While there are many asset classes to choose from, (i.e. fixed income deposits, real estate, gold, art etc), I will stick to Stocks, which I think is the only viable long term option in the current scenario. For my views on gold and real estate as an investment option, you can read here: How does your money make money after all?
Best Place to Invest Money in India
Ever wonder who pays the analysts who write the research reports based on which you (or at least many of you) make investment decisions? How do stock brokers manage to offer you these research reports for Free?
How does the Stock Broking Industry in India Work?
The bias of stock brokers or sell side analysts is well recognized. We encourage you to search on the internet to understand why equity research reports issued by stock brokers are commonly influenced. The truth is, brokerages can generate sizeable commissions by making their clients buy and sell (basically anything that is tradable). The more frequently you buy and sell, the more money the stock broker will make. The more money your brokerage firm makes, the more they pay the ‘research team’. The more money the research team gets, the more research gets pumped into your mailboxes. Simply put, it is not hard to understand why you will lose money investing on brokerage reports or hot tips. The goal of such reports is not to give good advice but to convince you to trade. Just trade!
Additionally, stock brokers in most cases have asset management and investment banking departments. Which means what? The same companies whose research reports are being written by the analysts are the source of revenue for the stock brokers. Analysts at these brokerage houses spend long hours writing upbeat reports to help win investment-banking business.
Think about it, why would a stock broker pay an analyst to write high quality research report and give it out for free?
The question to ask is – Why am I telling you all this? How do I make my money? If you have subscribed to my newsletter “Open Interests”, you will get to know (sooner or later) my exact business model. It’s no rocket science. Its ethical, gets me respect and allows me to do what I like doing the most – researching and looking for the best place to invest money in India.
Mutual Fund Managers
Objective – A good fund manager looks to withdraw his money from equities and deploy it in fixed income and debt based instruments, and vice versa, based on market conditions. This is precisely what you pay them a commission for. Managing Money!
The idea of this article is not to convince you that all investing options are bad. In fact, I highly respect some fund managers for the kind of returns they have generated on their funds. If you are not confident about investing directly into stocks yourself, mutual funds are a great way to deploy your capital to earn high returns.
That said, there are 2 things that you must keep in mind:
- First, choosing your fund manager/ mutual fund wisely – Before you decide to invest in a mutual fund, find out a little about the fund manager and his past performance. Earlier I had written about this and other aspects of Mutual Fund Investing, you should read about – Different Types of Mutual Funds.
- Here again, there is no substitute for knowledge. How will you choose a good fund manager? Further, I believe that the decision to invest in, and withdraw your money from funds should be entirely your own. A good fund house will tell you “it’s a good time to invest”, at all times.
In principle, I don’t doubt them in any market environment; but good time for whom – Someone looking to invest for 10+ years, or someone who needs the money by the end of the year? What kind of returns are you looking for? How much risk are you willing to take?
Again, don’t confuse me as saying that all fund managers and mutual fund companies are unduly positive. I certainly don’t mean that. All I am saying is that it’s a professional hazard for them to be negative. Some of them may become conscious of a possible turmoil in the economy and may realise that it’s best to reduce exposure to equities and allocate more money to fixed income (i.e. government corporate bonds, FD’s etc). How many do that is another thing. There are others, who do realise subconsciously but keep hoping for a revival until it’s too late. Then there are some who genuinely don’t see it. Yet another lot never pays attention. They all manage sizable funds.
The inability of the finest fund houses, around the world, to protect client moneys in times of economic turmoil should by now have convinced you that, “the best person to manage your money is ‘YOU’.
The best place to invest your money without a doubt in my mind is equities, provided you back yourself with the power of knowledge and research. Knowing the basics of investing will not only help you manage your money better, it will also open ‘money making avenues’ which you never knew existed.
While it is important to invest, what is even more important is to know the various avenues for investment and which one is the best for you. Just a little bit of knowledge and being careful could make you earn more over time.
For example, if you invest Rs. 1,00,000 in a bank FD which pays you 9% interest p.a. how much will you accumulate after 10 years? The answer to that simple question would depend on how frequently your money was compounded and the results can vary considerably. If your money was compounded monthly, you will have a corpus of Rs. 245,135.71. If on the other hand your money was compounded yearly, it will add up to only Rs. 236,736.37 (that’s 3.43% less).
Needless to say that when you invest in equities, the amounts could vary a lot more significantly and you must be a lot more careful with your decisions. The art of stock selection is in knowing which companies will do better than the others in favourable economic conditions. It is an art which is absolutely essential to learn if you want to accumulate wealth over a period of time.
Last Word – Read More
I know many find it tedious to read and would prefer television or rather listen to those who have read. Rest assured, these are not the substitutes. Just read.
It’s a habit which is hard to inculcate but one of the best to have. While I do have my list of favourite books on finance, you may look for others. You can even start with a more gripping book on finance (I am not kidding, they do exist – try Barbarians at the Gate by John Vogel or Too Big to Fail by Andrew Ross Sorkin).
Reading will not only make you a smarter investor but will also ensure that you do not fall prey to the many fraudulent schemes and products being sold in the guise of investment. Effectively it will make you question whether these products and schemes are the best place to invest your money.
Finally, one of the most compelling arguments in favour of reading is that, you do not have to make all the mistakes yourself. Many before you have already done you that favour. Learn from their mistakes and it will shorten your learning curve.
Very good reading. You should write more on this topic. It was really helpful to get a perspective of things.
Very well written! Like the points that have been raised and answered accordingly.
I agree with the writer view.
Proper knowledge and research is always needed. I must add that the best place to invest Money at any given time can rely upon our own financial goals. One need to decide if plans include short term, middle, or long-run investments and accordingly investment option can be selected.
You got it Mukesh. That is correct.
The best example to take of someone who follows this simple philosophy is Warren Buffett, Invest in few but after examining the industry they are in and how they are placed vis-a-vis competition and not to forget after having a look into their books.
Very interesting but ihave not enough time to spend for analysing the stock
pls advice me to invest in long time and wealth creating good stocks .
Hi Girish – You can sign up on http://www.sanasecurities.com/subscription
Hello Rajat Sir,
first of all thank you so much for providing us various type of article. After reading your blogs i got interest in finance and started reading books on related to finance.
your article is really easy to understand and motivate us to make wise investment.
Now I become a regular reader of your blogs.
Please suggest me some good book to understand stock market.
I did a post on that sometime back here – http://www.sanasecurities.com/best-finance-books-of-all-times