11 September, 2019
You need one thing to make money and that’s money- sounds confusing, doesn’t it? Let us tell you how. The Indian mindset is more inclined towards savings then investing and this is what restricts their money to make money for itself. A reason behind this can be their reluctance towards risk. We all have ample amounts of savings and disposable income left, which is resting in our lockers and not paying us any amount of interest on it. So why not invest those savings or the extra disposable income into the stock market through mutual funds and SIPs (Systematic Investment Plan)?
Let us give you an example of how this phenomenon works. For example you are a cafe owner and have ₹100, now say you earn 20% through the sales of the cafe above the ₹100 that you have. You now have ₹120. From the ₹120, after you deduct your expenses, say you are left with ₹12 (10%). If you let these ₹12 rest peacefully in your locker, with an average of almost 4% inflation being charged, the value that your ₹12 rupees had drops down to ₹11.52. On the other hand, if you invest the same ₹12 in mutual funds or SIPs, which gives an average return of 15% per annum, you will have ₹13.8.
Investing your “dead” money helps you stay ahead of inflation and also pays you interest on the amount invested. Since you are investing the extra cash, the start investing in stock market also acts as your second source of income. When you invest the additional income, you earn interest on both- the principal amount invested and on the accumulated interest and it basically works as a multiplier for your money. Moreover, investing your money is one of the least active ways of making money for yourself since due to the growing technology today, you can easily track your investments sitting anywhere in the world and you don’t have to manage your investments actively.
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Now let’s talk about what happens if you don’t invest the extra money that you have. The money that you leave idle loses its value due to inflation and every year you lose money rather than earning it. Passively investing into the capital markets through methods like SIPs and SWPs help you in accumulating significant sums of wealth in the long term without dedicating much time and effort towards them. This is an ideal approach for individuals who don't have a financial background and the time to follow an active investing approach. Most of our excess earnings which are not in use are kept in our savings bank which fetches us a very minimal interest rate which is mostly not even sufficient to cordon off the loss in value incurred through inflation. It is much better to invest in capital market that has instruments which can give you a much higher return. For those who are completely reluctant to take on risks, there are debt market instruments like G-Secs and bonds which are completely debt-free and offer a much higher interest rate.
To know about how to generate extra income through your financial resources please visit begininvest.com