Demystifying whether you Should Invest During COVID19 times: Before we dig deeper into this topic of why investing is so important, let us try and understand as to what investment means. To put it in simple words, Investment can mean building something right now that will help your sustainability in the future. It is the stepping stone towards securing one’s future.
Moreover, investment is an ongoing and continuous process. And the worth of investing is understood more during the recessionary or pandemic e.g. COVID-19 times.
How is Investing different from Trading?
A lot of people lose money in the market because they trade in stocks confusing it as investing. There is a conceptual and structural difference between trading and investing. A few of the key ones are mentioned below:
- Investing, in general, is targeted for a longer duration of time. However, trading is for a short duration of time (sometimes even for a few minutes).
- While investing, the focus is to earn long term and sustainable gains, but in the case of trading, the focus is for short term gains.
- Investors have set rules and goals for buying or selling. But, in the case of trading, the rationale behind a trade keeps changing from trade to trade.
- The most important difference is the System. Investing is systematic by nature. The aim here is to have a gradual building of wealth over an extended period of time, by building a portfolio. It can be done via a basket of stock, mutual funds, bonds, or any other investment avenues. But trading follows only one rule i.e., the rule of short term gains.
Having understood the major difference between Investing and trading, let us understand as to why one should invest.
Should you Invest During COVID19 times? – Importance of Investing
Here are a few of the top reasons why one should invest:
- To secure one’s Future: As we have already mentioned that investing is an ongoing and continuous process. And one does that to secure one’s own future. and we all know that the future is uncertain. But if we are able to financially plan our future, then it becomes easier to handle the tough times like the current global pandemic.
- Investment compounds our savings: Let me explain this with the help of a simple example. Say, if we start an investment with an annual capital of Rs. 2,00,000 and if we do that for 15 years. Let’s say if the annual return on investment is 12% p.a. Here, the compounded value of the investment after 15 years would be Rs. 1,63,39,747.
- Retirement Planning: This is one of the major reasons for investment for most people. As most of the people depend on salary for their livelihood and which is why investment becomes more pertinent. Lifestyle maintenance, when one does not have a job can only be possible with proper planning and investment
- Planning future events: This is one of the most important benefits of investing. If we have some major expenses (children education, or marriage) a few years down the line. The expenses can be ascertained and proper financial planning can be done for them
- Fulfilling one’s aspirations: As the good old saying goes, “If you don’t aspire, you are not living”. Therefore, to be able to fulfill one’s dreams (buying a house, international vacation, etc.) and aspirations, proper planning, and the right investment is a must. And the functionality of compounding also helps in swelling up the investment and meeting one’s goal
Why start Investing during Pandemic (COVID-19)?
As we can see the world economy has been struggling during the pandemic. And with most of the economies posting with near zero or negative GDP growth rate, the investing has become more lucrative. The following are some of the reasons to start investing right now:
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- The investment avenues are available at a cheaper cost. Say, if I have to buy shares of the blue-chip companies. They are all available at discounted prices and once when the world economy revives, they can give high returns.
- To safeguard one’s own interest in the future. The uncertainties come without any warning. Therefore, to protect oneself against it, investing is very important.
- Diversification into the various asset classes is of prime importance when one is looking to invest. Say, if someone is looking to invest via mutual funds, they can do so by allocating the portfolio in different funds like equity fund, debt fund, index fund, hybrid funds, gold fund, etc.
Various Investment Avenues in India:
There are various forms of investment avenues that are available in India. The investment can be in the form of stocks, mutual funds, deposits, Provident funds, Pension schemes, etc. We will be discussing here the most frequently invested upon.
- Stocks: Stocks are basically the ownership of the company of which the stocks have been bought. These are ideal forms of long term investment if someone has a little risk appetite. This form of investment has the best return making possibility for money invested.
- Mutual funds: These forms of investments are ideal for people who are not willing to manage their investment on their own. They rather put their money in a fund (pool of investment) and which in turn is managed by the fund manager. There are various forms of funds like the equity-linked fund, debt fund, hybrid fund, gold fund, etc. Depending on one’s risk profile, one can choose the kind of fund.
- Fixed Deposits: Probably, the safe heaven when it comes to investing. Through Fixed deposits, one can a fixed amount of interest for a pre-decided tenure. The interest on fixed deposit keeps changing depending on the economic conditions and on banks’ discretion.
- Recurring Deposits: Very similar to Fixed deposits except for the fact that there is a periodical investment (every month) for a pre-decided tenure. These forms of investment are best suited for smaller goals within a foreseeable future.
- EPF (Employee Provident Fund): This is the favorite amongst the salaried class. This form of investment is exempted under section 80C. This is a fixed portion that is deducted from the salary on monthly basis and the same amount is matched by the employer as well. EPF is completely tax-free and the interest rates are decided by the government.
- PPF (Public Provident fund): This investment instrument is a long term investment by nature. The usual duration is for 15 years. Investments in PPF can be used for tax exemption. PPF can be used as collateral if one wants to take a loan against them.
In this article, we discussed why it is so important to invest, especially amid the COVID19 pandemic. Here are a few of the key takeaways you from this post:
- Investing is the most reliable way of securing one’s future and meeting one’s long term goals.
- One should not confuse investing with trading, as investing is for the long term and trading is for the short term.
- The purpose of Investing is to earn stable and long term gains. While the purpose of trading is to make quick and short term profits.
- With the help of investing, one can plan their future goals and aspirations.
- Lastly, the most important purpose of investing is to plan and secure one’s future.
That’s all for this post. I hope it was useful for you. If you’ve got any queries related to investing amid coronavirus times, feel free to comment below. I’ll be happy to help. Happy investing.
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!