Hi, You must have heard a quote saying “Compound Interest is the Eighth wonder of the world”.

Hi, You must have heard a quote saying “Compound Interest is the Eighth wonder of the world”. While it definitely is and holds true till today for an Asset class which is growing at an exponential pace. “Equities”. We must have heard of famous personalities like Rakesh Jhunjhunwala, Vijay Kedia, RadhakishanDamani who went on to create wealth just by investing into Equities.

So, how do they do it? It was very simple. They knew and understood how equities work. These had a basic knowledge of business and accounts, and had started to invest in a disciplined manner. That’s it. Just like them, we too have the option to use the opportunities that the market throws at us. These opportunities do not come very often, but when they do, we must have the desired resources, knowledge and conviction to grab it. Let’s go through a few simple steps which we can follow in order to start investing in the equity market.

First is Save money: Now, this can be a debatable topic as to how much to save out of our income. As it is correctly said, that “Do not save after spending, rather spend after saving”. It is a perfect strategy in order to be disciplined while investing. We must make sure that we keep aside our savings just after we receive our salary and then keep the rest aside for spending. The core crux of equity investing is to invest regularly Irrespective of the surrounding environment circumstances.

Next is Learn how to invest: Equities is a vast subject. It is better to be an informed investor rather than falling for a trap later. There is a lot of literature available on the internet which is free and can help us navigate through the basics of equity investing. Continuous learning will help us know the process of determining companies and the things that needs to be checked while picking companies out of a gamut of stocks. Along with that, we can also start reading books on investing which will give us the extra edge from the writers who have been into the industry from a long time.

Focused knowledge is always welcome in this field. Learning is a continuous process and so we must never stop gaining knowledge on how to invest in the equities. Next is Know the products: There are a whole lot of Financial products available in the markets apart from direct equities such as Mutual Funds, ELSS etc. Depending upon the risk appetite we can choose from a gamut of financial products which suits the best. Generally, a mix of direct equity and Equity mutual funds are preferred to get the full benefit of equity investing.

Another reason is Buying the right asset and holding on: Now, till now we must have been knowing the basic idea of the financial products along with the way, we can choose and pick up stocks individually. Post choosing the desired asset, it is time to continuously monitor our direct equity investments atleast on a quarterly basis. This would help us know what the company doing and what is the management telling on behalf of the company. Checking our equity portfolio from time to time would help us monitor the companies we have invested in and re-allocate the funds if required.

For mutual funds we need to stay invested into the fund no matter whatever the market situation is. In fact if possible, we can also increase our SIP amounts during market falls which would help to buy more units when the prices have become cheap. Next is the time factor: Equity compounding works in the long run. The sooner we start investing into the equities the better it will have the capacity to generate returns. In easy terms, compounding means that the profits that is earned in a year gets reinvested to the principal amount.

Thus, the next year we get an interest upon the interest. This mechanism of earning interest upon interest leads to exponential wealth generation in the long run. In the initial few years, one might not enjoy the profits but once it starts compounding it gets exponential big in the later stages of the time period. This is when the wealth is created. Equity investing is definitely not an easy task. One needs to have the risk appetite and the discipline to stay invested during rough times. This will help to generate compounded returns in the long run.

Thank you.