be any problems
specifically affecting Maruti. Suppose, due to this, Maruti’s production
stops for the next 2-3 months, or any problems arise. And the stock you invested in,
i.e, Maruti falls heavily. Now you will incur a loss. But it was very important to understand
that your hypothesis was right. You even executed it well,
but still, you incurred a loss. Right? Why did you incur a loss? Because your exposure in the stock market
was very company-specific. If anything happens to that company,
you will face a problem. Now, it is very important to understand and tackle it
while investing in the stock market. And the method to tackle it
is called diversification. Diversification means that
while investing, don’t invest in just one company. Instead, invest in a portfolio
or basket of 5 or 10 companies. It’s advantage is that when one company
faces any problems, it doesn’t affect your investment
in the other 9 companies. If I have to quantify it for you, let’s say, we are investing
100 rupees in Maruti. And if Maruti faces any of the problems
we discussed earlier, and your investment of 100 rupees
reduces to 50 rupees. The stock price drops by 50%. So you have incurred a loss of 50%. But, let’s say, to execute it, if you had invested in
10 automobile manufacturers, and you had invested 10 rupees
in each company with total of 100 rupees. Now, if Maruti had faced the same problem, you would have incurred
a loss of just 5 rupees. And you can actually execute
your hypothesis in both the ways. So that was the third point, i.e, risk. It is very important to understand how much risk is involved in
a stock market investment. And why is it always beneficial
to have more exposure in your portfolio? Because it adds diversification and you can protect yourself
to a great extent from the problems that a company may face in the future. Now the fourth and the last problem
we discussed was fees. It is always very important to
know and understand how much fees are you paying
to invest in the stock market. If you are investing in mutual funds, they generally have an expense ratio
associated with them. That expense ratio can be 1% or 2%. It doesn’t mean that if you have invested 100 or 1000 rupees, you are paying 2 or 20 rupees to
the mutual fund at 2% rate. The expense ratio means that you’ll pay 2 rupees or
whatever is the amount every year for the whole period of
your investment of 100 rupees. So every year, if the expense ratio is 2%, you will be paying 2% of the current value
of your investment. This is the fees that you pay
when you are investing into mutual funds. Similarly, you pay brokerage
when you invest in the stocks. So when you invest for a long term… as I said earlier,
you must invest for a long term if you are investing in the stock market. So when you invest for a long term, the expense ratio becomes very problematic because you have promised to pay
a fixed amount or a fixed percent of money
to someone every year without any promise or guarantee
from the mutual fund company that they will be generating
specified returns for you. But when you invest in smallcases, you don’t need to pay
a fixed percent of money every day or every year. When you invest in a smallcase,
you only pay when you are transacting in a smallcase,
buying it, or selling it. Thus you are not being charged
any constant fees. And if you invest today
and keep it with yourself for 10 years, you are paying any fees. So let’s quickly revise all these things. So we have understood that
the biggest problem for first-time investors is to determine the asset class in which he should invest. FD, real estate, or equities,
or any other class. So we have determined that if you want to invest for a long term,
like, 5 or 10 years, you should invest only in equities. After determining that, we first
understood the four major problems in it. The first problems was financial jargons. The second problem was that
your decisions were always returns-based. Then we saw how smallcase solves
both of your problems because when you invest in a smallcase,
you invest in an idea or a theme after understanding it
and after knowing that it will perform well in the future
in your opinion. There were two more factors.
Our third factor was risk. So we learned how you should never invest
in only one stock because it increases your risk. And when you invest in smallcases, you invest in a portfolio
or a basket of stocks which provides the advantages
of diversification, and your risk is quite limited. And the fourth and a very important thing. When you invest in smallcases, you only pay when you transact. You never have to pay any constant fees. Thus you can easily establish that if you want to invest
in the stock market for a long term, smallcases are the best option
for long-term stock market investing. So now let’s quickly learn that which smallcases are best for
first-time investors. Because we have a list curated for you with which you can start
your investing journey. And you can watch that whole list
in the description, or you can click on its link. Before we end this video, you can ask any query in the comment, or you mail us at [email protected] We are making different new videos on investing and smallcases. So if you want to know, understand,
or want more details on a specific topic, you can ask about that too in comment,
or you can email us.

25 Replies to “Where and how to invest your money in India (2019) || Stock Market Basics for beginners”

  1. Sir,jitne bi smallcases hai yek yek karke clearly kisme kitana risk hai aur koun koun sa equities hai smallcase mey,please is per yek vedio bana dijiye.

  2. Well, a nice idea/theme. It is really a great idea that we ourselves can become Fund Managers and manage our own fund without depending on Mutual Fund managers. Sometimes their mistakes can wipe away our investments. If I do the planning and invest carefully by taking my own strategy and my own thinking, even if I lose it might not hurt me. I have seen some of my friends not from finance education background has earned more than a crore. Anyone can plan their finances without any financial degrees to their name and become successful .

    Thank you, Anurag Sir, for bringing us this theme.

  3. what do you mean by "you pay only when you transact" ?? suppose i invest in a small case for 30,000 rs. i sell that after three years. whats the charges then?? how is it determined?

  4. I am new invester Sir charges 1time & end time Ka lumsum Kitna hai directly cut ho jata hai
    Ya alag se bharna padta hai

  5. Anugrah, really appreciate your Ideas small case, it is great idea. I started investing in small case. all the best to your team.

  6. Sir etne sare small case se confusion ho gaya hai. INDIA ki top 20 company jinka fundamentals ache ho div pay aur all time good ho aiska ek hi small case Hona tha . No hypothesis

  7. thank you anugrah . i am going to plan invest in small case..in the next month….pls suggest me more link to how to invest throug small case

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