🔷 Introduction
Invest portion of income in stock market is one of the finest ways to build long-term wealth. Earlier, we had some traditional investment options like Fixed Deposit (FD) and Recurring Deposit (RD), but now many of us realized that, we should invest some portion of income into the stock market. You can choose individual stocks or the mutual funds as per your capabilities and in regards first you should be clear about stocks vs. mutual funds: which is better in India? Be it the stock market or mutual funds, Security and Exchange Board of India (SEBI) governs both.
Although the traditional options like FD or RD still provide safety, but the rate of return has decreased so much that it cannot beat current inflation in any way.
If we look at the current bank rate:
-Fixed Deposit (FD) or Recurring Deposit (RD) gives – 6.5- 7% (approx.)
– Current Inflations – 7% and above
So if we think logically, all these traditional investments are depleting our money instead of increasing it.
Therefore, the at present, stock market is the only option that can generate an average return of at least 12-15% in the long run, which is easily able to beat the current inflation and the best way to invest to stock market is the systematic investment plan (SIP). Everyone should know about what is SIP and Its benefits.
Here we discussed logically, why you should invest some of your income in the stock market.
🔷 1. Generates Higher Returns to Beats Inflation
One of the main reason to invest in the stock market is to generate higher return than any other traditional investment like Fixed Deposit (FD) or Recurring Deposits (RD).
- Usually Fixed Deposit (FD) or Recurring Deposit (RD) gives – 6.5- 7% (approx.), hardly can beat the inflations.
- Stock markets can generate 12–15% returns in the long run, easily beating inflation.
- If we look at history, the stock market has performed better than gold and real estate.
For example, if you invested ₹1 lakh in a fixed deposit for 10 years, your money would only grow to around ₹2 lakh.
But the same amount invested in a diversified stock market portfolio could grow to ₹3–4 lakh or more.
🔷 2. Mutual Funds – ideal for beginners
There are many beginners who are unable to invest in the stock market directly due to a lack of knowledge. In this situation mutual fund is the ideally best options to start their investment.
As per past records Mutual funds can also generate 12-15% average return in the long run.
Let’s see how mutual funds helps to create wealth for the beginners or any investors:
- Beginners can follow, systematic investment plan (SIP), can invest with a small amount as low as ₹100 at regular interval.
- Don’t required the knowledge and research about the stock market. All of these responsibilities goes to the fund manager, who look after all these.
- Mutual funds typically minimize risk significantly, as the investment amount is spread across various stocks rather than a single one.
- Mutual fund usually generate 12-15% average return in the long run which can easily beat current inflations.
So, if you invest in a systematic manner and keep the long time horizon, you can able to create a big corpus in the long run from mutual funds.
🔷 3. Long-Term Wealth Creations through Compounding
Albert Einstein referred to compounding as the ‘8th wonder of the world’. Compounding is a powerful process which works in the long term, its help to grow your money significantly with multiple your investment.
Let’s understand with an example:
- If you invest ₹5,000/month for 20 years at the rate of return 12%, its can create a corpus around ₹50 lakhs.
- Whereas if you invest in the FD with the same investment at the rate of 7%, you will get around ₹20-22 lakhs.
So, this is the magic of compounding that’s makes you a real wealth creator and thus we should invest some portion of income into the stock market
🔷 4. Benefits of Ownership in Businesses and Portfolio Diversification
When you buy a stock, it means you are acquiring partial ownership of that particular company. So, its means when the company makes a profit, you will also be eligible to receive its benefits, Just like when a company gain the profits, they distributes their partial profits as a dividend among the investors. In this way you can get a regular passive income as the dividends.
By investing in the stock market, you can also diversify your portfolio, such as:
- If you have short term goal – you can invest small portion in FD,
- If you have a long term goal – you can invest in the stock market ( it’s may large-cap or mid-cap or small-cap or mutual funds)
In this way you can allocate your portfolio and also minimize your risk as much as possible. Along with this strategy you can create your wealth very well.
🔷 5. Achieve Financial Freedom
If your goal is to achieve financial freedom, you can definitely achieve your goal by Invest some portion of income into the stock market in the right way. You can fulfill your dreams such as **buying property**, **funding your child’s education**, or **covering marriage expenses for your son or daughter**, etc.
But you have to follow some strategy;
- You should be discipline
- You shouldn’t invest in individual stocks without sufficient knowledge.
- You should have long term view
- You should follow SIP investment
- You should have enough patience and risk taking ability
If you follow these strategies and stay invested, you can definitely achieve financial freedom.
🔷 Conclusion
So, if you want to build a large corpus in your life to achieve your financial goals, it’s crucial to invest a portion of your income in the stock market. How much you invest is up to you, as per your goal and time horizon. Usually 15-20 percent you should invest in the stock market. But also as a beginners you should aware that, how beginners can invest in the stock market in India.
⚠️ **Caution:** Be disciplined, patient, and consistent.
Remember, the sooner you can start investing, the sooner you can reach your goal.
❓ Frequently Asked Questions (FAQ)
Q1. Is there any guaranteed return from the stock market?
➡ No, the stock market never gives guaranteed returns. It’s always depends on the stock
market performance.
Q2. How much of my income should be invested in the stock market?
➡ It totally depends on your risk appetite and time horizon. Usually 15-20% should be invested.
Q3. Is it possible to beat inflation by investing in mutual funds??
➡ Usually mutual funds can beat the inflations. So yes, it’s possible, but in the longer time period.
Q4. Should beginners invest directly in the stock market?
➡ If, If they have enough knowledge about stocks and research properly before investing, they can invest directly; otherwise, mutual funds are the best option.
Q5. What is the minimum period should I invested in the stock market?
➡ As long as possible — ideally, you should stay invested for at least 5 to 15 years.