7 Things to do Before You Start Investing cover

7 Things to do Before You Start Investing

A guide on things to do before you start investing for Newbie Investors: So, you’re thinking to start investing. But before you enter, are you prepared? Do you actually meet all the requirements that will make your investment journey smoother? In this post, we’ll discuss seven such things that you should do before you start investing.

7 Things to do Before You Start Investing

1. Build an Emergency Fund

As the name suggests, an emergency fund is money that you put aside for emergencies. It is the money that you can reach out to during your hour of need and pay for those unforeseen and unexpected expenses such loss of a primary job, medical emergency, personal emergencies or even a car breakdown.

As a thumb rule, before you start making investments for your long-term goals, first you should build an emergency fund which should be greater than at least three times your monthly expenses. Keep this money aside in a separate account. You can read more about how to build an emergency fund here.

2. Have a budget & know your cash-flows

If you want to enjoy a healthy financial life, it’s really important to have a balance between your savings and your expenses. Budgeting your monthly finances and knowing your ‘cash’ inflow and outflow can help you plan how much you can afford to invest per month.

A simple profit and loss formula that you can use in your day-to-day life to understand your cash position is ‘Revenue — Expenses = Profit”.

Here, your total revenue (inflow) is the sum of all the income that you make from different sources like your job, business, interests on savings/fixed deposits, dividends, rental income, etc. And your total expenses (outflow) include your rent, groceries, transportation, bills, EMI’s, household expenses, etc.

When you deduct the total expenses from your net revenue, you’ll be able to find out how much you keep per month or year. And after calculating this, you can plan where to allocate this money and how much to invest in different investment options.

Note: If you are struggling with your personal budgeting, one of the easiest strategies that you can use to figure out how much should you save is the 50/20/30 Strategy.

50/20/30 is a really simple and straightforward budgeting strategy that can help you to define how much should you spend on your essential spendings (needs), savings and finally on your preferences (wants and choices). According to 50/20/30 strategy, you should allocate:

  • 50% of your monthly income on ‘Needs’ (like rent, food, etc)
  • 20% of your monthly income on ‘Savings’ (like your retirement fund, investments, etc)
  • And the remaining 30% of your monthly income on your ‘Wants’ (like traveling, dining out, etc)

50-30-20 rule

You can read more about the 50/20/30 budgeting strategy here.

3. Pay down high-interest debt

First of all, please note that not all loans or debts are bad. Here, we are talking about high-interest debts. For example, if you have taken a personal loan, it’s interest rate may vary from 13–18%. Similarly, a credit card company may charge you even higher interest on the outstanding amounts.

It doesn’t make much sense to invest if the profits that you make on your investments are lesser than the interests that you pay on your debts. For example, if your returns are 12% and you’re paying 14% as interest on your previous debt, then overall you’re in a loss. Here, instead of investing, it will be better to use that money to pay back and become debt-free.

Before you start investing, try to minimize or eliminate debt, especially high-interest debts and your credit card debt. These interests can kill your investment profits.

4. Take a health Insurance

When people are in the best of their physical health, an obvious question among them is why should they invest in health insurance? Paying a premium plan for ensuring health may seem an unnecessary expenditure.

However, accidents or health issues may come up anytime unexpectedly which can put a lot of financial and mental pressure. Further, it is a fact that, as you grow older, health issues come along with it. And hence, it is highly necessary to incorporate healthcare planning within the budget of your family financial planning.

Before you start investing, make sure to take health insurance first. Being medically insured can help you avoid facing financial instability in the future and enables you to get the best health treatment.

Also read: 6 Reasons Why You Should Get Health Insurance

5. Define your goals and make plans

One of the most critical things to do before you start investing is to define your investment goals/priorities and making plans to reach them. Here, you need to know why you are investing. It will keep you motivated and ‘on-track’ to achieve your goals.

Now, by definition, an investment goal is a realistic expectation to meet the returns by investing predefined money for a fixed time frame. The keywords to note here are ‘realistic expectations’ and ‘timeframe’.

Before you put your money in any investment options, set your short-term and long term goals and make plans for how you’re gonna achieve them. The goal can be person-specific like planning for children education, retirement fund, buying a new house or even financial independence. Once you’ve set your goal, you can choose the best investment options that can help you reach these goals in your defined time horizon.

Also read:How to Invest in Share Market? A Beginner’s guide

6. Evaluate your risk tolerance profile

Everyone has a different risk tolerance level depending on their age, financial situation, priorities, etc.

If you are young and have a stable job, you might be willing to invest in more unusual ‘high risk, high return’ options. However, as you grow old/retire, you might not have a job or primary source of income and hence you might depend on your retirement fund for meeting your expenses. Here, you may not be willing to take a higher risk and choose safer investment options.

Before investing, you need to define your risk sensitivity i.e. whether you’ve are high, moderate or low-risk tolerance profile.

As different investment options have different degrees of risks, you can choose your investment options depending on your profile. For example, if you have a high-risk tolerance, you may invest in stocks, mutual funds, real estate, etc. On the other hand, if risky investments keep you sleepless at nights, better to choose low-risk investment options like fixed deposits, PPF, bonds, etc.

Also read:

7. Understand the investing basics

Don’t dive in deep water if you don’t know swimming basics. Similarly, do not start investing your money, if you do not understand the elementary concepts.

Before starting your investment journey, make sure that you understand what is meant by stocks, bonds, mutual funds, diversification, liquidity, volatility, and other investing basics. Here, you do not need to become a finance geek or an accountant. However, you should have good enough knowledge of the industry to make intelligent decisions.

Closing Thoughts

These days, anyone can open their demat and trading account with minutes and start investing in stocks, mutual funds, etc. However, it is not advised to do so until you have met the basic requirements and completed a few other essential tasks. In this post, we discussed how 7 must things to do before you start investing. This included budgeting, planning, knowing your risk tolerance, and moreover, learning the basics.

That’s all for this post. I hope it was useful for you. Besides, if you are ready to get an education, here’s an amazing course on stock market investing for beginners that you should check out. Happy Investing.

How to read Financial Statements of a Company cover

How to read Financial Statements of a Company?

A Beginner’s Guide on How to read financial statements of a company:  If you want to invest successfully in the stock market, you need to learn how to read and understand the financial reports of a company. Financial statements are tools to evaluate the financial health of the company. In this post, we are going to discuss the basics of how to read financial statements of a company. Here you’ll learn how to read the balance sheet, income statement, and cashflow statement of a company.

To be honest, you won’t find this post very interesting. Many of the points might sound complex and boring. However, it’s really important that you learn how to read financial statements of a company for achieving success in your investing journey. Reading and understanding the financials of a company is what differentiates an investor from a speculator.

As Warren Buffett used to say “Risk comes from not knowing what you are doing.”. And you can find the risk and potentials of a company through its financial reports. Without wasting any further time, Let’s get started.

How to get the financial statements of a company?

Before we start analyzing the financial statements of a company, the first thing that you need to know is where exactly to find them. Where can you see or download the financial statements of a company that you’re researching?

Well, you can find the financial statements of a company in any of the following sites: 1) BSE/NSE Website, 2) Investor relation page on Company’s website 3) Financial websites (like screener, money control, investing, etc)

In India, Securities exchange board of India (SEBI) regulates the financials announced by the company and try to keep it as fair as possible. Further, if you are using any other non-reputed website, make sure that the reports are correct and not tempered.

Quick Note: We recently launched our stock research and analysis portal, where you can also get the details about the financials of the +4,000 publically listed company in India. You can check out our portal here.

Three Core Financial Statements of A Company

Now, let us understand the different financial statements of a company. The financials of a company are split into three key sections. They are:

  1. Balance sheet
  2. Income statement (Or Profit & loss statement)
  3. Cash flow statement.

The balance sheet shows the assets and liabilities of a company i.e. what it owns and owes. Second, the income statement shows how much profit/loss the company has generated from its revenues and expenses. And finally, the Cash flow statement shows the inflows and outflows of cash from the company.

It’s essential that you know how to read all of these financial statements. Let’s understand each statement one-by-one.

How to read financial statements of a company?

1. Balance Sheet

A balance sheet is a financial statement that compares the assets and liabilities of a company to find the shareholder’s equity at a specific time. The balance sheet adheres to the following formula:

Assets = Liabilities + Shareholders’ Equity

Here, do not get confused by the term ‘shareholder’s equity’. It is just another name for ‘net worth’ of the company.  In other way, the above formula can be also written as:

Shareholder’s Equity = Assets – Liabilities 

Quick Note: You can easily understand this with an example from day to day life. If you own a computer, car, house, etc then it can be considered as your asset. Now your personal loans, credit card dues, etc are your liabilities. When you subtract your liabilities from your assets, you will get your net worth. The same concept is applicable to companies. However, here we define net worth as the shareholder’s equity.

Why are balance sheets important?

The balance sheet helps an investor to judge how a company is managing its financials. The three balance sheet segments- Assets, liabilities, and equity, give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.

balance sheet meaning

Key elements of a Balance Sheet

Assets and liabilities are two key elements of a balance sheet. However, both assets and liabilities further comprise of different elements. Let’s define both of these to understand them in details:

1) Assets: It is an economic value that a company controls with an expectation that it will provide a future benefit. Assets can be cash, land, property, inventories, etc. Further, assets can be broadly categorized into:

  • Current (short-term) assets: These are those assets that can be quickly liquidated into cash (within 12 months). For example cash and cash equivalents, inventories, account receivables, etc.
  • Non-Current (Fixed) assets: Those assets which take more than 12 months to convert into cash. For example- Land, property, equipment, long-term investments, Intangible assets (like patents, copyrights, trademarks), etc.

The sum of these assets is called the total assets of a company.

2) Liabilities: It is an obligation that a company has to pay in the future due to its past actions like borrowing money in terms of loans for business expansion purposes etc. Like assets, it can also be broadly divided into two segments:

  • Current liabilities: These are the obligations that need to be paid within 12 months. For example payroll, account payable, taxes, short-term debts, etc.
  • Non-current (Long-term) liabilities- There are those liabilities that need to be paid after 12 months. For example long-term borrowings like term loans, debentures, deferred tax liabilities, mortgage liabilities (payable after 1 year), lease payments, trade payable, etc.

Now, let us understand these segments with the help of the balance sheet of a company from the Indian stock market. Here is the balance sheet of ASIAN PAINTS for the fiscal year 2016-17. I have downloaded this report from the company’s website here.

Please note that there are always at least 2 columns on the balance sheet for consecutive fiscal years. It helps the readers to monitor the year-on-year progress.

balance sheet asian paints 201617

Source: https://www.asianpaints.com/more/investors/annual-reports.html

Although the balance sheet looks complicated, however, once you learn the basic structure, it’s easy to understand how to read the financial statements of a company. A few points to note from the balance sheet of Asian Paints:

  1. There are three segments in the balance sheet of Asian paints: Assets, equity, and liability.
  2. It adheres to the basic formula of the balance sheet: Assets = Liabilities + Shareholder’s equity. Please note that the first column of asset (TOTAL ASSETS = 9335.60) is equal to the second & third column of equity and liabilities (TOTAL EQUITY & LIABILITY = 9335.60).

Now, let us move to the second important financial statement of a company.

2. Income Statement

This is also called the Profit and loss statement. An income statement summarizes the revenues, costs, and expenses incurred during a specific period of time (usually a fiscal quarter or year). The basic equation on which a profit & loss statement is based is:

Revenues – Expenses = Profit

In simple words, what a company ‘takes in’ is called revenue and what a company ‘takes out’ is called expenses. The difference in the revenues and expenses is net profit or loss.

The fundamental structure of an income statement:

Revenue
– Cost of goods sold (COGS)
——————————————-
= Gross Profit
– Operating expenses
——————————————-
= Operating Income
– Interest expense
– Income taxes
——————————————–
= Net Income

Note: The revenue is called TOPLINE and net income is called the bottom line in the income statement.

Most of the investors check the income statement of a company to find its earning. Moreover, they look for growth in their earnings. It’s preferable to invest in a profit-making company. A company cannot grow if the underlying business is not making money.

Here is the Income statement of Asian paints for the Year 2016-17:

profit and loss statments asian paints 201617

Here are a few points that you should note form the income statement of Asian Paints:

  1. The top line (revenue) increased by 8.04% in the fiscal year 2016-17.
  2. On the other hand, the bottom line (net profit) increased by 11.84% (Rs 1802.76 Cr –> Rs 2016.24 Cr) in the from the fiscal year 2015-16 to the fiscal year 2016-17.
  3. This shows that the management has been able to increase the profits are a better pace compared to the sales. This is a healthy sign for the company.

For Asian paints, the diluted EPS also increased from Rs 18.19 in the year 2015-16 to Rs 20.22 in year 2016.17. This is again a positive sign for the company.

Also read: #19 Most Important Financial Ratios for Investors

3. Cashflow statement

This is the third key part of a company’s finances. Cash flow statement (also known as statements of cash flow) shows the flow of cash and cash equivalents during the period under report and breaks the analysis down to operating, investing, and financing activities. It helps in assessing the liquidity and solvency of a company and to check efficient cash management.

Three key components of Cash flow statements

  1. Cash from operating activities: This includes all the cash inflows and outflows generated by the revenue-generating activities of an enterprise like sale & purchase of raw materials, goods, labor cost, building inventory, advertising, and shipping the product, etc.
  2. Cash from investing activities: These activities include all cash inflows and outflows involving the investments that the company made in a specific time period such as the purchase of new plant, property, equipment, improvements capital expenditures, the cash involved in purchasing other businesses or investments.
  3. Cash from financial activities: This activity includes inflow of cash from investors such as banks and shareholders by getting loans, offering new shares, etc, as well as the outflow of cash to shareholders as dividends as the company generates income. They reflect the change in capital & borrowings of the business.

In simple words, there can be cash inflow or cash outflow from all three activities i.e. operation, investing, and finance of a company. The sum of the total cash flows from all these activities can tell you how much is the company’s total cash inflow/outflow in a specific period of time.

Here is the Cash flow statement of Asian paints for the fiscal year 2016-17.

Asian Paints Annual Report 2016-17 cash flow statement1

Asian Paints Annual Report 2016-17 cash flow statement 2

From the Asian paints cashflow statement, we can notice that the net cash from operating activities has declined from Rs 2,242.95 Crores to Rs 1,527.33. This may be little troublesome for the company as the net cash from operating activities shows how much profit the company is generating from its basic operations.

As a thumb rule, an increase in the net cash from operating activities year over year is considered a healthy sign for the company. However, while comparing also look at the data for multiple years.

Quick note: In financial statements, generally accountants do not use the negative sign. For example, if the expense is to be deducted, it is not written as -40. When writing minus sign, accountants use parentheses (—). For the same example, it will be written as (40), not -40.

Summary

Through this post, we tried to explain the three core financial statements of a company. It is important to read and understand all the three financial statements of a company as they show the health of a company from different aspects.

  1. The balance sheet shows the assets and liabilities of a company.
  2. The income statement shows how much profit/loss the company has generated from its revenues and expenses.
  3. Cash flow statement shows the inflows and outflows of cash from the company.

While investing in a company, you should pay special attention to all these financial aspects of a company. As a thumb rule, invest in a company with high-income growth, large assets compared to its liabilities and a high cash flow.

That’s all! This is how to read financial statements of a company. Although it’s not enough, however, this post aims to give a basic idea to the beginners about the financial statements of a company.

If you want to learn (in details) about where to find the financial statements of an Indian company and how to effectively study the reports, feel free to check out my online course on HOW TO PICK WINNING STOCKS here. I have explained everything about financial statements in this course.

Further please comment if you have any questions. I’ll be happy to help you out. Happy Investing!

Zerodha Review 2020 Is Free Investing Legit Pros Cons

Zerodha Review 2020 – Is Free Investing Legit? [Pros and Cons]

A complete Zerodha Review 2020– Brokerage, Trading Platform & More: Zerodha is the biggest discount broker in India and perfect for traders & investors looking for low brokerage, easy interface, and reliable trading platform. It offers a zero brokerage for delivery equity & direct mutual fund investments.

For all intraday, Futures & Options, currency, and commodity trades across NSE, BSE, MCX, it offers a brokerage of Flat ₹20 irrespective of the trading volume. It doesn’t matter whether you trade for Rs 1 lakh or 1 crore, you have to pay a flat low brokerage of Rs 20 per trade. Therefore, you can save a lot of brokerage charges on your trades using Zerodha as your broker.

In this Zerodha review, we will discuss the brokerage charges, account opening charges, maintenance charges, trading platforms, products, my personal experience of using Zerodha & more. By the end of this post, you’ll have a complete understanding of Zerodha trading services and whether this broker is right for you or not. Let’s get started.

Quick link to open a demat account with Zerodha.

Zerodha Review –Brokerage, Charges, Trading Platforms & More

1. Introduction

There are two types of stockbrokers in India. Full-Service brokers and Discount brokers. The full-service brokers offer a trading platform along with advisory. However, their brokerage charges are high. A few major full-service brokers in India are HDFC Securities, ICICI Direct, Motilal Oswal, etc.

On the other hand, discount brokers offer trading platforms with minimum brokerage charges. Nonetheless, they do not provide advisory services. The biggest advantage of a discount broker is that it saves a lot of brokerages for the traders/investors. On all other prospects, like performance, computerized trading systems etc- both offer similar facilities.

An important point to know here is that all the brokers- Full service or discount brokers are licensed and regulated in India by regulating bodies like SEBI.

Zerodha is a leading discount broker in India in terms of daily trading volume, growth and customer base. It is one of the most technologically advanced and cheap stockbrokers. Zerodha has over +1 million clients and contributes to over 10% of daily retail trading volumes across NSE, BSE, MCX.

Ironically, the term ‘Zerodha’ is derived from the fusion of an English and Sanskrit word. ‘Zero’+’Rodha’ where ‘Rodha’ means barrier. Overall, Zerodha means ‘Zero Barrier’.

It was started by Nitin Kamath, an Engineer by qualification, in 2010. Nithin bootstrapped and founded Zerodha in 2010 to overcome the hurdles he faced during his decade long stint as a trader. He was named one of the “Top 10 Businessmen to Watch Out for in 2016 in India” by The Economic Times for pioneering and scaling discount broking in India. Here are a few of the famous awards won by Zerodha recently:

— National Stock Exchange (NSE) “Retail brokerage of the year 2019” (& 2018)

— Outlook Money “Retail broker of the year 2017”

— Ernst & Young “Entrepreneur of the year (Startup) 2017”

2. Zerodha Brokerage Charges 

Zerodha offers trading services to buy and sell stocks, futures & options in equities, commodities, and currency segment. Here are the Zerodha brokerage charges:

– Free equity delivery

All your equity delivery investments (NSE, BSE), absolutely free — ₹0 brokerage.

– ₹20 intraday equity and F&O trades

₹20 or 0.03% (whichever is lower) per executed order on intraday trades across equity, currency, and commodity trades across NSE, BSE, and MCX.

TypeBrokerage Charges
Equity DeliveryRs. 0 (FREE)
Equity IntradayLower of Rs. 20 per executed order or 0.03%
Equity FuturesLower of Rs. 20 per executed order or 0.03%
Equity OptionsFlat Rs. 20 per executed order
Currency F&O Lower of Rs. 20 per executed order or 0.03%
CommodityLower of Rs. 20 per executed order or 0.03%

Quick note:

1. You can use this Zerodha Brokerage Calculator to get more ideas.

updated zerodha brokerage stocks

(Zerodha Brokerage Calculator)

2. Apart from brokerages, there are also a few other charges that you have to mandatorily pay on your transactions like Exchange transaction charge, STT, SEBI turnover charges, GST, etc.

You have to pay these charges no matter which stockbroker you prefer to trade in stocks and that too on both sides of transactions i.e. while buying and selling. However, the brokerage cost can be controlled by choosing a discount broker. For example, in the case of Zerodha, you can notice the total brokerage of Rs 40 for both sides of Intraday equity trading, even though the total turnover is Rs 8.4 Lakhs.

You can have read this blog post to understand the different charges while trading in stocks.

3. Zerodha Account Opening Charges & AMC

Here are the account opening charges for Zerodha

  1. Equity Trading Account: ₹200
  2. Commodity Account:₹100

If you want to trade in both equity and commodity, then you need to pay an account opening charge of Rs 200+Rs 100 = Rs 300. Anyways, if you are just interested in trading in stocks i.e. equities, you can open demat and trading for equity account at Rs 200. The demat account annual maintenance (AMC) charge is Rs 300 per year.

 4. Zerodha Products & Features

 Zerodha has built its own trading applications for the customers. It offers different trading terminals, websites, and mobile apps (Android/iOS) which are free for the customers.

— Kite 3.0

zerodha kite dashboard

Kite 3.0 is a modern technology-based trading platform with streaming market data, advanced charts, an elegant UI, and more. It is a minimalistic, intuitive, responsive, light, yet powerful web and mobile trading application offered by Zerodha. Kite provides Bandwidth consumption of fewer than 0.5 Kbps for a full market watch, extensive charting with over 100 indicators and 6 chart types, advanced order types like Brackets and cover, millisecond order placements, and more.

Overall, Kite provides an excellent experience to the users through its groundbreaking innovations presented with hassle-free usability.

— Kite mobile

zerodha mobile app

This is a mobile version of KITE for a seamless experience for mobile-users and available in both Android and iOS devices.

— Coin

Zerodha Coin is a platform that lets you buy mutual funds online directly from asset management companies. This platform is absolutely free since August 24, 2018. Here, you can make your investments without any commissions.

With the help of Zerodha Coin, you can have Direct mutual funds in DEMAT form, with the convenience of one portfolio across equity, MF, currency, etc. Moreover, it also provides a Single capital gain statement, P&L visualizations, and more. This Coin by Zerodha has made investments through SIPs really simple and flexible.

Other Partner Products

Apart from the above products, Zerodha also offers a few other partner programs:

  1. Smallcase: This thematic investment platform is powered by Kite Connect APIs. Smallcase helps users to invest in different themes by intelligently providing weighted baskets of stocks in each theme.
  2. Sensibull: This is an options trading platform which offers simplified options trading for new investors by providing powerful trading tools. Sensibull aims to make options trading safe, accessible, and most importantly, profitable for all.

Besides, Zerodha has also started a few educational initiatives to improve financial literacy and increase the participation of the common people in the financial world. Here are a few other products offered by Zerodha

  1. Zerodha Varsity: An educational platform to educate people about investing and trading. Zerodha Varsity offers free modules on Technical analysis, fundamental analysis, futures, options, risk management, trading psychology & more. Recently, Zerodha Varsity also launched its Varsity mobile app.
  2. Trading Q&A: An online forum powered by Zerodha to answer people’s most troublesome investing and trading questions.

5. Pros and cons of Zerodha Discount broker

Here are a few advantages and disadvantages of using Zerodha trading platforms:

Pros of Opening Account with Zerodha

  1. Zero Brokerage Charges for Delivery
  2. Flat Charge for Intraday (Rs 20 or 0.03% whichever is lower per executed order for everything else)
  3. Same pricing for across all exchanges
  4. No upfront fee or turnover commitment
  5. Z-Connect, interactive blog, and portal for all your queries
  6. Trading, charting, and analysis, all rolled into one next-generation desktop platform Pi.
  7. Minimalistic, intuitive, responsive web-based trading platform Kite
  8. No minimum balance required to open Zerodha trading account
  9. Invest in direct mutual funds with same demat account through coin

Cons of Opening Account with Zerodha

  1. No advisory services or research report.
  2. 3-in-1 account (Saving+Demat+Trading) not available.
  3. Online IPO investment not available. (Now, Zerodha customers can invest in IPO’s through UPI payment. Read more about Zerodha IPO applying process here)

Note: Zerodha has recently started offering Zerodha IDFC FIRST Bank 3-in-1 account. However, to open a 3in1 account at Zerodha, you need to have an existing account with IDFC FIRST Bank. Accounts can only be opened online. Read more here.

6. Is Zerodha a Reliable Stockbroker? And is Free investing legit?

Is Zerodha safe for long-term investments? This is one of the biggest questions that come in the mind of first-time investors. Obviously, HDFC Securities, ICICI Direct, SBI cap, Kotak securities, etc are big brands in the name of the broking industry and been in the market for decades. Hence, they have built greater trust compared to Zerodha, especially for the ones who have never heard its name before.

Anyways, Zerodha, the discount broker, originated only in 2010. Therefore, if you’re not involved in the share market investments/tradings in the last decade, it’s no surprise to say that you might have not known this broker. However, in the short span of around 10 years, this broker has been able to beat all the big traditional brokers. Currently, Zerodha is the biggest stockbroker in India, based on the number of clients (over 15 lakh users), followed by ICICI Direct and HDFC securities ranking second and third.

Now, answering your question, Yes, Zerodha is safe and reliable. In fact, since origin, Zerodha has never faced any case of major violations from SEBI or any of the other exchanges. It is a profitable private company with no debts or liabilities. Here are a few points why Zerodha is safe and reliable for investors and traders.

  1. Zerodha is a zero-debt financial services company. There is no borrowing of any kind.
  2. There is no credit risk, less than 5% of Zerodha’s own capital is lent to customers in any form.
  3. Zerodha own funds in the business are greater than 25% of all client funds put together.
  4. Their ratio of ‘complaints to active clients’ is among the least on the exchange.
  5. Zerodha is profitable as a business and has enough reserves to sustain, even if there was an extended downturn in the economy.

Moreover, Zerodha is partnered with Central Depository Services Limited. CDSL’s main function is the holding securities either in certificated or uncertificated form, to enable the book-entry transfer of securities. Therefore, when it comes to the security of the shares in your demat account with Zerodha, you do not need to worry at all. The stockbrokers are just the agents of depositories.

Your stocks are actually held by central depositories and not by the depository participants (brokers). Therefore, even if something didn’t work out well with Zerodha, your stocks in the demat account are safely intact with CDSL. In short, Zerodha is completely legit and reliable for your trading or long-term investments in the Share market.

7. My experience of using Zerodha

It’s been over three years since I’m using Zerodha and I’m satisfied with the trading services provided by Zerodha.

Initially, I started with ICICI direct as my broker, but later I switched to Zerodha when I realized that I was paying way too much brokerages for my trading transactions.

Most beginners do not consider the brokerage charges while calculating the profits. I use to make the same mistake. And that’s why many times the final profits in my bank account (after deducting the brokerage and other charges) disappointed me as it was considerably lower than what I calculated in my head. I wish I had switched to a discount broker earlier as it could have saved me a lot of ‘unnecessary’ brokerages and moreover trading experience is even better on Zerodah. Nonetheless, I use Zerodha for making all my stock investments now.

Besides, there was one ‘cons’ of using Zerodha as a broker which bugged me in the past. And it was not having the facility for the customers to directly invest in Initial public offerings (IPOs) through the Zerodha dashboard. But this issue is also solved by Zerodha. Investors can now apply for IPOs directly within the Zerodha console. And the best part is that the process is really simple.

Finally, a lot of people complain that Zerodha doesn’t provide advisory services or buy/sell calls. I believe that one should never invest or trade based on the broker’s recommendation. There’s a conflict of interest here as the brokers will always make money when you trade and doesn’t matter whether you win or lose. Therefore, they might always motivate investors to trade frequently. Overall, Zerodha not giving advisory services doesn’t bother me. Moreover, they make us for these cons by providing educational initiates like Varsity.

8. How to open your trading & demat account with Zerodha?

Opening a demat and trading account with Zerodha is really fast and hassle-free. In fact, if you’ve all the documents, you can open your account and start trading within an hour.

Here are the documents required to open a demat and trading account at Zerodha: PAN CARD, Aadhar Card, 2 Passport size photos, Canceled cheque/ Saving bank account passbook. I will recommend keeping photocopies of all these documents ready before you apply for opening the accounts.

To open your trading & demat account at Zerodha, go to Zerodha website and click on ‘OPEN AN ACCOUNT’. Here is the direct link.

open demat at trading account at 5paisa

Note: You can find the detailed explanation on how to open your demat and trading account at Zerodha here.

9. Closing Thoughts

In the last decade, Zerodha has earned trust and respect among the trading population by providing reliable and technologically advanced trading services. It is definitely the largest discount broker in India. If you are looking to open your brokerage account with a reputable brand that offers low brokerages, and have a fast trading platform, Zerodha is definitely one of the best options.

That’s all for this post. I hope this Zerodha review is useful to you. If you have any additional queries regarding Zerodha or if you want to share your review of Zerodha, you can post it in our forum. I’ll be happy to answer your questions. Have a great day!

Different Charges on Share Trading

Different Charges on Share Trading Explained- Brokerage, STT & More

Different Charges on Share Trading Explained. Brokerage, STT, DP & More (Updated): There are a number of charges and taxes involved while trading in India i.e. buying or selling of shares. Some of them are quite popular like Brokerage Charge & GST, while there are many others that the traders and investors are not aware of. In this post, I am going to explain all types of different charges on share trading. Some common ones are brokerage charges, Security transaction charges (STT), stamp duty, etc.

Anyways, before we start discussing them, let us spend a few minutes to learn a few basics things that you need to know first. So, be with me for the next 10-12 minutes to understand the explanation of all the different charges on share trading. Let’s get started.

1. Intraday Trading and Delivery

A lot many beginners trades in stocks and confuse it by investing or delivery. However, both of them are really different:

  1. Intraday Trading: When you buy & sell a share on the same day, then it’s called Intraday trading. For example, you bought a share in the morning and sold it before the market closes on the same day, then it will be considered as an intraday
  2. Delivery Trading: On contrary to Intraday, when you buy a share and hold it for at least one day, then it’s called a delivery. For example, you bought a share today and sold it after three days (or any day but today) then it will be considered as a delivery. Here you can sell the stock tomorrow, or the day after that, or a week later, a year later or 20 years later.

 2. Full-Service Brokers and Discount Brokers:

  1. Full-Service brokers: These are the traditional brokers who offer full-service trading services in stocks, commodities, currencies, mutual funds, etc along with research and advisory, portfolio and asset management, banking all in one account. For example, ICICI Direct, Kotak Securities. HDFC securities, etc.
  2. Discount brokers: These are those budget brokers who offer high speed and the state-of-the-art execution platform for trading in stocks, commodities and currency derivatives. They charge a reduced commission (flat price) and do not provide trading advice. For example, Zerodha, 5Paisa, Angel Broking, Trade Smart Online, etc.

Also read: 8 Best Discount Brokers in India – Stockbrokers List 2020

In general, a full-service broker charges a brokerage between 0.03% – 0.60% of the transaction volume while trading in stocks. On the other hand, the discount brokers charge a flat fee (fixed rate of Rs 10 or Rs 20 per trade) on intraday. The majority of discount brokers also do not charge any fee on delivery trading.

It is important to note that you have to pay a brokerage charge on both sides of trading i.e. while buying a share and selling a share.  Let’s take an example to understand the brokerage charge better.

Suppose there is a brokerage firm called – ABC. Now, this broker charges a brokerage fee of 0.275% on intraday trading and 0.55% on delivery trading. The total charges on both tradings can be given as-

 Intraday TradingDelivery Trading
Brokerage0.275% of total turnover0.55% of total turnover
TurnoverIf you buy 100 stocks at Rs 120 and sell at Rs 125, total turnover is (120*100+ 125*100=) Rs 24,500If you buy 100 stocks at Rs 120 and sell at Rs 125, total turnover is (120*100+ 125*100=) Rs 24,500
Total Brokerage CostTotal brokerage charge on Intraday trading (for both buying and selling) = 24,500 * 0.00275 = Rs 67.38Total brokerage charge on Delivery (for both buying and selling) = 24,500 * 0.0055 = Rs 134.75

As the competition among the brokers is continuously increasing, these brokerage charges offered by the different brokers are also decreasing. For example, the discount brokers like Zerodha offers a flat fee of Rs 20 or 0.01% on Intraday trading (whichever is lower) and Delivery investments are FREE. Therefore, for the above table, assuming the same scenario, the person would be paying only Rs 2.45 in Intraday Trading and Zero Brokerage on Delivery, if he prefers Zerodha as its broker.

Now, apart from brokerage charges, there are also an additional couple of charges and taxes to be paid while share trading. As already mentioned earlier, some of them are Security transaction tax, service tax, stamps duty, transaction charges, SEBI turnover charges, depository participant (DP) charges, and also capital gain tax (which you’ve to pay at the end of the financial year but not while transacting).

Let’s understand these other different charges on share trading and taxes involved first. Further, we will also discuss an example at the end of this post to understand the charges and taxes involved better.

Different Charges on Share Trading

– Security Transaction Tax (STT)

  1. Apart from brokerage, this is the second biggest charge involved while trading in stocks.
  2. For delivery trading, STT is charged on both sides (buy & sell) of transactions and is equal to 0.1% of the total transaction price (on each side of trading).
  3. For intraday and derivate trading (futures and options), STT is charged only when you sell the stock. For intraday, the STT charge is 0.025% of the total transaction price while selling.
  4. For equity Futures, the STT is equal to 0.01% on the sell-side. On the other hand, for equity options trading, STT is equal to 0.05% on sell-side (on premium).

– Stamp Duty

Stamp duty is charged uniformly irrespective of the state of residence effective from July 1st, 2020. These new rates are only on the buy-side (and not on both buy and sell-side). Here are the new rates on stamp duty on different types of trades:

Type of tradeNew stamp duty rate
Delivery equity trades0.015% or Rs 1500 per crore on buy-side
Intraday equity trades0.003% or Rs 300 per crore on buy-side
Futures (equity and commodity)0.002% or Rs 200 per crore on buy-side
Options (equity and commodity)0.003% or Rs 300 per crore on buy-side
Currency0.0001% or Rs 10 per crore on buy-side
Mutual funds0.005% or Rs 500 per crore on buy-side
Bonds0.0001% or Rs 10 per crore on buy-side

Quick Note: Previously, the stamp duty was charged by the state government and hence not similar across all the states in India. A few states charged higher stamp duty, whereas a few of them charges lower duty taxes. Different states charge different stamp duty. Moreover, Stamp duty used to be charged on both sides of transactions while trading ( i.e. buying & selling) and hence are charged on the total turnover. **This rule changed after 1st July, 2020.

– Transaction Charges

  1. The transaction charges is charged by the stock exchanges and that too on both sides of the trading.  This charge is the same for intraday & delivery trading.
  2. National stock exchange (NSE) charges a fee of 0.00325% of the total turnover as Transaction charges on Equity and Delivery Trading. On the other hand, Bombay stock exchange (BSE) charges a fee of 0.003% of total turnover as Transaction charges on Equity and Delivery Trading.
  3. For Derivatives trading, BSE doesn’t cost any transaction charges. However, on NSE, the Exchange transaction charge is 0.0019% for futures trading and 0.05% of total turnover for Options Trading.

– SEBI Turnover Charges

  1. SEBI stands for the Securities exchange board of India and it is the security market regulator. SEBI makes the rules and regulations on the exchanges for its proper functioning.
  2. SEBI Turnover fee is charged on both sides of the transaction i.e. while buying and selling and is the same for all equity intraday, delivery, futures, and options trading.
  3. The SEBI turnover charge is equal to Rs 10 per crore of the total turnover.

– Depository Participant (DP) Charges

  1. There are two stock depositories in India- NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). Whenever you buy a share, it is kept in an electronic form in a depository. For this service, the depositories charge some fixed amount.
  2. The depositories don’t charge the traders or investors directory but charge the depository participant. Here, the brokerage firm or your demat account company is the depository participant (DP).
  3. DP acts as a linkage between the depository and the investor as the investors cannot directly approach the depository. In short, the depository charges the DP and then the depository participant (DP) charges the investors.
  4. For example, while trading with Zerodha, DP charge is equal to ₹13.5 + GST per scrip (irrespective of quantity), on the day, is debited from the trading account, i.e. when stocks are sold. This is charged by the depository and depository participant.

– Goods & Service Taxes (GST)

GST is the mandatory tax levied by the government on the services rendered and is equal to 18% of total brokerage and transaction charges.

– Capital Gain Taxes

Lastly, Capital gain taxes is the most important tax to understand in this article for the traders and investors. We are not going to cover all the details regarding capital gain taxes in this article, but just a short over. If you want to read the complete details, you can refer to this article.

  1. There are two types of Capital gain taxes in India – Short-term capital gain tax and Long-term capital gain tax.
  2. When you sell a stock before one year of buying, then it is considered as a Short-term. Here a flat 15% of the profit is charged as short-term capital gain tax.
  3. When you sell a stock after one year of holding, then it is called the long-term. For the long term capital gain, you have to pay a tax equal to 10% of the gains, if it exceeds Rs 1 lakh.
  4. For Intraday Traders, they need to pay taxes on their capital gains which depends on their tax slab. For example, if you’re in the highest tax slab and made some profits while intraday trading, you’ve to pay taxes of 30% on those gains.

Quick Note: You can also download our FREE android app of ‘Brokerage Calculator’ to find the total brokerage and actual profits/loss while trading in stocks ‘on your phone’. Here is the quick link!

Example of Different Charges on Share Trading

Now, let us see an example to understand these different charges on share trading and taxes involved better. Suppose there are two traders- Rajat and Prasad. Here, Rajat is a delivery trader who invests in the long-term i.e. for 2-3 years. On the other hand, Prasad is an intraday trader.

They both have their accounts in the same discount brokerage company named ABC. The brokerage charge for ABC is Rs 20 Per trade on intraday trading and FREE for delivery trading.

Also, let us suppose that both Rajat and Prasad have traded a total turnover of Rs 98,000 in a share (i.e. total cost involved while buying and selling). In addition, they both live in Maharastra.

Now the different charges and taxes paid by them for complete trading i.e. from buying to selling the shares can be given as-

 Prasad (Intraday Trader)Rajat (Delivery Trader)
Buy Price120120
Sell Price125125
Quantity400400
Total TurnoverRs 98000Rs 98000
ExchangeNSENSE
StateMaharashtraMaharashtra
Brokerage ChargeRs 40 (Flat Rs 20 Per trade i.e. Buying & Sellling)Rs 0 (FREE Delivery Trades)
STT0.025% of sell side = 0.025 % of Rs 50,000 = Rs 12.50.1% on buy & sell = 0.1% of 98000 = Rs 98
Stamp Duty0.003% of buy-side = 0.003% of 48,000 = Rs 1.440.015% of buy-side= 0.015% of 48,000 = Rs 7.2
Transaction Charges0.00325% of total turnover = 0.00325% of Rs 10,000= Rs 3.180.00325% of total turnover = 0.00325% of Rs 10,000= Rs 3.18
SEBI Turnover ChargesRs 10 / Crore of Total Turnover= Rs 0.10Rs 10 / Crore of Total Turnover= Rs 0.10
GST18% on (brokerage + transaction charges) = 0.18 * (40+ 3.18)= Rs 7.7718% on (brokerage + transaction charges) = 0.18 * (0+ 3.18) = 0.57
Total Brokerage And Taxes64.99109.05
Total Profit or Loss1935.011890.95
Capital Gain TaxDepends on the tax SlabDepends on Short/long term holding period

At first glance, it looks cheap to invest in intraday as the total charges are comparatively less here. But you should note that the frequency of trading for intraday traders is quite high. Many intraday traders easily make 2-3 high volume trades every day. So, they have to pay these brokerage charges and taxes again and again. On the other hand, delivery traders or long-term investors do not make such frequent trades.

Overall, charges and taxes are a very important part of trading and should not be ignored. You might think that you are in profit, but the real profit is the one which is left after deducting the charges and profit. I hope the traders will keep this in mind before trading the next time.

Zerodha Brokerage Calculator

Before ending this article, here’s the brokerage calculator for equity trades using Zerodha, the discount broker.

Quick Note: If you’re interested in opening your demat account with Zerodha, the No 1 stockbroker in India, here’s a direct link to the account opening page.





That’s all for this post. If you’ve any doubts related to the different charges on share trading in India, feel free to comment below. I’ll be happy to help you out. Cheers & Happy Trading!

15 Biggest Stockbrokers in India With Highest Active Clients

15 Biggest Stockbrokers in India With Highest Active Clients

List of Biggest Stockbrokers in India (Updated: 30th April 2020) In this article, we are going to look at the 15 Biggest Stockbrokers in India based on their total number of unique active clients.

There are over three hundred stockbrokers in India registered with SEBI and different stock exchanges. Even on National Stock Exchange (NSE), there are 120 registered stockbrokers in India as of 30th April 2020. When you are looking for the best stock broker to open your demat and trading account, one of the most straightforward factors to look into is its total number of active clients. Although a large client base doesn’t guarantee a better service, however, being a big firm, it reduces the possibility of the brokerage firm disappearing or running out of the service soon enough. 

These days, one and all stockbrokers will argue that they are trustworthy as they are registered with SEBI. However, just because they are registered with SEBI doesn’t make them reliable for the long term. Time and again, a lot of such small brokers are either expelled out of the exchange or simply go out of the business and files bankrupt. And this leads to a lot of trouble for their current clients.

Therefore, a safer option for the customers to avoid any such kind of inconvenience is by opening their trading account with the biggest stockbrokers in the Industry.

15 Biggest Stockbrokers in India with Highest Active Clients

Several websites rank stockbrokers in India based on different factors like their brand value, trading platforms, customer services, facilities offered, complaint ratio, etc. However, in this article, we are not going to look into these factors. 

Here, we are going to look at just one factor, i.e. the total number of unique active clients for that stockbroker. In this post, the stockbroker with the highest number of clients is ranked first, followed by the subsequent stockbrokers with top active clients. 

For this approach, we are going to use the data available on the NSE India website. The national stock exchange website provides the details of the monthly total number of unique clients of the different stockbrokers registered with it. Here’s a quick link to the page. You can also download the spreadsheet available on this page to analyze the stockbrokers further. 

Here are the 15 Biggest Stockbrokers in India based on the total number of unique active clients:

S NoName of Stockbroker# of Active Clients% Share
1ZERODHA BROKING LIMITED159894814.28%
2ICICI SECURITIES LIMITED10819609.66%
3HDFC SECURITIES LTD.7261976.48%
4RKSV SECURITIES INDIA PRIVATE LIMITED (Upstox)6755516.03%
5ANGEL BROKING LIMITED6292605.62%
6KOTAK SECURITIES LTD.5834825.21%
7SHAREKHAN LTD.5479504.89%
85PAISA CAPITAL LIMITED4896614.37%
9MOTILAL OSWAL FINANCIAL SERVICES LIMITED3855353.44%
10AXIS SECURITIES LIMITED2719902.43%
11SBICAP SECURITIES LIMITED2619512.34%
12KARVY STOCK BROKING LTD.2318182.07%
13IIFL SECURITIES LIMITED2244502.00%
14GEOJIT FINANCIAL SERVICES LIMITED1650291.47%
15EDELWEISS BROKING LIMITED1309261.17%

Please note that the total number of active clients of all stockbrokers is 1,11,98,563 as of April 2020, mentioned on the NSE India website.

From the above table, you can quickly notice that Zerodha is the biggest stockbroker with the highest numbers of unique clients registered on the National stock exchange in India. 

15 Biggest Stockbrokers in India With Highest Active Clients list

As of April 2020, Zerodha constitutes around 14.28% of the total market share of the active clients registered on the National Stock Exchange. It has over 15.9 lakh active customers compared to a total of over 1.11 Crore active clients of all stockbrokers on the NSE.

What makes this list even more interesting is that Zerodha was just founded in 2010 and still has been able to outrank all the old and well-matured traditional brokers. It is the only broker with a discount brokerage business model in the top ten list. Anyways, Angel broking has also started a similar discount brokerage model recently, along with its full-service model. 

Also read: Zerodha Review –Discount Broker in India | Brokerage, Trading Platform & More

According to the above table, Zerodha is closely followed by ICICI securities, which ranks second and has over 10.81 lakhs unique clients. 

The other most prominent stockbrokers in this list are HDFC Securities (7.26 Lakh clients), Upstox (6.75 Lakh Clients), Angel Broking (6.29 lakh clients), Kotak Securities (5.83 lakh clients), Sharekhan (5.47 lakh clients), 5Paisa (4.89 lakh clients), Motilal Oswal Group (3.85 lakh clients) and Axis Securities (2.71 lakh clients). Together these 15 biggest stockbrokers constitute over 71.48% of the total share of the unique clients registered on NSE.

Also read: Compare Online broker in India – Stockbrokers list

Bonus: Additional Top Stockbrokers

Here is a list of the ‘Next’ 15 biggest stockbrokers in India with the highest active clients registered on the National stock exchange as of 30th April 2020.

S NoName of Stockbroker# of Active Clients% Share
16RELIANCE SECURITIES LIMITED1200691.07%
17SMC GLOBAL SECURITIES LTD.1139801.02%
18RELIGARE BROKING LIMITED1125271.00%
19NIRMAL BANG SECURITIES PVT. LTD.949020.85%
20MARWADI SHARES AND FINANCE LIMITED832380.74%
21VENTURA SECURITIES LTD.765260.68%
22ANAND RATHI SHARE AND STOCK BROKERS LIMITED730470.65%
23TRADEBULLS SECURITIES (P) LTD.630300.56%
24SAMCO SECURITIES LIMITED548600.49%
25IDBI CAPITAL MARKETS & SECURITIES LTD.520560.46%
26MONARCH NETWORTH CAPITAL LIMITED499550.45%
27INDIABULLS SECURITIES LIMITED446780.40%
28ADITYA BIRLA MONEY LIMITED445330.40%
29ALICE BLUE FIN SVCS P LTD432350.39%
30MASTER CAPITAL SERVICES LIMITED396170.35%

That’s all for this article. Please comment below which brokerage firm you’re using for trading in the Indian stock market and your review for the same. Happy trading!

What is Free Cash Flow (FCF)? And How to Calculate it?

What is Free Cash Flow (FCF)? And How to Calculate it?

Understanding Free Cash Flow (FCF) Meaning & Calculations: Hi Investors. One of the most popular topics in company valuation is the Free cash flow. If you are involved in the fundamental analysis of stocks, you definitely have heard about this term. Nevertheless, for beginners, free cash flow can be a mystery.

In this post, we are going to discuss what exactly is a free cash flow and why it is important to evaluate while researching a company. This might be one of the most important articles for the people interested to learn stock valuations. Therefore, read this post completely. Let’s get started.

1. What is a Free Cash Flow (FCF)?

Free cash flow is the excess cash that a company is able to generate after spending the money required for its operation or to expand its asset base. It represents the cash that is available for all the investors of the company.  Now, you might be wondering what is so ‘FREE’ about this cash flow and how it is different from the earnings of the company?

Here you need to understand that not all income is equal to cash. If a company is making earnings, it doesn’t mean that it can spend all the income directly. The company can only spend free cash. There is a crucial difference between ‘cash’ versus ‘cash that can be taken out of a business’, or in accounting terms: cash from operating activities and free cash flow (FCF).

The cash from operating activities is the amount of cash generated by the business operations of a company. However, not all of the cash from operating activities can be taken out of the business because some of it is required to keep the company operational. These expenses are called capital expenditures (CAPEX).

On the other hand, free cash flow is the cash that a company is able to generate after spending the money required to stay in business. This is the cash at the end of the year, after deducting all operating expenses, expenditures, investments etc and is available for distribution to all stakeholders of a company (Stakeholders include both equity and debt investors.)

Also read: 8 Financial Ratio Analysis that Every Stock Investor Should Know

2. Why is free cash flow important?

It’s important for an investor to look into the free cash flow of a company carefully because it is a relatively more accurate method to find the profitability of a company than the company’s earnings.

This is because earnings show the current profitability of the company. On the other hand, the free cash flow signals the future growth prospects of the company as this is the cash that allows the company to pursue opportunities to enhance shareholder’s value. Free cash flow reflects the ease with which businesses can grow or pay dividends to the shareholder.

The excess cash can be utilized by the company in expanding their portfolio, developing new products, making useful acquisitions, paying dividends, reducing debt or to pursue any other growth opportunity.

Further, free cash flow is also used as the input while calculating the intrinsic value of a company using the popular valuation technique- Discounted cash flow (DCF) Model.

(Besides, as free cash flow is the additional money that can be taken out of the company without affecting the running of the business, it is also called the “Owner’s Earnings”.)

3. How to calculate free cash flow of a stock?

Companies in the stock market are not obliged to publish their free cash flow. That’s why you can’t find FCF directly in the financial statements of the companies. However, the good point is that it is easy to calculate them.

To calculate the free cash flow of a stock, you’ll require its financial statements i.e income statement, balance sheet, and cash flow statements. There are two calculation methods to find Free cash flow of a company.

Method 1: From the Income statement & Balance sheet

FCF = EBIT (1-tax rate) +(depreciation & amortisation) -(change in net working capital) – (capital expenditure)

Method 2: From the cash flow statement

This is the more popular approach to calculate FCF of a company. Here, Free cash flow is calculated as cash from operations minus capital expenditures (from the cash flow from investing activities).

FCF = Cash flow from operating activities – capital expenditures 

Quick Note: To make things simpler, Yahoo Finance has already made the free cash flow of the companies available on their website. Just go to the Stock page –> Financials –> Cashflow statement, and you can find the Free cashflow of the company for last multiple years. 

How to calculate Free cashflow FCF using yahoo finance

(Source: Yahoo Finance)

In addition, you can also find the free cash flow of companies on other financial websites like Screener.in, Tickertape, etc. Nevertheless, we advise our readers to do the calculations themselves to avoid any computer-based miscalculations. 

tickertape free cashflow calculation

Also read: What’s the formula for calculating free cash flow? -Investopedia

4. How to analyze the free cash flow of a company?

While studying the cash flow of a company, it is important to find out where the cash is coming from. The cash can be generated either from the earnings or debts. While an increase in cash flow because of the increase in earnings is a good sign. However, the same is not true with debts.

Moreover, if two companies have the same free cash flow, it doesn’t mean that they have a similar future prospect. Few industries have a higher capital expenditure compared to other industries. Further, if the Capex is high, you need to investigate whether the reason for the high capital expenditure is due to expenses in growth or expenditure. In order to learn these, you have to read the quarterly/annual reports of the companies carefully.

Also check out: Online Discounted Cashflow (DCF) Calculator

Negative FCF of a company.

A consistently declining or negative free cash flow of a can be a warning sign for the investors. Negative free cash flow is dangerous because it may lead to slow down in the business. Further, if the company didn’t improve its free cash flow, it might face insufficient liquidity to stay in the business.

Quick Note: If you want to learn free cash flow and discounted cash flow (DCF) model in depth, feel free to check out this online course: HOW TO PICK WINNING STOCKS? Enroll now and learn stock valuation techniques today.

5. Conclusion

In this post, we discussed the Free cash flow (FCF). It is a measure of a company’s financial performance. Free cash flow represents how much cash a company has left from its operations i.e. the cash that could be used to pursue opportunities that improve shareholder value.

However, the absolute value of the free cash value doesn’t tell you the whole story. You have to find out where this cash is coming from and how the company is using it. Whether they are spending this money effectively on operations like giving healthy dividends, buybacks, acquisitions etc- or not. And finally, a consistent negative free cash flow of a company might be a warning sign for the investors.

That’s all for this post. I hope it was useful to you. If you’ve got any doubts related to finding the free cash flow of a company, comment below. I’ll be happy to help. Happy Investing!!

10 Questions to Ask Before Purchasing a Stock - Investment Checklist cover

10 Questions to Ask Before Purchasing a Stock - Investment Checklist!

Most Important questions to ask before purchasing a stock: Picking a winning stock that can give consistent returns for many years requires a lot of analysis and research. However, you can simplify the research process if you have an investment checklist.

Having a reliable checklist for picking stocks can reduce the chances of missing an important detail that you should have studied before investing in the stock. As Charlie Munger, Vice-Chairman of Berkshire Hathaway has famously quoted:

“No wise pilot, no matter how great his talent and experience, fails to use a checklist.” — Charlie Munger

In this post, we are going to discuss ten key questions to ask before purchasing a stock by every stock investor. Let’s get started.

Quick Note: Although there are hundreds of points to check while picking a stock to invest, however, most of them can be categorized among the ten questions listed below. Anyways, by no means, I claim that this is the best checklist for picking stocks. My suggestion would be to study the investment checklist given below, improvise and make your own list of questions. Further, for simplicity, I’ve not included financial ratios.

10 Questions to ask before purchasing a stock.

Here are the ten key questions that every investor should ask before investing in a stock.

1. What does the company do?

What are the products/services that the company offers? Do you understand the company’s business model? How does the company actually make money? What are the top/best-selling products of the company?

2. Who runs the company?

Who are the promoters/owners of the company? It the company a family-owned or professionally managed one? Who is managing the company? What are the credentials/background of CEO, MD, Board of directors and the management team? What is the shareholding pattern of the company?

3. Is the company profitable?

How much profits did the company generated in the last few years? How are the company’s gross, operating and net profit and what is the profit margin at each level? Is the profit of the company growing over time or stagnant/declining?

4. Does the company have a sustainable competitive advantage?

Does the company have a moat like intangible assets, customer switching cost, network effect, cost advantages or any other sustainable competitive advantage that can keep the competitors away from eating their profits?

5. How was the past performance of the company?

How is the company’s financials in the past few years? What’s the trend in the company’s income statement and cash flow statement? How are the sales, EBITDA, Cash from operating activities, free cash flow and other financial metrics over the past few years?

6. How strong is the company’s balance sheet?

Are the assets of the company growing over time? How much is the liability of the company? Is the company’s shareholder equity increasing? How much cash does the company have on the asset side? How much is the company’s Intangible assets, Inventories, Receivables, Payables and more? Does the company invest in its Research & Development, especially in a few sectors like Technology, Pharmaceutical, etc?

7. Was the management involved in past fraud or scams?

Was the company’s promoters or management involved in any past scam? Does the company has any history of cheating the shareholders or any past penalty by SEBI?

8. Who are the key competitors?

Who are the direct and indirect competitors of the company? What is the market share of the company vs the competitors in the industry? What this company is doing differently compared to its competitors? Are there any global competitors or the possibility of global leaders entering the same market anytime soon?

9. How much debt the company has?

How much short-term and long-term debt the company has? Does the company generate enough profits or Free cash flow to cover the debt in the upcoming years? Have the promoters pledged any of their shares?

10. How is the stock valued?

What is the true intrinsic value of the company? Is the company currently over-valued, under-valued or decently valued? Is the company relatively undervalued compared to the competitors and industry? What is the calculated intrinsic value by different valuation method? How much is the margin of safety? Will you be overpaying if you buy the stock right now?

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Closing Thoughts:

Although getting a recommendation or investing where friend/colleague suggested may land you into a few profitable deals. But if you want to make consistent returns from the market (and not just being lucky), you need to build your own trustable investing strategy.

It’s true that picking a winning stock required a tremendous amount of research. However, having an investment checklist of questions to ask before investing in stock significantly reduce the chances of investing in fundamentally weak stocks. Moreover, you can easily eliminate over 90% of the companies that don’t meet your checklist.

I hope the questions discussed in this post is helpful to you. If I missed any additional important to ask before purchasing stock in this investment checklist, feel free to mention below in the comment box.

That’s all. Have a great day and Happy Investing!

How to Invest Your First Rs 1,000 in The Stock Market

How to Invest Your First Rs 1,000 in The Stock Market?

A beginner’s guide on how to invest your first Rs 1,000 in Stock Market (Updated): Learning how to invest your first Rs 1,000 in the stock market is a significant step towards starting your financial journey and future investments. You might be surprised to know that even less than 2.5% population of India participates in the Indian stock market, even when the Indian economy is one of the fastest growing economies in the world. Nevertheless, investing your first Rs 1,000 will help you to get prepared for your journey ahead.

In this post, I’m going to tell you the simplest answer to how to invest your first Rs 1,000 in the stock market. It’s a no-brainer way. Further, for the method described here, you don’t need to be an expert or any help from the financial advisors to invest your first Rs 1,000 in the stock market.

Quick Note: Here, I’m not going to discuss how to open brokerage accounts. I’m assuming that you have already had set up your demat and trading accounts. If you haven’t, then read this post to learn where to open your demat and trading account.

A little advice before we start

While interacting with my blog readers and subscribers who are new to the stock market, I learned that most of the first-time investors like to wait until they have amassed thousands of rupees to invest. However, that’s a mistake. You can start investing with as little amount as Rs 1,000. Further, you can increase the investment amount in the future when you have increased your savings. By following this strategy, you can utilize the time efficiently to learn the stock market so that you will be prepared when you invest a big amount in future.

Second, you do not need to be an expert to invest your first Rs 1,000 in the market. You can invest this money while you are learning or even if you started just a few weeks ago.

Third, the point here is to learn, not to earn. Rs 1,000 is not a very large money that will get you bankrupt if you lose this amount. However, Rs 1,000 is more than enough to make you enter the exciting world of stock market and enhance your financial knowledge.

In addition, do not worry about the technicalities like how to buy/sell using your trading account initially. Once you are ready to invest, you can learn all these within 15-20 minutes using different sources on the internet. These days, purchasing stock is even a lot easier compared to booking an online train ticket on IRCTC. All you need is a phone/laptop, internet connection, brokerage accounts, and some cash in your savings account.

Now that I’ve cleared the basics, let’s learn how to invest your first Rs 1,000 in the stock market. Further, please read this post till the end as there is a bonus in the last section of this article.

How to invest your first Rs 1,000 in the stock market?

1. Invest in Just One Stock 

Rs 1,000 is not a big amount. If you are buying a stock worth Rs 300, then you will be able to buy just three units (quantity) of that stock. Moreover, those stocks which are trading at a market price above Rs 1,000 are already ruled out here. Therefore, if you are planning to invest your first Rs 1000 in the stock market, then you need to widen your selection criteria to the stock pricing between Rs 1 to Rs 1,000. Otherwise, you might have to reject many good stocks whose market price is high (Say 800-900), in case you are planning to purchase multiple stocks.

Further, for such an investment amount, you do not need to waste time diversifying your portfolio. Selecting multiple stocks takes time and it’s not worth the value.

Also read: How Many Stocks Should you own for a Diversified Portfolio?

2. Invest in what you already know

The easiest approach of stock selection for the beginners is to invest in what you know. There are a number of companies that you might have heard from childhood and might already know a lot about it. For example- Maruti Suzuki, HDFC Bank, ITC, Yes Bank, HPCL, Bata, Coal India, Colgate India, Hindustan Unilever, etc.

There are tons of companies whose products/services you already have been using and might be more than happy with them. Find out those companies and investigate them. Visit the company website, check its portfolio (product/services), know who is the boss of the company, it’s future products/plans, etc.

nifty50 constituents april 2020

You’ll be surprised to know how many common companies have given uncommon profits.

For example Eicher Motors- Royal Enfield bikes parent company (over 80 times returns in last 10 years), MRF Tyres (over 17 times return in last 10 years), Symphony- coolers (over 12 times return in last 5 Years), etc. The bottom line is to look around yourself and find some popular companies worth investing in.

Search for the companies that you already know that they are doing great (like expanding at a fast rate) for the last couple of years or provide excellent product/services or has an amazing business model (easy to scale).

If you are a working guy/girl, it will be quite easy for you to find such companies. Just look in your industry and find which one is leading. For example, if you are in the banking sector, you might already know which bank is expanding fast in urban and rural areas, opening new branches every week, and has low non-performing assets (NPA), etc.

If you are a doctor, you might already know a few good pharmaceutical companies which are producing the best medicines at a cheap price or are working on the medicines for a rare disease. Even if you are a housewife, you can find a number of good companies that manufacture day-to-day life products like soap, shampoo, towels, edible oils, etc.

In short, the idea here is to invest in what you already know rather than wasting too much time reading financial magazines to search for hidden companies.

everyday stocks that you can also invest in

3. Don’t spend weeks researching your first stock 

Although I’m confident that you find a good company using step 2, however, if you are unable to find any company that you have good knowledge, then invest in blue-chip stocks.

Blue chips are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.

For example- HDFC bank (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company), etc. A few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India, etc. Here is the list of few top blue chips stocks in the Indian stock market:

best blue chip stocks for long term investment

The idea here is to ‘not’ waste too much time researching for stocks. This is your first investment and the investment amount is also small. It’s not worth your time spending weeks researching a stock just to invest Rs 1,000.

Also read: Why Warren Buffet Suggests- ‘Price Is What You Pay, Value Is What You Get’?

4. Don’t make it a very big deal

To be frank, do not make this investment a very big deal of your life. The investment amount is too small to hurt you financially. Even if you lose 50% of your investment amount, you won’t go broke. Don’t worry too much thinking about what if the stock price goes down. IT’S NOT A BIG DEAL!

Here your motive should be to learn, not to earn. If you are able to learn today, you can make tons of money in the future. However, if you want to ‘save’ Rs 1,000 today and are not willing to take any risk, you might save this 1,000 rupee, but miss opportunities to earn lakhs in the future. Stay calm and enjoy the ride.

Also read: #9 Things I Wish I had Avoided During my Initial Days in Stock Market.

warren buffett quote its not necessary to do extraordinary

Additional lessons for Newbies

1. Stay away from penny stocks

Penny stocks are those stocks which trade at a very low market price (less than Rs 10) and have a very low market capitalization (typically under 100 crores) are called penny stocks in Indian stock market. These are the darlings of the new investors. The low market price of these stocks makes them quite attractive to the beginners.

However, these stocks are very risky. You might have never heard the names of most of these companies and very limited information about the company is available to the public. The stock prices of these companies are easy to manipulate. Overall, penny stocks are difficult to investigate for a newbie investor. My advice, stay away from penny stocks until you have got good knowledge and experience in the stock market.

Also read: What are Penny stocks? And should you buy it?

2. Don’t expect extraordinary returns

This is my final advice. Do not expect high returns while investing your first Rs 1,000 in stocks. Stocks are not ‘lottery’ tickets. Even if you get a return of 100% in 6 months, still you will make a profit of only Rs 1000 (Rs 166 per month on an average).

This isn’t going to affect your life financially. Until the investment amount is large or the principal is invested for a long duration (power of compounding), the returns won’t be too big to affect you financially.

That’s why mark my words and set a realistic expectation for your first Rs 1,000 investment.

New to stocks? Confused where to start? Check out my amazing online course: HOW TO PICK WINNING PICKS? #HappyLearning

Bonus: Stock Market Investing Quiz

Before you invest your first Rs 1,000 in the stock market, why not find out how good is your investing instincts? Try it out with this FREE Quiz NOW…!!

Do you consider yourself a ‘Smart Investor’?

Well, your success in the stock market depends on how you invest and react to different market situations.

Here are 10 questions to put your 'Investing Instincts' to test.

Answer Wisely!!

Conclusion

One thing I can take guarantee is that your experience after buying your first stock will be amazing! Trust me, you’ll get more involved in the market if you have some money is invested in it, no matter how small it is. By investing your first Rs 1,000 in the market, you will learn ‘fast’ and learn ‘efficiently’.

Moreover, as discussed in the post, investing is not rocket science, rather it’s quite simple to invest your first Rs 1,000 in the stock market if you follow the steps described above.

I hope this post on how to invest your first Rs 1,000 in the stock market? is useful to you. If you have any questions or doubts, feel free to comment below. I’ll be happy to help you out. Happy learning and investing.

What are Penny stocks? And should you buy it?

What are Penny Stocks? And Should You Invest in them?

A complete overview of Penny stocks in India: Hello Investors! Penny stocks are the darlings of new investors. The low market price of these stocks makes them quite attractive to beginners. However, there are a number of things that an investor should know before investing in penny stocks. In this post, we are going to discuss penny stocks, their pros and cons, and whether an investor should buy it or not. Let’s get started.

What are Penny stocks?

Penny stocks are those stocks that trade at a very low market price, generally with a share price less than Rs 10. These stocks have a very low market capitalization and typically under Rs five hundred crores.  Further, penny stocks in Indian stock market have low liquidity and are speculative in nature.

Being smaller than Small-cap companies, these stocks belong to the microcap category. However, you can find a number of penny stocks in India listed on both the Bombay stock exchange (BSE) and National stock exchange (NSE). Here are a few examples of penny stocks in India:

Company NameLast Price (Rs)Market Cap (Rs Cr)
Andrew Yule & Co9.88483.08
Bajaj Hindusthan4.15470.43
Future Enterp.9.2459.88
M T N L6.95437.85
GTL Infra.0.35431.17
GVK Power Infra.2.6410.59
Electrost.Cast.9.3402.65
JP Associates1.6389.19
CG Power & Indu.6.2388.58
Unitech1.4366.28
Jain Irrigation6.95358.19
Media Matrix3.13354.54
Welspun Special.6.72328.61
Mishtann Foods5.73286.5
Shriram EPC2.75267.17
3i Infotech1.65266.75
Subex4.7264.14
Zee Media5.45256.58
Dhanlaxmi Bank9.9250.48
HLV3.8239.61
Brightcom Group5238.13
Rel. Comm.0.85235.07
Nagarjuna Fert.3.8227.26
RattanIndia Infr1.6221.16
Sanwaria Consum.2.9213.47
SREI Infra. Fin.4.05203.75
HCL Infosystems5.75189.3
Reliance Capital7.45188.27
Lloyds Metals7.75174.51
Jayaswal Neco2.7172.43
Shiva Cement8.51165.95
Vikas Proppant3.2161.98
D B Realty6.6160.55
MSP Steel & Pow.4154.17
Orient Green2150.14
Siti Networks1.7148.25
Sakuma Exports6.95148.22
Essar Shipping7.05145.92
Opto Circuits4.85145.8
Sh.Global Trad.1.25142.44
Vascon Engineers7.85139.84
Vikas Multicorp2132.7
Uttam Value Ste.0.2132.16
Bombay Rayon3.95125.4
Moschip Tech.8.2123.9
Setco Automotive9.1121.73
JCT1.45121.57
JMT Auto2.4120.92
Nila Infrastruct3.05120.14
Vaarad Vent.4.74118.45

Quick Note: In the United States, penny stocks used to be those stocks who trade below one dollar ($1) i.e. the stock worth pennies. However, nowadays, even the stocks trading below five-dollar are considered penny stocks there.

PROS of Penny stocks

Penny stocks have a high potential of rewarding its shareholder. The returns are quite high if you are able to get a good penny stock. Many penny stocks have turned out to be multi-baggers for their investors.

These stocks are able to make explosive moves. There are a number of penny stocks that have given multiple times returns in just a few months. Moreover, due to the low market price of these stocks, investors are able to buy large quantities of penny stocks.

Generally, penny stocks are not known to many as retail investors do not have information about these stocks and the institutional investors do not invest in these companies because of their low market capitalization. Therefore, if you are able to find one such stock before the market does, then it can turn out to be a great wealth creator for you.

Also read: How To Invest Rs 10,000 In India for High Returns?

CONS of Penny stocks

The cons list of penny stocks is too large compared to its pros. Here are few of common disadvantages of buying penny stocks:

  1. High Risk: These stocks are quite risky as the percentage of a number of penny stocks outperforming the market are quite less. Many of the penny stocks become bankrupt and go out of the business.
  2. These stocks have very low liquidity. Therefore there will be troubles on both ends of transactions i.e. buying and selling. While buying these stocks, you might not be able to find a seller. In case you bought the stock, and the stock price starts falling, then you won’t be able to find a buyer to sell the stock.
  3. There is a large bid-ask spread in these stocks.
  4. Limited information is available to the public about the company.
  5. Price manipulations: There have been a number of cases of price manipulations in penny stocks where the insiders try to inflate the share price. Further, one can easily manipulate the penny stocks by buying large quantities of these stocks.
  6. Sudden delisting and regulatory scrutiny: There are multiple cases where penny stocks have been delisted from the stock exchanges. Further, these stocks are regularly under the scrutiny by SEBI.
  7. Prone to scams: There are a number of past scams in penny stocks (Ex- pump and dump).

Related post: Market Capitalization Basics: Large cap, Mid cap & Small cap companies

Who should buy penny stocks?

Penny stocks are suitable for those investors who are ready to take high risks in expectations to get high returns. If you have a low-risk appetite, do not invest in these stocks.

Rules for investing in penny stocks

Here are the few guidelines that can help you to invest in penny stocks.

  1. Look for value, not just the price: Even for penny stocks, you need to look at the value the company is giving. Understand the company’s business, product, services, etc. Investing in penny stock is not buying a lottery ticket.
  2. Study the company’s fundamentals: Look at the company’s financials, management, debt, growth rate, etc
  3. Check the liquidity: Buy stocks that have reasonably high trading volumes so that there is ample liquidity.
  4. Promoter’s share and pledge: Check the promoter’s shareholding patterns and stock pledge if any.
  5. Technical factors: If you know technical analysis, then also check the penny stock’s technicals. Moreover, if you’re purchasing penny stocks just for quick returns, do not ignore looking into factors like momentum, technical indicators like moving averages, RSI, etc.
  6. Invest only a small portion of your investment in penny stocks: As these stocks have a high risk, you should only invest a small amount, less than 10% of your total investment amount in penny stocks.
  7. Monitor continuously: Penny stocks are very volatile. As these stocks are known to make explosive moves, therefore monitor these stocks continuously. If the stocks are performing well, buy more. If they are continuously performing poorly, get rid of it.
  8. Do not diversify: As you are only investing a small proportion of the amount in these stocks, diversifying will make the net investment even smaller. Select only 2 or 3 penny stocks and invest in them.
  9. Be disciplined: Do not invest all in if your penny stocks start performing tremendously good. Similarly, do not quit if one or two of your penny stocks failed to give satisfactory returns.
  10. Do not believe ‘it cannot go down any further’ myth. If the prices of the stock are falling, try to find the reason behind it.

Conclusion

While there are a number of peoples who have created huge wealth by investing in penny stocks, however for many penny stocks are wealth destroyers. If you are going to invest in penny stocks, do your research carefully and do not speculate about the stock. Moreover, there are high risks involved in these stocks. So, be ready for it.

Finally, here’s a short video to summarize what are penny stocks in India and how to research and analyze them.

 

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all for today on penny stocks. I hope this post was useful to you. If you have any doubts/queries, feel free to comment below. I’ll be glad to help. Happy Investing and Trading. Take care!

DMart Owner RK Damani Success Story cover

D-Mart Founder- RK Damani Success Story [Bio, Facts, Net worth & More]

D-Mart Owner RK Damani Success Story: Radha Kishan Damani or RK Dami is a Mumbai based billionaire investor, businessman, and owner of the mega-retail chain stores “D-Mart” in India. The veteran investor Rakesh Jhunjhunwala considers him as his guru (mentor) in the Indian share market. Here are some interesting facts about RK Damani

  • Current Age: 66 (Born 1954)
  • Net worth: $15.5 Billion
  • Occupation: Trader, Investor, Businessman
  • Status: Self-Made Billionaire

According to Forbes’s latest Richest Indian’s list, RK Damani is the 7th richest person in India, with a net worth of over $15.5 Billion, which is equivalent to over Rs 116,200 Crores.

RK Damani Success Story

— Background

RK Damani does not consider himself as a highly educated person. He dropped out of college while pursuing B Com from the University of Mumbai. Before entering the stock market, RK Damani had a small ‘ball-bearing’ business. However, after the death of his father, he started working as a stockbroker in his family business. He was 32 at that time.

Therefore, unlike most tech entrepreneurs who start their startup journey in their 20s, RK Damani was a little late to join this journey, still was able to make it big.

— Stock Market Career

Although RK Damani started his career as a stockbroker, he soon understood that if he wants to make real money from the market, then he needed to trade his own money in the market, instead of being just a broker. And soon he started trading his in the Indian stock market.

RK Damani made a lot of profits from his trading in stocks. He was a very flexible trader and believed in making profits using different market swings. For example, during the Harshad Mehta scam, he made a lot of money by ‘Short-selling’ the stocks, which was not common at that time. However, after getting influenced by value investor Chandrakant Sampat, later RK Damini changed his approach. He shifted to long-term value investing.

RK Damani made a lot of money by investing and holding multi-baggers stocks. A few best-performing stocks from his portfolio are VST Industries, Sundaram Finance, Indian Cement, and Blue Dart. He also invested in VST Industries at an average of Rs 85 and it is currently trading at Rs 3,400. Further, India cement gave a return of +115%.

Some other companies in his portfolio are Century textiles, Trent, VB Holdings, 3M India, United Breweries, TV Today Network, Jubilant FoodWorks, etc.

— The career as a Businessman

d mart

RK Damani has been very interested in consumer retails for a long time. That’s why he opened D-mart in 2002 with one store in suburban Mumbai. Nevertheless, being a value investor, this was a very planned move by him.

In March 2017, D-Mart went public by offering its IPO, under the name of the parent company- ‘Avenue Supermarts’. The IPO was a big hit. Avenue supermart offered its shares to the public at a  price of Rs 299 and got listed at Rs 604 after over-subscription. (Also read: 10 secrets behind the stunning success of D-Mart’s Radhakishan Damani). Currently, the shares of Avenue Supermarts are trading at Rs 2,372 per share, as of 30 April 2020.

Further, by 2019, D-Mart has over 176 stores spread across Maharashtra, Andhra Pradesh, Telangana, Gujarat, Madhya Pradesh, Chhattisgarh, Rajasthan, National Capital Region, Tamil Nadu, Karnataka, Daman and Diu, and Punjab. Dmart stores generated a total revenue of Rs 19,916 Crores in the year ending March 2019.

dmart success story rk damani

(Fig: Dmart Stores Success Story)

— Other Facts about RK Damani

RK Damani considers himself as both a trader and an Investor. He trades in market swing and invests when he’s getting long-term value.

Personally, Mr. Damani lives a very simple life. He is known as ‘Mr. White and White’ because most of the time he wears a simple white shirt and white trousers. Besides, he avoids media and public gatherings.

(Video Credits: FinnovationZ)

That’s all for this RK Damani success story. I hope it motivates you towards your own success journey. Let me know whose story should we cover in the next article by commenting below. Happy Investing.

11 Key Difference Between Stock and Mutual Fund Investing!

Key Difference Between Stock and Mutual Fund Investing: Hello Investors! When it comes to equity investing, a lot of beginners are confused about whether they should directly invest in stocks or take the mutual funds route. In this post, we are going to discuss the fundamental difference between stock and mutual fund investing.

However, before we start talking about the differences, let’s first exactly define what stock and mutual fund investing is.

What is stock and mutual fund investing?

Stock market investing means investing directly in the stocks of the company. Here, you are purchasing the companies listed on the stock exchange with an expectation to earn profits when the price of that stock goes up.

On the other hand, a mutual fund is a collective investment that pools together the money of a large number of investors to purchase a number of securities like stocks, FDs, bonds, etc. A professional fund manager manages this fund. When you purchase a share in the mutual fund, you have a small stake in all investments included in that fund. Hence, by owning a mutual fund, the investor participates in gains or losses of the fund’s portfolio.

11 key difference between stock and mutual fund investing

Here are the critical differences between stock and mutual fund investing based on eleven crucial factors–

1. Cost of investing  

While investing in mutual funds, you have to pay different charges like an expense ratio, load fee (entry load, exit load), etc. For the top mutual funds, the expense ratio can be as high as 2.5-3%.

On the other hand, if you invest in the stock market, you have to open your brokerage account (which includes opening account charges), and you have to pay some annual maintenance charges too. Further, there also different costs while transacting in stocks like brokerage, STT, stamp duty, etc.

Nevertheless, if you compare the charges involved in stock and mutual fund investing, you can find that the costs while investing in stocks are still lower. This is because managing a mutual fund consists of a lot of expenses like management fee, the salary of the managers/employees, administration charges, operational charges, etc. However, for investing in stocks- the most significant burden is only the brokerage.

Also read: How to Invest in Share Market? A Beginner’s Guide

2. Volatility in investment

Direct investing in stocks has more volatility when compared to mutual fund investing. This is because when you invest in shares- you generally purchase 10-15 stocks.

On the other hand, the mutual fund consists of a diversified portfolio with investment in different securities like stocks, bonds, fixed deposits, etc. Even the equity-based mutual funds invest in at least 50-100 stocks. Due to the broad diversification, the volatility in the mutual funds is a lot less compared to that of shares.

3. Return potential

Stock market investing has a very high return potential. Most of the successful investors in the world and India like Warren Buffett, RK Damani, Rakesh Jhunjhunwala, etc. have built their wealth by investing directly in the stock market.

However, this is only one side of the story.

The complete fact is that the majority of people lose money in the stock market. Although the return potential is high while investing in stocks, however, the risk is also higher.

On the other hand, most of the good ranked mutual funds have given decent consistent returns to their shareholders. Although the returns are not as high as what many successful investors can make from stocks, however, this return is enough to build a massive wealth for an average person for a secured future.

Why You Need to Know The Rule of 15*15*15 cover

4. Tax saving

If you invest in ELSS (Equity linked saving scheme) under mutual funds, you can enjoy a tax deduction up to Rs 1.5 lakhs in a year under the section 80c of the income tax act.

Another benefit of investing in the mutual fund is that you do not have to pay tax if the fund sells any stock from its portfolio as long as you are holding the fund.

On the other hand, when you sell stock while investing directly in the stock market, you have to pay a tax, no matter what’s the scenario. There are no tax benefits while investing in the stock market. You have to pay a tax of 15% on short-term capital gains and a tax of 10% (above a profit of Rs 1 lakh) on the long-term capital gains.

Also read: Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

5. Monitoring

Investing in the stock market requires frequent monitoring. This is because the stock market investing is a personal thing. Here, no one is going to do this for you and hence you have to monitor your stocks yourself. Moreover, due to the high volatility of the share market, the frequency of the monitoring should be higher. At least every quarter or half-yearly.

On the other hand, for the mutual fund -there are fund managers who take care of the investments and make the buy/sell decision on your behalf. That’s why, when you invest in mutual funds, you do not need to monitor your fund much frequently. Anyways, you should watch your funds at least every year so that you can confirm that your fund’s performance is in line with your goals.

Also read: How to Monitor Your Stock Portfolio?

6. SIP Investment   

Mutual funds investment provides you with an option of a systematic investment plan.

A Systematic Investment Plan refers to periodic investment. For example, the investor can invest a fixed amount, say Rs 1,000 or 5,000, every month (or every quarter or six months) to purchase some units of the fund. SIP helps in investing automation and it brings discipline to the investment strategy.

On the other hand, there’s no option of SIP available in stock market investing.

7. Asset class restriction

While investing in the stock market, the only asset where you can spend is stocks of the company.

On the other hand, the mutual fund gives you an opportunity to invest in a diversified portfolio. Here, you can invest in a variety of asset classes. For example- debt mutual funds, equity-based mutual funds, gold funds, hybrid funds, etc.

8. The time required for investing

The total time needed for directly investing in stock is a lot more compared to that of a mutual fund. This is because a fund manager manages a mutual fund.

However, for direct investment in the stock market, you have to do your research. Here, you have to find the best possible stock for investing yourself, and that requires a lot of studies, time, and efforts.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

9  Ease of investment

For investing in the stock market, you have to open your brokerage account with the help of a stockbroker. Here, you need to start your Demat and trading account which can take as long as a week to open.

On the other hand, you can start by investing in a mutual fund within 10 minutes. You do not require any brokerage account to start investing in mutual funds. There are a number of free platforms (like Groww or FundsIndia) available on the Internet where you can register within a few minutes and start investing in mutual funds.

10. Time Horizon of investment

Generally, the investment time horizon in mutual funds for long-term like 5 to 7 years. Here, you are not trading funds, but investing for the long-run to make money by capital appreciation or regular income through dividend funds.

On the contrary, if you invest in stocks- it can be a long-term or short term. You can even keep the stock for a week and get good returns.

11. Control on investment

If you are investing directly in the stock market, you will have a lot of power and control. Here, you can make critical decisions like- when to buy, when to sell, what to buy, what to sell, etc.

On the other hand, while investing in the mutual fund, you do not have much control over your investments. It’s your fund manager who makes the decisions like which securities to buy, when to buy, when to sell etc. The highest control that you have is to find and invest in a good mutual fund. However, once you have spent your money, everything will be taken care of by the fund manager.

Further, mutual fund performance depends on the efficiency of the fund manager. If the fund manager is efficient, you can get high returns. Otherwise, if the fund manager is not that good, you might get fewer returns. In addition, there is always a possibility that the fund manager may quit or join some other fund house.

Overall, here you have to be dependent on the fund manager. However, while investing in the stock market, there is no dependency on anyone, and you can make your own decision to buy/sell whichever stock you want.

Check out the upcoming course on mutual fund investing here.

Conclusion

No investment is risk-free. There will always be some risk when you invest in the market or even if you invest in the safest fund. Nevertheless, investing in a mutual fund is comparatively less risky than the stock market. However, the returns are also slightly low in mutual funds compared to the stock market.

If you are a novice and new to the stock market, it would be salutary if you start investing with mutual funds.

For investing directly in the stock market, you will require a good knowledge or at least a strong passion for learning. However, if you have limited time, limited money, and not enough passion to invest your money on your own- then you should invest in the mutual funds.

That’s all for this post. I hope it was helpful. #HappyInvesting.

4 Common Types of Stocks That You should Avoid Investing In cover

4 Types of Stocks that you should AVOID investing in!

Types of Stocks That You should Avoid: Successful stock investing requires a lot of discipline. There are thousands of stocks listed in Indian stock exchanges, and all you need to find is 10-15 good stocks to invest. For the remaining, you just need to say ‘NO’.

In this post, we are going to discuss four specific types of stocks that you should avoid investing in. However, before we discuss these four kinds, let’s first learn the most generic rule of stocks that you should avoid investing.

Rule #1 of Stocks that you should avoid

“The difference between successful people and really successful people is that really successful people say no to almost everything.” -Warren Buffett

As an elementary rule, avoid investing in companies that you do not understand. If you can’t figure out how the company is generating its revenue, what is the company’s business model, what are the products/services offered by the company, or what is the use of the products- avoid investing in that company?

For example, if you have zero knowledge of semiconductors or microelectronics, and don’t understand the use of Zener diodes, MOSFETs, Amplifiers, etc.  then avoid investing in semiconductor companies that manufacture these products. There’s no way that you can understand the market demand, product quality, future prospects, or even the competitors.

Instead, invest in companies that you can understand. A few common industries that anyone can understand with little efforts are Consumer goods, FMCG, automobiles, utility, etc.

4 Common Types of Stocks That You should Avoid Investing In

Here are four mainstream kinds of stocks that you should avoid investing to reduce the risks involved and safeguard your returns:

1. Low liquid Companies

There are some stocks whose prices may be continuously falling, but the investors are not able to sell that share just because there are no buyers. Exiting from a low-liquid company can be pretty stressful. Avoid investing in companies with low liquidity.

In general, stay away from companies with the daily average trading volume of fewer than ten lacks. The higher the volume, the better it is. (If you are new to this concept, try checking out the volumes of few of your favorite companies on moneycontrol or other financial websites to get a good idea of the daily trading volumes).

Besides, another way to check the liquidity of a company is by noticing the difference between Ask/Bid price. The smaller the difference, the higher is the liquidity.

2. High debt companies

Debts in the companies are like big holes in a ship. Until and unless, these holes are filled- the ship cannot go far. Avoid investing in companies with a lot of debt.  As a thumb rule, keep away from investing in companies with a lot of debt in their balance sheet and debt/equity ratio greater than 1.

Also read: Is Debt always bad for a company?

3. Falling knife category companies:

Do not try to catch a falling knife! Investing in companies whose share prices are falling continuously and significantly (for example- Geetanjali gems, Yes Bank, PC Jewellers, PNB, Suzlon energy, etc.) is never a good idea. There’s always a reason why the prices of these stocks are continuously falling, and the market is punishing that company. 

Moreover, there are thousands of listed companies in the Indian stock market which you can explore. Trying to catch a falling knife generally results in hurting your own hand if you are not trained on how to do so.

Also read: Catching a falling knife stock - Is it worth it?

falling knife example

4. Low visibility companies 

There are few companies in the Indian market whose information is not easily (and transparently) available on the internet or financial websites. This is mostly in the case of small and micro-cap companies.

Researching such companies with low visibility can be a tedious job for investors. Further, there are also chances of information manipulation if you can’t cross-check the data or when the reference sources are not reliable. Hence, avoid companies that are less visible.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Bonus Tip (For beginners)

 — Avoid investing in Penny stocks

Penny stocks are very risky to invest in. Many of the penny stocks become bankrupt and go out of the business. In addition, penny stocks are prone to different scams like pump and dump, etc.

There have been plenty of cases of price manipulations in penny stocks where the insiders try to inflate the share price. One can readily manipulate the penny stock prices by buying large quantities of these stocks. Besides, these stocks also have very low liquidity. Overall, if you are a beginner, it is recommended to avoid investing in penny stocks.

Anyways, if you’re inclined toward any penny stock company- then allocate only a small portion of your net investment (less than 10%) in that stock.

That’s all for this post. I hope it was helpful to you. Happy Investing.

10 Best Dividend Stocks in India That Will Make Your Portfolio Rich 2018

10 Best Dividend Stocks in India That Will Make Your Portfolio Rich.

Best Dividend Stocks in India for Income Investors (Updated: April 2020): Whenever a regular retail investor, like you and me, buys a stock, then their main aim is to make money through their investment. There are basically two ways by which anyone can earn money by investing in stocks. They are 1) Capital Appreciation & 2) Dividends.

The first one, capital appreciation, is quite simple and hugely famous among investors. Everyone knows this secret to earn in the stock market. Buy low and sell high. The difference is your buying and selling price is capital appreciation or profit.

For example, suppose you bought 200 stocks of a company at Rs 100 and two years hence, the price of the stock has increased to Rs 240. Here, capital appreciation is Rs 240- Rs 100 = Rs 140 per share or 140%. The overall profit that you made on your investments will be Rs 140*200 i.e. or Rs 28,000.

Almost everyone who enters the market knows this method of earning by stocks. It can also be concluded that most people enter the market hoping that their investment will be doubled or quadrupled and will make them a millionaire one day through capital appreciation.

Now, let us discuss the second method of making money through your investment in stocks- DIVIDENDS.

What are Dividends?

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D Rockefeller

Whenever a company is for profit, it can use this profit amount in different ways. First, it can use the profit amount in its expansion like acquiring a new property, starting a new venture/project, etc. This strategy is generally used by fast-growing companies. Second, it can distribute the majority of the profit among its owners and shareholders. Third and final, it can distribute some portion of the profit to the shareholders and use the remaining in carrying out its expansion work.

Basically, this amount distributed by the company (from its profit) among the shareholders is called DIVIDEND.

What is a dividend? “A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.”

Typically, most big and well-established companies give decent dividends to their shareholders. They may offer dividends two times a year, namelyInterim dividend and final dividend. However, this is not a hard and fast rule. A few companies, like MRF, give dividends three times a year. If you’re holding a stock of these companies and the company announces a dividend, then you’re eligible to receive the dividends as you’re a legal shareholder.

Read more: Dividend Dates Explained – Must Know Dates for Investors

Why are dividends good?

Suppose you are a long-term investor. You have invested in the stocks of a company for the next 15-20 years. Now, if the company does not give any dividends, there is no way for you to make money until you sell the stocks. On the other hand, even though your investments might be growing, however, you won’t receive any cash in the hand unless you sell.

Nonetheless, if the company gives a regular dividend, say 3-4% a year, then you can are receiving some returns from your investments. Here, your capital is growing as you’ve not sold your stocks. Along with it, you’re also receiving some dividends being a loyal shareholder of the company.

In addition, a regular dividend is also a sign of a healthy company. An entity that has given a consistent (moreover growing) dividend to its shareholders for the last 5-10 consecutive years, can be considered a financially strong company. On the contrary, the companies that give irregular dividends (or skips dividends in a bad economy or market crashes) can not be considered as a financially sound company. Therefore, big dividend yields can be an incredibly attractive feature of stock for the long term value investors.

Now that we have understood the basics of dividends, let us learn a few of the important financial terms that are frequently used while analyzing dividends (before we look into the best dividend stocks in India).

Must know financial terms regarding Dividends

Here are a few terms that every dividend investor should know. These key terms are frequently used while discussing dividend stocks.

1. Dividend yield: A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current share price. It is expressed in annual percentage.

Dividend Yield = (Dividend per Share) / (Price per Share)*100

For example, if the share price of a company is Rs 100 and it gave a dividend of Rs 5 this year, then the dividend yield will be 5%. Please note that a high dividend yield doesn’t always mean a g good dividend stock.

2. Dividend %: This is the ratio of the dividend given by the company to the face value of the share.

3. Payout ratio: It is the ratio of earnings paid out as dividends to shareholders divided by the total earnings by the company in that year. Dividend payout ratio typically expressed as a percentage and is calculated as follows:

Payout Ratio = Dividends per Share (DPS) / Earnings per Share (EPS)

As a thumb rule, avoid investing in companies with a very high dividend payout ratio. This is because a high payout ratio means the company is not retaining enough money for its expansion or growth. In other words, be cautionary if the payout ratio is greater than 70%.

Overall, if you are looking for a good dividend stock to invest, search for companies with growing dividends, steady dividend yield, and consistent payout ratio. Now, let us move further and discuss the list of ten Best Dividend Stocks in India.

Quick Tip: The fast growing companies/small businesses/startups give less dividend yield to their shareholders as they use the profit amount in their expansion. On the other hand, the Blue Chip stocks, which are large and established company and has already reached a saturation point, gives good regular dividends. Further, the public sector unit (PSU) companies are generally known for giving good dividends. Some industries like Oil and petroleum, Grid, Utility etc give decent dividends to their shareholders.

Best Dividend Stocks in India (Updated April 2020)

Here are the ten best dividend stocks in India with a history of consistent dividends over the years. They are worth investigating by intelligent dividend investors.

Company NameLast Price (Rs)Market Cap (Rs Cr)Dividend (5 Yr Avg)Div Payout (5 Yr Avg)Div Yield (5 Yr Avg)
Hindustan Petroleum190.129,386.9224.3837.94.58
Indial Oil Corp75.8571,594.6813.9749.164.12
Power Grid166.6587,184.444.3731.162.4
Rural Electrification102.8519,828.1811.2227.65.08
Oil India85.459,266.2410.3533.543.22
Power Finance88.623,655.138.7232.624.8
National Aluminum Co.28.655,344.993.5635.62
Hindustan Zinc187.2577,851.5017.9291.688.4
NTPC9392,019.384.28235.542.8
BPCL316.668,678.5425.239.384.24

Additional Top Dividend Stocks in India

Company NameLast Price (Rs)Market Cap (Rs Cr)Dividend (5 Yr Avg)Div Payout (5 Yr Avg)Div Yield (5 Yr Avg)
ONGC77.6198,377.788.13639.643.88
Coal India130.780,546.8619.52108.286.16
Hero MotoCorp2177.6943,768.8979.849.182.54
GAIL Ltd86.6540,549.696.16232.521.84
Tata Steel Ltd271.4531,181.239.847.582.22
Infosys693.92,95,531.4934.951.43.04
Bajaj Auto2683.777,648.755640.482.12
JSW Steel179.1543,304.505.816.31.24
Castrol India120.2212,062.357.980.322.26
NMDC75.122,994.496.90470.025.9

Quick Note: If you are interested to know more about other high dividend yield stocks, then you can find it here: BSE TOP DIVIDEND STOCKS

Where to find dividend information of a stock?

You can find the details regarding the dividend of stocks on any of the major financial websites in India. Here are a few reliable financial websites to get these pieces of information in India:

  1. Money Control: http://www.moneycontrol.com/
  2. Economic times- Market: http://economictimes.indiatimes.com/markets
  3. Screener: https://www.screener.in/
  4. Investing.com: https://in.investing.com/
  5. Market Mojo: https://www.marketsmojo.com/markets

Further, you can also watch this quick video to understand how exactly to use these websites to find the best dividend stocks in India. Watch here –>

Note: Are you new to stock market investing and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Closing Thoughts

“It is an extra dividend when you like the girl you’ve fallen in love with.” – Clark Gable

An intelligent dividend investor looks for a company that can provide consistent dividends for many long years without any dividend cuts. He/She is not interested in those companies giving high dividends just for one year and not able to sustain giving similar dividends in the future. That’s why it is really important that the fundamentals of the company should be strong, along with the dividend history. A bad market, slowdown, or recession should not stop good dividend companies from giving dividends to their shareholders.

That’s all for this article. I hope this post on ‘Ten Best Dividend Stocks in Indiais useful to the readers. Further, I will highly recommend not investing in stocks based on the list mentioned above. Do your independent research and invest only when you’ve studied the company enough and confident about its fundamentals. Besides, if you have any queries, feel free to comment below. I will be happy to help. #HappyInvesting.

how to do fundamental analysis on stocks

How to do Fundamental Analysis on Stocks?

A Beginner’s guide on how to do fundamental analysis on stocks (Updated): Fundamental analysis of a stock is used to determine the financial and business health of a company. It is always recommended to perform a proper fundamental analysis of the stock before investing if you are planning for long term investment.

If you’re involved in the market, you might also have about the term ‘Technical Analysis’. Well, technical analysis is a good approach to find the entry and exit time stock for intraday trading or short term. You can make good profits using different technical indicators efficiently. However, if you want to find a multi-bagger stock to invest, which can give you good returns year after year, then the fundamental analysis is the actual tool that you have to utilize.

This is because to get multiple times returns (say 5x or 10x), you need to remain invested in a stock for the long term. While the technical indicators will show you exit signs in the short term whenever there’s a downtrend or small setbacks, however, you have to remain invested in that stock if the company is fundamentally strong. In such cases, you have to be confident that the stock will grow and give good returns in the future and avoid short-term underperformance. Short-term market fluctuations, unavoidable factors, or mishappenings won’t affect the fundamentals of the strong company in the long term.

In this post, we are going to discuss how to do fundamental analysis on stocks. Here, we will elaborate on a few guidelines that if you follow with discipline, you can easily be able to select fundamentally strong companies.

How to do fundamental analysis on stocks?

Here are the six essential steps that you need to perform to analyze the fundamentals of a company in Indian stock market. They are really simple, yet effective to find fundamentally healthy companies. Here it goes:

Step 1: Use the financial ratios for initial screening

There are over 5,500 stocks listed in the Indian stock exchange. If you start reading the financials of all these companies (i.e. balance sheet, profit-loss statement, etc.), then it might take years. The annual reports of most companies are around 200-300 pages long. And it’s not worth your time to read each and every company’s report.

A better approach is first to shortlist a few good companies based on a few criteria. And then to study these screened companies one-by-one to pick the one that suits you the best.

For the initial screening of the stocks, you can use various financial ratios like Price to Earnings (PE) ratio, Price to Book Value (PBV) ratio, ROE, CAGR, Current ratio, Dividend yield, etc. If you want to know more about best financial ratios for screening, here’s an article on 8 Financial Ratio Analysis that Every Stock Investor Should Know. In short, you need to use different financial ratios for initial screening.

Next, for performing the stock screening using financial ratios, you can use different financial websites like Screener, Investing.com, Tickertape, etc. Let me give you an example of how to screen stocks using Investing.com.

How to do a screening of stocks using Investing.com?

Step 1: Go to Investing.com

Step 2: From the top menu, select Tools -> Stock Screener

Step 3: Add Criteria (financial ratios) to screen stocks

For example, if you want to filter companies with PE ratio between (5, 18) and dividend yield % between (1, 3), you can select the following criteria. Investing.com Screener will shortlist the stocks according to the criteria mentioned and give you the list of companies.

investing stock screener- How to do fundamental analysis on stocks

Further, you can also add a number of financial ratios in your criteria like CAGR, ROE, etc.

Besides, you can also use other financial websites to screen stocks as mentioned earlier. Here’s a demo on how to shortlist companies using Screener.in website:

Step 2: Understand the company

Once you’ve screened the companies based on the above criteria, the next step is to investigate them. It is important that you understand the company in which you are investing. Because if you don’t, you won’t be able to decide whether the company is performing good or bad, whether the company is making the right decisions towards its future goal or not; whether their competitors are doing good or bad compared to them and most importantly whether you should hold or sell the stock.

Therefore, it is essential that you understand the company. Questions like what are its products/services, who are leading the company (founders/promoters), management efficiency, competitors, etc should be known to you.

A simple way to understand the company is to visit its website. Go to the company’s website and check it’s ‘ABOUT’, ‘PRODUCTS’, ‘PROMOTERS/BOARD OF DIRECTORS’ page, etc. Read the mission and vision statement of that company. Further, if you can find the annual report of the company, download and read it. This report will give the in-depth knowledge of the company.

Further, if you are able to understand the products, services & vision of the company and find it attractive, then move further to next step. Else, ignore that company.

Also read: How to select a stock in Indian market for consistent returns?

Step 3: Study the financial reports of the company

Once you have understood the company and found it appealing, next you need to check the financials of the company like Balance sheet, Profit loss statements, and cash flow statements.

As a thumb rule, Revenue/Sales, net profit, and margin increasing for the last five years can be considered a healthy sign for the company. After that, you also need to check the other financials like Operating cost, expenses, assets, liabilities, etc.

Now, where can you find the financials of a company that you’re interested to invest? One of the best websites to check the financial statements of a company that I most frequently use is SCREENER. Here are the steps to check the financial reports of a company on Screener website:

Step 1: Go to screener.in

Step 2: Enter the company’s name in the search box. The company’s details will open like charts, analysis, peers, quarters, profit and loss, balance sheet, etc.

Step 3: Study the company’s financial reports for the last 10 years.

Screener financials

It is required that you study the financials of the company carefully in order to select a good stock for long term investment. If you do not know how to read the financials of a company, you can check out this financial statement and ratio analysis course for beginners.

Step 4: Check the debt and Red Flags

The total debt in a company is one of the biggest factors to check before investing in a stock. A company cannot perform well and reward its shareholders if it has a huge debt. They have to repay the debt and also pay interest on the borrowed money before anything else.  In short, avoid companies with huge debts.

As a thumb rule, always invest in companies with a debt/equity ratio of less than one. You can use this ratio in the initial screening of stocks or else check it while reading the financials of a company.

In addition, also other red flags in the company can be continuously declining profit/ margin, low liquidity, and pledging of shares.

Step 5. Find the company’s competitors

It’s always good to study the peers of a company before investing. Determine what this company is doing that its competitors aren’t.

Further, you should be able to answer the question that why you are investing in this company and not any of its competitors. The answer should be convincing one like Unique selling point (USP), Competitive advantage, Low-cost products, Brand Value,  future prospects (upcoming projects, new plant), etc.

You can find the list of the competitors of the company on the Screener website itself. Just enter the stock name in the search box and navigate down. You will find a peer comparison there. Else, you can do a google search to find the competitors of the company. Study the competitors in detail before investing.

screener peer comparison- How to do fundamental analysis on stocks

Step 6: Analyze future prospects

Most good investments are based on the future aspects/potential of the company and hardly on their current situation. Investors are interested in how much returns they can get from their investments in futures. Therefore, always invest in a company with strong long future prospects. Select only those companies to invest whose product or services will still be used twenty years from now.

Moreover, there is no point in investing in a CD or pen-drive making company with no long term (say 10 years from now) prospects. With cloud drives evolving so fast, these products will become obsolete with time.

If you are planning to invest for the long term, then the long life of the company’s product is a must criterion to check. Further, check future prospects, expansion possibility, potential sources of revenue in the future, etc.

Summary

Fundamental analysis is an old and proven method to find strong companies for long term investment. In this post, we discussed how to do the fundamental analysis of stocks.

The six steps to perform fundamental analysis on stocks explained in this article are: 1) Use the financial ratios for initial screening, 2)Understand the company, 3) Study the financial reports of the company, 4) Check the debt and red signs, 5) Find the company’s competitors 6) Analyse the future prospects.

Besides, here is an animated video on how to do fundamental analysis on stocks to help you summarize the concepts.

 

Also read: How To Invest Rs 10,000 In India for High Returns?

That’s all for today. I hope this post on ‘How to do fundamental analysis on stocks’ is useful to the readers. Further, If you find this post helpful and want me to write more contents on any similar topic, please comment below. Besides, if you’ve any doubts/queries, you can also ask in the comment section. I’ll be happy to help. Take care and Happy Investing.

Why You Need to Know The Rule of 15*15*15 cover

Rule of 15*15*15 – What You Need to Know!

When the newbies enter the world of investing, one of the biggest questions that they may face is ‘how much’ and ‘how long’ should they invest? Enter the rule of 15*15*15.

In this post, we are going to discuss what is the rule of 15*15*15 (and the rule of 15*15*30) and how it can help you to make your investment decisions.

The rule of 15*15*15

The rule of 15*15*15 says that if you invest Rs 15,000 per month in an investment option which gives a return of 15% (CAGR), for a consistent period of 15 years, you will build a final corpus of Rs 1,00,00,000 (One crore).

Here,

  • SIP Amount = Rs 15k per month
  • CAGR =15%
  • Time horizon =15 Yrs
  • Final corpus = Rs 1 Cr

rule of 15*15*15 sip calculator

(Source: SIP Calculator)

Interestingly, your total invested amount is equal to just Rs 27 lakhs. However, over the time period of 15 years, you will build a total wealth of Rs 1 Crore.

Quick Note: In the scenarios discussed above, 15% is considered as the average compounded annual growth rate (CAGR) over the years. However, you must understand that it is just an average as no market can give consistent 15% returns. In the bull market, the returns can be as high as 30–40%. On the other hand, in the bear market, the performance can be as low as -10% to 5%. Here, the 15% is taken as the average of the returns over the 15 or 30 years.

Rule of 15*15*30

The rule of 15*15*15 gets even better when we double the ‘time horizon’ keeping all the other factors the same.

Here, you invest Rs 15,000 per month in an investment option which gives a return of 15% (CAGR), for a consistent period of 30 years.

Can you guess the final corpus build in this case?

The final corpus built after 30 years will be Rs 10,00,00,000 (Rs 10 Crores). And yes, that’s right — not a typo error…

Here,

  • SIP Amount = Rs 15k per month
  • CAGR = 15%
  • Time horizon = 30 years
  • Final Corpus = Rs 10 Crores

the rule of 15*15*30 sip calculator

(Source: SIP Calculator)

Here your total invested amount is just Rs 54 lakhs. However, as the power of compounding is working in your favor, you will accumulate a final corpus of Rs 10 crores. Only by doubling the time horizon, you can get ten times the amount compared to the rule of 15*15*15.

And that’s why the power of compounding is considered the most substantial factor for wealth creation. Here’s a quote regarding the same by one of the greatest scientist of all time, Albert Einstein:

Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” -Albert Einstein

Warren Buffett Wealth Creation

The name ‘Warren Buffett’ needs no introduction, especially for the people involved in the world of investing. His wealth creation story is an interesting topic to discuss in this post.

Fascinatingly, unlike the young tech billionaires of this century like Mark Zuckerberg, Evan Spiegel, Bobby Murphy, John Collison, etc. Warren Buffett did not build his wealth by creating a super-tech company like FB, Snapchat, Google, etc.

Warren Buffett built most of his wealth over time through their investments (and acquisitions) by his company Berkshire Hathaway. You may get surprised to know the fact that the World’s third richest person become a billionaire only in his 50’s.

warren buffett net worth growth over time

The biggest factor why Warren Buffett was able to build such a huge wealth was his amazing returns for a consistently longer period. His company, Berkshire Hathaway, gave an average yield of around 21.7% per year for over five decades. This return for such an extended time period is way-way better than what we discussed above. The power of compounding played an important role in Warren Buffett’s wealth creation story.

Resources:

Closing Thoughts

The time period is a significant factor when you are investing.

In this post, you can notice how by doubling the time horizon from 15 to 30 years; you can get ten times bigger final corpus. And that’s why it is recommended to start investing as soon as possible.

To end this post, here’s an amazing quote by Mr. Buffett: “Someone is sitting in the shade today because someone planted a tree a long time ago.” -Warren Buffett

How to use SCREENER.IN like an Expert

How to use SCREENER.IN like an Expert

A beginner’s guide on how to use SCREENER.IN for screening stocks efficiently (Updated):  Screener.in is an amazing website to perform the fundamental analysis of a company. There are thousands of Indian investors who use the Screener website regularly to read and analyze the financials of Indian companies. As a matter of fact, the customized financial reports presented by the screener website is quite interactive, friendly, and easy to use.

Introduction to Screener.in Website

Moreover, they provide various tools and data to analyze any publically listed company in India efficiently. For instance, if you search any stock on the stock screener, you will get a number of essential information about the company like an overview, chart, analysis, peers, quarters, profit & loss, balance sheet, cash flow, and other reports. The best part is that you can read the financial statements of the company for the last years, all in one place, without scrolling much or changing the tabs.

Here is an example of the pieces of information that you can get about ‘TITAN COMPANY’ on the Screener.in website.

1 titan company screener

2 titan company annual results screener

3 titan company balance sheet screener

(Image source: Screener)

However, there’s one powerful tool that screener offers which most people are not using on their website. And it is the query builder. The majority of people know how to use screener.in to read financials. However, they do not know how to write a query in the query builder.

What is Screener’s Query Builder?

First of all, if you do not know what exactly is a query, it can be defined as follows:

What is a query? A query is a request for data or information from a database table or combination of tables. For example, if you want a specific type of stocks from a table of all the stocks listed, you can write a query to request that information.

Query Builder can be used in a number of ways. You can use it for screening stocks i.e. to find stocks with specific criteria. Personally, I use this tool quite often to screen Indian stocks. In this post, we are going to cover how to use screener.in website efficiently using the query builder. Here, we will discuss the basics of the query builder. However, once you know how to use the query builder basics, you can write complex queries to this builder as well.

 

Now, before we cover all the topics mentioned above, you need to learn where and how to use query builder. You can find the query builder on the Screener website. Here are the steps to find the query builder.

1. Open Screener website (www.screener.in)

4 screener login

2. Login using your username and password. If you do not have an account on the screener, make a new one using your email id. It hardly takes a minute.

5 screener register

3. Once, you are registered/ logged in, scroll down to find the query builder.

6 screener query builder

How to use the Query builder?

In the query builder, you can write the queries to find the data/ information. The queries can either be of one line or multiple lines. For example, if you want to find the companies with Price to earnings ratio less than 15, you can write the following query in the query builder.

Price to earnings < 15

7 how to use screener

Here’s the result that you will get.

8 PE less than 15 screener

This is the example of a one-line query.

Now, if you want to find the list of companies whose Price to earnings ratio is less than 15 and Price to book value is less than 3 (should fulfill both criteria), then you can write the following query:

Price to earnings < 15 AND
Price to book value < 3

9 PE and PBV screener

Note: This is an example of a multiple line query as we are using two filters. Whenever you use a multiple line query, use an ‘AND’ after the end of every line. Further, you do not need to add ‘AND’ on the last line of the query.

Here’s the result that you will get.

10 PE AND PBV output screener

Now that you have understood how to use the query builder, let’s write few simple queries to shortlist the companies based on different criteria and filters.

How to use SCREENER.IN like an Expert using Query Builder?

— How to find small-cap, mid-cap, and large-cap companies?

Now we are going to use market capitalization to find small-cap, mid-cap and large-cap companies here.

Market capitalization: It refers the total market value of a company’s outstanding shares. It is calculated by multiplying a company’s outstanding shares with the current market price of one share. Read more here: Basics of Market Capitalization in Indian Stock Market.

Although there’s no fixed market capitalization range to classify companies into small-cap, mid-cap or large-cap companies, however, as the thumb rule, we can use the following range:

Small cap companies: Market capitalization < 8,500 Cr
Mid cap companies: Market cap- between 8,500 Cr and 28,000 Cr
Large cap companies: Market cap > 28,000 Cr

Now, how can you use the above information to find small-cap, mid-cap, and large-cap companies? You just have to write a query using the market capitalization range to get the result.

For example, if you want the list of small-cap companies with a market capitalization less than 500 crores, write the following query in the query builder:

Market capitalization < 500

11 small caps query

You will get the following result.

11 small caps

Similarly, if you want to find companies within a certain market cap, you can write the following query:

Market capitalization > 500 AND
Market capitalization < 10,000

12 mid cap query

This query will limit the market capitalization between Rs 500 Cr to Rs 10,000 Cr. Here is the result that you will get.

12 mid caps

Now, can you guess the query to find the list of companies greater than a specific market cap, say Rs 10,000 Cr?

Yes, here’s the answer:

Market capitalization > 10000

13 large cap companies

You will get the following output for this query.

13 large caps

As already mentioned above, the values of market capitalization taken here is not a hard and fast rule. You can write different queries depending on your criteria. If you want the list of those large-cap companies whose market cap is larger than 50,000 crores, you can write the following query.

Market capitalization > 50000

Similarly, you can write a number of queries depending on your requirements.

— How to find penny stocks?

Penny stocks are the companies with a very small market share price. Typically, the share price of these companies is less than Rs 10. Further, they also have a small market capitalization (below 100 crores). You can run a simple query on the Screener query builder to find penny stocks. Here’s the query:

Current price < 10

15 penny stock

penny stocks screener

Moreover, if you want to add the market cap filter in this search, you can write the following query:

Current price < 10 AND
Market capitalization < 100

This query will give you the list of all the companies with the current price of less than Rs 10 and market capitalization of less than Rs 100 Crores.

Also read: What are Penny stocks? And should you buy it?

— How to find debt-free companies?

If you are investing in a company for the long-term, make sure that it’s debt-free. Or at least that it doesn’t have more debts than its asset. The profitability and growth of a company are highly affected if it has a huge debt. To find the debt-free companies you can use the ‘debt to equity’ ratio.

Debt to equity ratio: It measures the relationship between the amount of capital that has been borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity). Read more here.

If the debt to equity ratio is equal to zero, it means that the companies are basically debt-free. If the debt to equity is equal to 1, it means that the debt is equal to equity. Now, most of the companies will have some debt as many times the company requires additional money to carry out different works like expansion, R&D, etc. However, as long as the debt is less than equity, the company can be considered decent.

Here, we are going to use debt to equity = 0 to find the debt-free companies. (However, feel free to use debt to equity < 0.5 to find the list of companies with low debts.) Here’s the query:

14 zero debt company

You will get the following output:

14 zero debt company list

Note: You can also use ‘debt=0’ query to find debt-free companies in India.

— How to find debt-free large-cap companies?

To find large-cap debt-free companies (blue chips), you just have to write a simple 2-line query given below:

Market capitalization > 50000 AND
Debt to equity ratio = 0

16 large cap debt free

16 large cap debt free companies

Note that you can take the market capitalization of the company accordingly. I took the company with a market cap greater than 50,000 Cr here just as an example.

— How to find low PE stocks?

If you want to find the companies within a specific Price to earnings (PE) ratio, you can write a simple one-line query. For example, if you want the list of the companies whose PE is less than 12, you can write the following query:

Price to earnings < 12

17 low pe ratio companies

Please note that the list is a generic one and will give the list of the companies across all industries.

— How to find high dividend stocks?

To find the list of high dividend stocks, you can use dividend yield in the query.

Dividend yield: A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current price of the stock and is expressed in annual percentage.

For example, if you want to find the list of all the companies whose dividend yield is greater than 4%, you can write the following query:

Dividend yield > 4

18 high dividend companies

This query will give the following output:

18 high dividend companies list

Also read: Dividend stocks: Should you invest in it?

— How to find companies between a specific price range?

You can also use the Screener’s query builder to find the list of all the stocks within a specific price range. For example, if you want to find the list of all the companies between Rs 80 to 100, you can write the following query:

Current price > 80 AND
Current price < 100

19 specific price range companies

19 specific price range companies list

This will give you the following list of companies. You can use this query to find the specific price range stocks accordingly.

How to run multiple queries on the query builder?

All the cases explained above are simple to find the specific type of stocks like debt-free, penny stocks, or high dividend stocks. However, is that all? How to use SCREENER.IN query builder more efficiently?

You can perform better screening by using multiple queries in the query builder. Here, you can write multiple lines of queries on the query builder to filter companies with different criteria. For example, if you want to find the list of a company fulfilling the following criteria:

  • Market capitalization greater than Rs 30,000 crores
  • Debt to equity ratio of less than 0.5
  • Current market price range is between Rs 100 and 300
  • The dividend yield is greater than 1.5%

Then you can write the following query:

Market Capitalization > 30000 AND
Debt to equity < 0.5 AND
Current price > 100 AND
Current price < 300 AND
Dividend yield > 1.5

20 multiple queries

20 multiple queries result

This is the result that you will get for the above query.

How to create your own Stock Screen?

You can use different financial ratios to create your own stock screen. These different ratios can be ROE, ROCE, PEG, Sales growth, Profit growth, Current ratio, PE ratio, P/BV ratio, etc. Here, you can create your own screen using these different ratios to shortlist a few good companies and use it for your future references.

Here is an example of a query to screen the stocks:

Market Capitalization >500 AND
Sales growth 5Years >15 AND
Profit growth 5Years >15 AND
Debt to equity <1 AND
Net cash flow last year >0 AND
PEG Ratio <1 AND
Promoter holding >30 AND
Pledged percentage <15 AND
Average return on equity 5Years > 12 AND
Average return on capital employed 5Years > 12

21 your own screener

21 your own screener result

NOTE: THIS IS JUST AN EXAMPLE TO TEACH YOU THE BASICS, NOT A RECOMMENDED QUERY. Generally, I do not use a general query to filter the companies for the whole list, but use specific queries for specific industries. Different industries have different characteristic ratios.

In a similar way, you can create your own screen with the help of different ratios. This can help you save a lot of time and energy.

Quick Note: If you want to learn more stock research tricks, feel free to check out my online course- HOW TO PICK WINNING STOCKS? The course is currently available at a discount.

Conclusion

Query Builder is a simple yet powerful tool that can make your stock research 10 times simpler. Writing queries in the query builder is easy as discussed above.

Although there are a lot many uses of the Screener website, however, the most useful ones are covered in this post. Feel free to play around and create your own queries.

That’s all for today. I hope this post ‘How to use SCREENER.IN efficiently?’ is useful to the readers. If you have any questions, please comment below. Happy Investing.

3 Amazing Books to Read for a Successful Investing Mindset cover 2

3 Must Read Books to Build a Successful Investing Mindset

Books to Read for a Successful Investing Mindset: Hello Readers! Today we are going to discuss something different from my usual posts. In the past few years, since I started investing, I met a number of people who asked me why I started investing in stocks so early on my own. Why do I put so much efforts and time when someone else to learn investing?

While I try to demonstrate the importance of managing our own financials, I find it a little difficult to explain to a few people. This is not because of the lack of education or their academic background in different industries/sectors. Many of my friends with similar qualifications as of me are ignorant of their own financial situation.

The main reason for these people having such struggles is an unhealthy or unwilling mindset towards investing. Their mind is not trained towards the importance of investing and the wonders it can do in wealth creation.

Therefore, today I am going to suggest three amazing books to read for a successful investing mindset. These books will guide you, motivate you and open your eyes to a healthy mindset for investing. I personally recommend you to buy all of these books as the principles & lessons described in them can help you a lot to tackle financial problems throughout your lifetime.

3 Must Read Books to Build a Successful Investing Mindset

1. Think and Grow Rich

think and grow rich by napoleon hill

Think and grow rich is a 1930’s classic that is still the best selling in 2017. The lessons from this book proved out to be time-tested i.e. applicable all the time. This book was written by Napoleon Hill on the suggestion of Andrew Carnegie. The first edition of this book was originally published in 1937.

Andrew Carnegie proposed Napoleon Hill to interview 500 greatest men in the 20th century who were rich and successful in their industry. Carnegie offered to provide the fund for traveling and meeting these personalities in exchange for Hill’s time. He wanted Napoleon to study the common traits among all these rich and successful peoples.

It took Napoleon Hill almost 20 years to interview all the 500 people. He interviewed Henry Ford, JP Morgan, Alexander graham bell, Thomas Edison, Theodore Roosevelt, and many other famous personalities. He finally summarised his studies from the interview in the book- ‘Think and grow rich’.

In this book, the author Napolean Hill educates 13 principles required in a person in order to become RICH.

Thirteen Principles: The Power of thought, Desire, Faith, Auto-suggestion, Specialized knowledge, Imagination, Organized planning, Decision, Persistence, the Power of the mastermind, the Mystery of sex transmutation, the Subconscious mind, and the Sixth sense.

Let me cover the two principles described in the book here. I won’t be covering all as it will kill the fun of reading it:

1. The Power of Thought

power of thought

In this section, Napoleon Hill describes how your thought can help you achieve what so ever you want in your life.

To explain this, he gave an example of Edwin Barnes, who wanted to do a partnership with Thomas Edition. Let me be clear here. He wanted to do partnership- not ‘work for’ Thomas edition.

When the thought originally generated in his mind, he didn’t knew Edison. He lived miles away from where Edison lived. He didn’t have money or resource to meet Edison. However, his thoughts were so persistent that even after facing a number of obstacles, several years later, he became partners with Thomas Edison. He did a partnership in Edison’s dictating machine as a distributor.

In short, Barnes’s thoughts provoked him to achieve what he truly wanted in his life.

2. Burning Desire

burning desireNapoleon Hill considers this trait as the most important of all to become rich and successful. A burning desire is not just wishing, it is about wanting. A wish might not get fulfilled, however, if you want something passionately, you will find a way to get it.

In this section, Hill conveys the readers to ensure that the ‘want’ becomes ‘desire’.

Here, Hill proposes to develop a clear and concise statement of desire – What do you want and when you want it. If you want money, then be specific about the amount that you want and time frame when you want it. For example, if you want to become a millionaire, be specific that you want to earn one million by 1st January 2025. You need to revisit the desire often to imprint it in your mind. Read the statement twice daily, in the morning and in the evening.

In addition, you need to create a specific plan to reach your goal and you need to start taking steps immediately. Besides, if you want to meet your desire, you have to sacrifice something. This might be your time, money, fun with friends or anything worthy.

TEMPLATE
I want to earn ____________ by ______________ and for that I am will to _________________.

In short, create a burning desire for what you want if you want to become successful.

These are the two out of thirteen principles taught in the ‘Think & Grow Rich’. Apart, there are many important lessons in the book that will help you to develop your mindset for a successful life ahead.

2. The Richest Man in Babylon

The Richest Man in Babylon is one of the best classic personal finance books that I have ever read. The lessons in this book are pretty simple and effective. This book consists of different stories from the Babylonian days. A few stories from the collection are- The richest man in Babylon, Goddess of good luck, The gold lender of Babylon, The camel trader of Babylon, etc.

The one story that I particularly liked was the story of a Babylonian slave who was extremely poor with lots of debt. He later learned the rules of gold and with the newly acquired wisdom, he turned out to be one of the richest men in Babylon. Further, here are three of my favorite lessons learned from this book:

1. Pay yourself first

growth vs dividend fund 2

Save at least 10% of what you earn. You have earned the money from your hard work and it’s your right to keep it for your self. Pay yourself first, and then you give the remaining to anyone you want to, like your landlord, your maid, restaurant owner, laundry guy, etc. This is the rule no one of money.

Here is an abstract from the book about this rule:

“’I found the road to wealth when I decided that a part of all I earned was mine to keep.’ – The teacher said.

‘But all I earn is mine to keep, is it not?’, I demanded.

‘Far from it,’ the teacher replied.  ‘Do you not pay the garment-maker?  Do you not pay the sandal-maker?  And Do you not pay for the things you eat?  Can you live in Babylon without spending?  What have you to show for your earnings of the past month?  What for the past year?  Fool!  You pay to everyone but yourself.  Dullard, you labor for others.  As well be a slave and work for what your master gives you to eat and wear.  If you did keep for yourself one-tenth of all you earn, how much would you have in ten years?’ “

2. Only seek advice from those that are wise and knowledgeable in the subject.

Take the counsel of the better men and learn from their mistakes. Here is an abstract about this rule from the book:

“Counsel with wise men.  Seek the advice of men whose daily work is handling money.  Let them save you from such an error as I myself made in entrusting my money in the judgment of Azmur, the brickmaker.  A small return and a safe one is far more desirable than risk.”

3. “Better a Little Caution Than a Great Regret.”

A little caution with the money can stop you from lots of trouble in the future. This rule advocates the readers to invest intelligently as it’s no good regretting later.

In addition, the book also describes the laws of gold, which like the law of gravity is applicable everywhere and in every time period. Here are the seven simple rules of money:
  1. Start thy purse to fattening: Save money.
  2. Control thy expenditures: Live under your means. Do not overspend.
  3. Make thy gold multiply: Invest intelligently.
  4. Guard thy treasures from loss: Avoid bad investments.
  5. Make of thy dwelling a profitable investment: Own the property/house you live in.
  6. Ensure a future income: Have insurances.
  7. Improve thy ability to earn: Keep developing. Become wiser and knowledgable

Also read: 10 Must Read Books For Stock Market Investors.

All the lessons learned in this book are effective and easily implementable. I have read this book a number of times and is my personal favorite personal finance book. I definitely recommend you read this book. You can check out more about ‘The Richest Man In Babylon’ by George S. Clason on Amazon here.

3. Rich Dad Poor Dad

This is the first mind-opening book that I read during my freshmen year in college. The book is a life-changer. It made me realize the importance of financial education and how I have been ignoring this all my life.

The book describes the lack of financial education given to the kids. The problem with financial education is that it isn’t taught in school. Hence, the family/parents have the responsibility to teach it. However, the trouble is that unless your parents are in the top 1% (income-wise), they are going to teach you to be poor. This is not because the poor don’t love their kids. It’s because they don’t know how to be rich and what exactly to teach.

In the book, the author has two fathers. First, his original father, who was a highly educated government officer yet poor. And the other was his friend’s father, who was not much academically educated but rich. Kiyosaki describes how the lessons given by both his fathers were completely contrasting.

rich people

At a very young age, Robert Kiyosaki decided to listen to his RICH dad instead of his profoundly educated POOR dad. A few of the important lessons learned by Kiyosaki from his rich dad were:

1. Always invest in assets

You should increase your assets and reduce liabilities. According to Robert Kiyosaki

  • An asset is anything that puts money in your pocket.
  • A liability is anything that takes money out from your pocket.

Assets can be a business, real estate, paper assets like stocks, bonds, etc. Whereas liabilities can be your expensive car, the big house bought on the mortgage, iPhone, etc.

2. Poor work for money and Rich make their money work for them.

According to the author Robert Kiyoaki, Poor people have a job and they work for money. Here, they exchange their time and efforts for an income source (job). On the other hand, Rich people make their money work for them. Instead of working a 9-to-5 job, they have a business or invest in other businesses. That’s why they can make money even if they are not (directly) working.

rich-dad-cashflow-quadrant-robert-kiyosaki

3. Poor only have expenses, middle-class people buy liabilities and rich invests in assets.

In the section, Robert Kiyosaki also explained why “The rich get richer and the poor get poorer”. This is because of their spending habits. Poor people do not buy any assets and spend all their earnings as expenses. Middle-class people spend the majority of their money in liabilities. However, the rich spend their money in assets which help them create more wealth over time.

RICH DAD POOR DAD BOOK REVIEW

Related Post: Rich Dad Poor Dad Summary- Lessons by Robert Kiyosaki

Summary

All the three books mentioned in this post is classic and time-tested. They will open your eye towards personal finance and help you to create a successful investing mindset. I highly recommend you grab a copy of each one of them and start reading.

That’s all for today. I hope this post on “3 Amazing Books to Read for a Successful Investing Mindset” is useful to the readers. Do comment below which one is your favorite personal finance/ self-help book?