1. Why should you invest?

[Music] osceola mccarty the washerwoman was born in 1908 to a single mother save money osceola her mother would frequently tell her as a child these words stayed with her for the rest of her life she would wash dry and iron clothes all day till 11 pm and would save the money in her doll buggy coin after coin her savings grew so on one fine day osceola walked into the first mississippi national bank to open a savings account in the early 1900s it was a tiny move but it was a step forward she would stroll to the bank whenever she had the opportunity to deposit her funds she also lived through world war one the great depression and continued to pile up the money to save while going through such hardship do you know what happened after decades she had a stunning 280 thousand dollars in her bank account by the time she retired in 1995. for a washer woman or even a white collar professional that's a significant amount to have for their retirement account she made so much money that she kept enough for herself while donating a hundred and fifty thousand dollars to scholarship foundation for underprivileged youngsters osceola mccarty learned one right thing and practiced it her entire life in this module we will learn all the basics you need to know before you make your first stock market transaction and why should you even invest in stocks in the first place hi i'm pratik singh the ceo and founder of learnup. com and welcome to the zerodhar varsity video series so let's get started [Music] so let's assume that you earn 50 000 rupees a month right here and you spend 30 000 rupees a month on various expenses that means you're saving 20 000 rupees a month also let's assume the following that your employer gives a 10 salary hike every year the cost of living goes up by eight percent a year you are 30 and you plan to retire by 50 it gives you about 20 more years to earn you don't intend to work after you retire your expenses are fixed and don't foresee any other expenses and the balance 20 000 rupees is hard investable cash which is this stack right here so this means you have six lakh rupees total that you're earning a year the expense is 3.

6 lakh rupees and the cash retained is 2. 4 lakhs now if we continue to earn and save for 20 years you'll have 1. 8 crore rupees and you probably suppress desires like buying a car a nice house or a fancy vacation and at eight percent of yearly increase you will only have eight years of money left in the bank i mean what about the rest of your retirement could there be a way that at retirement you have a larger corpus larger than this hopefully so you can spend the rest of your life more comfortably now let's take the same example and instead of letting that cash sit idle let's invest it in an asset that returns 12 percent per annum so i have an excel sheet over here and in the first example like we saw you have a yearly income of six lakhs your yearly expense is 3.

6 and you're saving 2. 4 lakhs and you do this for 20 years you'll be able to save 1. 79 crores about 1.

8 crores in the next example what we've done is everything is the same except the savings are invested at 12 every single year and this is compounded and you can see by the 20th here it's actually 4. 27 crores this is a staggering 2. 4 times of what return you get versus just saving the money so it's clear that investing definitely makes more sense than letting that cash sit idle but the question is where do you invest what are the asset classes out there let's explore that so different asset classes have different risk and return profiles and the returns that we'll be discussing now for each asset class is from 2009 to 2021.

it's about 12 years of data i have real estate here as an asset class there is fixed income there is gold and we also obviously have equity a fixed income asset is basically an asset where you have a principal amount that you invest and then you receive an interest on a quarterly yearly or a six monthly basis a fixed income could be say a government bond or maybe even a fixed deposit where you put an amount with the bank and the bank gives you an interest rate based on how long your tenure is so without getting into the details roughly a fixed income asset like a five to ten year government bond which is a fixed income asset gives about five percent returns a year now just like we walk into a bank and create a fixed deposit corporates also have fixed income instruments called bonds some other fixed income instruments are bonds issued by the government bonds issued by the government-owned enterprises like ongc pfc or rac and bonds issued by corporates after fixed income we have equity there's no guarantee when you invest in the shares of a company but you profit if the price of the shares increases over a period of time you can buy the shares of any company listed on the exchange we have two major exchanges in the country national stock exchange and bombay stock exchange nifty is a good way to find out what the returns of equity are because it's basically a weighted average of the top 50 stocks nifty has given roughly a 14 return in this period between 2009 and 2021. some of india's best run companies have returned 20 year on year over very long periods of time but identifying these companies consistently for your portfolio takes skill and patience here are some companies we've removed the names of the companies obviously so you can see the power of long-term investing in action here [Music] the next asset class is real estate investing in real estate involves buying selling of land commercial or residential real estate and there are two ways to earn from real estate either there is rental income and the second way is capital appreciation which is the asset itself grows so you bought an apartment for one crore and then you sold it for 1. 2 crores giving you a profit now since this is such a complicated transaction requiring a lot of cash up front and every area has a different risk and return profile we can't really give you a risk return profile of real estate itself and then we have gold the return for gold has been about nine percent from 2009 to 2021 and the only way to buy and invest in gold is you could invest in physical gold that is buying gold bars or invest in etfs or sgb bonds so let's quickly compare the asset classes for fixed income at a 5 return our corpus would have grown to 2.

48 crores for equities which is at 14 the corpus would have grown to 5. 07 crores and gold and silver at nine percent return would have given 3.