This article will help you understand how to invest in stock markets and why to invest in stock markets.
How to invest: Open a Demat and a trading account from any broker. It is a 15-minute process, and you will require a pan card, Aadhar card, and a copy of a cancelled cheque. Recommended brokers - Zerodha, Groww, Upstox and 5Paisa.
1. Compounding: The compound interest formula we learned during our school days is one of the most used and practical formulas in investing. If you invest in a stock and hold it for an extended period, the value of your investment will compound, and in a few years, it will become multifold. If you invested Rs. 10,000 in Wipro 35-40 years back, the value of your investment today would be over Rs. 750 crores. This is the true power of compounding!
2. Hedge against inflation: If you have cash of Rs. 100, and you do not invest it anywhere, the value of Rs. 100 reduces with each passing year. Let's say the inflation is 4%, which means that an item that cost Rs. 100 in 2021 would become worth Rs. 104 in 2022, implying that you will not be able to afford the once-affordable item. Stock investments can help you beat inflation and also help you grow your wealth.
3. Owning a business: Investing in the stock market makes you a partial owner of that company. Let's say Apple is your favourite mobile brand, and by buying a few shares of Apple, you will become an owner and have a say in the business decisions.