Why should you invest? You may be having millions or may be billions of inheritance in a fixed deposit or a bank account. Then what’s the need of investing?
This is a very basic question. Well, it has a very simple answer – so that your future generations don’t run out of money.
You may be leading a very lavish lifestyle now but the money making machine on which you are depended will be stopped by expenses one day and your future generations will suffer. So need to invest in a way that at least their basic need is satisfied by your actions.
So what’s the best way to invest? Keeping it in a term deposit is no good. As it is the interest rates won’t give you much and moreover it is taxable.
Investing through mutual funds is risky because you are actually giving your inheritance and life’s savings to a company whom you do not know well enough. Moreover, mutual fund investments will deprive you of all the bonus shares and dividends.
The best way to invest in my opinion is to invest in shares. Now before you think it is quite risky let me explain how. While investing the thing which is important is in which stock you are investing.
It does not matter if the stock is of high value or low value, the matter at play is what kind of dividend payout are they offering (Dividend payout is the dividend per share which a shareholder gets). Above all of this, you will also be entitled to bonus shares. Giving an example is better.
Let’s say you have Rs 15,00,000. There are two stock where you can invest. A – Reliance Industries B – Coal India.
Scenario A –
Time frame 1 year
You invest Rs 15 lakh in Reliance Industries which is trading @ 1500. You buy a 1000 shares. As soon as it becomes Rs 1600 you sell it and gain Rs 1 lakh. Dividend per share offered is Rs 10, so your dividend income is Rs 10,000. Total earnings Rs 1,10,000.
Scenario B –
You invest Rs 15 lakh in Coal India which is trading @ Rs 250. You buy 7500 share. Let’s say even after a year share price falls to Rs 200 in a year. Dividend per share is Rs 15. So total income is Rs 1,12,500 (dividend income).
Since you have bought equity share you will hold the stock till you realize profit. However, you have realized an income of Rs 1.12 lakh through dividend.
Hence, it is important that the stock in which you are investing has the best dividend yield history, or is atleast better than the fixed deposit offered by banks. It is very important that you invest and not trade because the company awards dividends only to those who remain their share owners for sometime.