As a college student, one aims only for two things; “How to start earning money”, once this is achieved, the focus shifts to “Where to spend the money”. Only a few per cent of people go to the alternate step i.e. “How to save money”. But very few people think about investing money at such an early age.
What is investing? In simple words, investing means multiplying your money. It means putting your money away so that you can generate returns. Investing is like a business, you don’t calculate its value every day. On the other hand, saving means keeping your money with yourself. Suppose you start investing your money at the age of 20 years and wish to invest till the age of 65 years. How much money would you have to put in? As a student, one doesn’t have a huge source of income. Nonetheless, most of us manage to eat one meal costing 500 rupees a month, which, surprise-surprise, is enough to start investing!
If you put those 500 rupees in Nifty 50 (Nifty 50 means the top 50 companies of the country by market capitalization, which means the value of the company listed on the stock exchange which is calculated by multiplying the current market price of the shares with the number of shares) and taking the historical returns of 14%, you can generate 1 crore rupees by the end of 40 years.
But if you do the same thing starting at the age of 30 years of age, then you will only be able to make 50 lakh rupees. This is the power of compounding.
Once someone asked Mr Warren Buffet, popularly known as the father of investing, “why did you start as early as at the age of 11?” He replied that he was not early, he was 11 years late.
How to start investing?
The first step towards starting the investment journey is to have a bank account, a Demat account, and a trading account. A Demat account is a single multipurpose account where a person can see the shares bought or sold. With the help of a trading account, one can actually buy and sell these shares. To open a Demat account, one can contact the respective bank or can open it individually with brokers such as Zerodha. The documents required for opening a Demat account are a pan card, ID proof, bank account statement, and a passport size photograph.
With great returns, comes great risk
Most of the time, people who lose money in the stock market are the ones who try to bet in the market. This is the mantra of trading. Trading means buying and selling of shares solely based on the movement of prices. It is advisable by experts not to trade in the market unless and until one is an expert.
But why is it not preferred to keep the entire money in the banks? This is because of inflation. For example, banks provide a 3% interest on a savings account and the rate of inflation is 6%.
Suppose you have 100 rupees and you deposit the entire amount in the bank for a year. And after a year you wish to buy chocolate which at present costs 100 rupees. After a year, when you go to the bank to withdraw the money, you will get 103 rupees (3 rupees interest). But when you go to buy the same chocolate, it will now cost 106 rupees. This is called inflation, i.e rise in prices of goods and services.
Financial knowledge is one of the must-have skills in today’s age. You can enhance your knowledge through stock market-related videos on YouTube, books such as “Rich Dad Poor Dad” and “The Psychology of Money”, and the headlines of a business newspaper.
As a student, no one expects you to be fancy. So living under means, taking fewer loans, and starting early can be the wisest choices to make. One can directly invest in equities (shares of a company), mutual funds, gold, index funds, etc. What’s important at such an early age is to start it!
“Compounding is the eighth wonder of the world. He who understands it earns it. He who doesn’t pay for it.”