6 Best Stock Market Apps for Investment

6 Best Stock Market Apps for Investment

There are many investment avenues that you can use to create wealth for your financial goals. Among the different avenues, stock trading is quite popular among investors. Stock trading, in the simplest form, means buying and selling stocks from the stock market. It is a popular mode of investment because –

  • It has a high return potential
  • It can create wealth over long-term horizons
  • It is a highly liquid avenue

Moreover, the stock trading activity is done online through an online Demat account. You can place buy and sell orders through a licensed broker to trade in stocks.

Thanks to the development of technology, the advent of the internet, and the increased use of Smartphones, your trusted brokers are now available right at your fingertips.

Yes, you heard it right! Stockbrokers have developed their own apps that allow stock trading through your Smartphones. This is not only convenient but quite simple too.

There are dozens of stock trading apps on the market. But which is the best stock market app?

Wondering? Don’t!

Best stock market apps for investment:

 

Here are 6 of the best app for the stock market which you can consider for your stock trading journey. You can easily compare and choose the best stock market apps for beginners among them.

 

1) Zerodha:

Claiming to be the number one broker in India, Zerodha started its operations on the 15th of August 2010. Popular among traders, 6+ million clients place millions of orders through the application’s powerful ecosystem.

Zerodha contributes over 15 percent of all Indian retail trading volumes. According to Ashley Coutinho’s article written on 5th September 2021, Zerodha has 45,43,870 active clients which capture 19.09% of the market share.

Unique features of Zerodha

Here are some aspects which set Zerodha apart from the other stock market apps for beginners –

  • Besides stocks, you can trade in futures and options, commodity derivatives, IPOs, bonds and Government securities, currency derivatives, etc.
  • Zerodha was awarded Economic Times Start-up of the Year 2020
  • You can learn the technicalities of stock trading with Zerodha’s Varsity, an educational platform for investors and beginners

Pricing

  • All investments that are delivery-based trading are completely free of cost.
  • Flat INR 20 or 0.03 percent, whichever is lower will be executed per order for every intraday trades that are done across asset classes such as equity, commodity, or currency trades.
  • All direct mutual fund investments are absolutely free.

Pros:

  • Offers you a brokerage calculator that helps you evaluate the fees and other taxes imposed on trading.
  • Provides you with trading tools such as Kite, Console, Coin, Varsity mobile, and Sentinel for facilitating your trading.
  • Zerodha’s interactive portal ‘Z-Connect’ covers almost every query of the client in form of blogs, illustrations, and interactive articles. Apart from that users can always reach out to Zerodha via email and phone.
  • Trading in stocks is affordable if you follow the buy-and-hold approach. You don’t pay any brokerage on delivery trading.

Cons:

  • The account opening process consumes a lot of time.
  • Covers only the Indian stock market.
  • Credit / Debit cards cannot be used for deposits and withdrawals.

 

2) Groww:

Groww intends to make investments in India, easy, fast, and transparent. It has 10 million-plus customers handled with 100+ team members. Backed by Ribbit Capital, Sequoia, Y Combinator, Kauffman Fellows, Propel Venture Partners, and Kairos, Groww is operated from Bengaluru.

Unique features of Groww

Here are some salient facts to know about Groww as a trading app –

  • Besides stocks, Groww also allows you to invest in gold, mutual funds, US stocks, futures and options, and fixed deposits
  •  You can download  the app on your Android phone, iPhone as well as on your computer and sync your account across platforms
  • For any help, query, or feedback, you can connect with Groww’s efficient customer service department online.

Pricing:

  • Account opening and maintenance are absolutely free with Groww.
  • For equity brokerage, Groww charges INR 20 or 0.05 percent whichever is lower.
  • For Futures and Options brokerage, Groww charges INR 20 per executed order.

Pros:

  • It has a simple pricing model.
  • The application offers professional management of shares, real estate, gold, bonds, etc.
  • Investing via UPI is possible.
  • You can have portfolio insights by using Groww via the website.
  • The service allows you to compare three mutual funds at the same time.
  • Users can view their SIP history on the application.

Cons:

  • Groww’s investment products offer no option to trade in the commodity, and currency segments.
  • It offers no call and trade services.
  • Groww does not provide any stock tips, research reports, or recommendations.
  • There is no margin trading facility or margin against shares.

 

Do you want to start your Stock Market journey? Enroll in our Free Stock Market Course and learn all about investing in stocks. Join Now

 

3) Upstox:

Started as an idea to make trading easier and cheaper, Upstox currently has 50,00,000+ investors. This platform is backed by Mr. Ratan Tata and Tiger Global management. Upstox Pro platform was launched with a big focus on mobile and powerful trading platforms in 2016. Since then, Upstox has committedly worked for making investments easy as well as accessible to everyone, not only via the web but also via mobile.

Unique features of Upstox

Backed by reputed names in the industry, Upstox also has the following salient aspects that investors should know about –

  • With a single platform, Upstox allows you to trade in stocks, futures and options, NFOs, commodities, IPOs, and mutual funds
  • Started in 2016, Upstox has delivered relevant solutions to lakhs of its customers
  • You can open a Upstox account online with minimal hassles
  • There are hundreds of charts and technical analysis tools that help you pick the right stocks to create a quality portfolio

Pricing:

  • Upstox does not charge a single penny when trading mutual funds and IPOs.
  • The platform charges INR 20 or 0.05 percent, whichever is lower on Equity Intraday, Futures, and Options, Currency, Commodity, as well as Equity Delivery.

You can check out the detailed brokerage rates on Equity, Currency as well as Commodities on Upstox’s website.

Pros:

  • Complete KYC procedure and IPV is available over the web. So, the work that usually takes one to two days or at times even weeks, gets done within minutes.
  • Upstox provides you with all the tools you need while trading such as brokerage calculator, Span calculator, options builder tool, etc. All of these make trading with Upstox extremely easy.
  • The platform answers all the queries of customers within a very short span of time. Users can also reach out to Upstox using its online ticketing system.

Cons:

  • Call and trade with Upstox are chargeable at INR 20 per trade.
  • A particular order called Good Till Cancelled (GTC) is not supported in the Delivery segment.

 

Read our blog on Stock Market investing | The 7 Golden Rules of Stock Market Investments

 

4) Sharekhan:

With 750+ service managers, 3000+ Sharekhan centers in 600+ cities, Sharekhan’s human as well as an online network helps you trade effortlessly. The platform is backed by BNP Paribas – a French international banking group, the largest bank in Europe, and seventh-largest in the world when calculated based on total assets.

Sharekhan is the 3rd largest stockbroker in India. Its services are not only limited to retail customers but also expanded to institutions. The platform has designed attractive prepaid trading plans for high volume customer that reduces brokerage fee notably.

Unique features of Sharekhan

Here are some of the notable features of Sharekhan –

  • Sharekhan is a full-service broker in India. This means that it charges brokerage on every trade in stocks that you place through it. However, for the brokerage charges, the app offers professional advice and guidance in picking the right stocks.
  • You can open an online Demat account within 15 minutes with its hassle-free application process
  • You can consult with experts and professionals to learn the skills of stock trading and to build your wealth
  • Sharekhan uses fundamental and technical research philosophies to help you invest right

Pricing:

  • Sharekhan charges INR 400 for Demat accounts after the first year of free service.
  • It offers trading as well as Demat account opening entirely free.
  • Other charges depend on the type of account that you open and the security that you trade-in.

Pros:

  • Calling as well as trading is completely free.
  • You need to pay absolutely no charges for fund transfers made from banks to trading accounts or the other way round.
  • Using Sharekhan users can have online classroom sessions for beginners as well as advance traders without paying a single penny.
  • Being a part of Sharekhan is being a part of a huge chain across India.
  • Its trading platform, Trade Tiger is available for free.
  • You can invest in different types of securities and assets with a single account

Cons:

  • The platform doesn’t offer a typical three-in-one Demat account.
  • You cannot place an order after trading time.
  • Brokerage charges are much higher compared to other stock market app for beginners.

 

Do you have any questions related to Stock Market? Confused about how to start investing in Stock Market? Get instant answers from experts. Join Koppr Tribe Now! Download Koppr App

 

5) Motilal Oswal:

Available in Hindi, Gujarati as well as Tamil, Motilal Oswal has 22,00,000+ happy customers. The company was awarded as the best local brokerage firm in India at the Asia Money Brokers Poll 2020. Founded by Ramdeo Agarwal in 1987. Motilal Oswal currently has more than 30+ years of being in the Indian stock market. Since its inception, to date, they have burgeoned as a firm that currently serves:

  • Retail customers
  • High net worth investors
  • Institutional investors
  • Corporate clients

The firm has its presence in 2200+ locations and invests a significant amount of its profit in research and analysis.

Unique features of Motilal Oswal

Motilal Oswal also boasts of some unique features that list it among the best trading apps in India. Here’s a look at these features of Motilal Oswal –

  • It offers you good trading platforms that are useful for all kinds of traders.
  • The company has a decent amount of franchise network.
  • It has a fund transfer facility with more than 60 banks.
  • Motilal Oswal is a very established name in the Indian stock market.
  • Its research reports are considered to be the best in class.

Pricing

  • The delivery brokerage of Motilal Oswal is 0.5 percent.
  • Its Intraday and Futures charges are 0.05 percent.
  • Options will cost you INR 100 per lot.
  • Commodities will cost 0.5 percent and INR 20 per lot.
  • The firm doesn’t charge a single penny for opening a trading/Demat account as well as maintaining it annually. However, its Demat account’s annual maintenance charges are INR 441.

Pros:

  • You can freely open an account and also not get charged with maintenance for the first year.
  • You get a free personal trading advisor for choosing the right stocks to buy
  • Expert stock recommendations can be availed free of cost
  • You can invest in IPOs, NFOs, ETFs, commodities, gold, mutual funds, and futures and options besides stocks
  • You get free research reports on leading stocks. These reports help you to make the right trading decisions to maximize your wealth.

Cons:

  • Does not offer a three-in-one Demat account.
  • Its brokerage is a little bit on the higher end than other broker firms.

 

Each one of the above-mentioned applications has its own specialty. So, ask yourself a very important question before deciding the best stock market app for yourself i.e., what are some of the most vital features a trading app should contain? Then choose an app based on its benefits, pricing, and the securities that it offers to trade-in. With these 5 apps, however, you cannot go wrong.

 

Have you selected your stock market investing app? Then learn How to Pick the Best Stocks for the first investment. Enroll in the Course Now!

 

How to start investing with these apps

After you select from the best stock market apps in India, the next step is to start investing in stocks. To do so, here are the steps that you should follow –

  • First, select the app with which you want to start your trading journey
  • Download the app from the Google Play Store or Apple Store
  • Open your account by entering your details. These details include your name, age, address, mobile number, email ID, PAN Card number, Aadhaar card number, etc.
  • You also need to mention your bank account name, branch name, IFSC code, and bank account number to link your bank account with your online trading and Demat account
  • You would have to verify your details using OTP sent to the mobile number and/or the email ID that you registered when filling in the online account opening form
  • If any account opening fee is to be paid, the same should be paid through your net banking account or UPI ID
  • The last step is to submit your documents and a digital signature. Most apps allow you to upload your documents online. Your signature can also be uploaded online on the app’s platform
  • Once the account opening form is filled and the documents are uploaded, the stock trading app would verify your details and open a Demat and trading account in your name
  • Some apps might open the accounts within minutes while some might take 1 or 2 trading days for the same.

 

Watch Our Video on Stock Market Investing

 

 

When you start your stock investment journey with any of these apps, here are few things that you should keep in mind –

  • If you are a beginner, check the historic price trends of the stocks before you pick them. Research the stocks thoroughly so that you don’t go wrong in your choice. Many apps offer research reports and recommendations which you can peruse when picking stocks.
  • Be patient with stock investments. The equity market is volatile. The stocks that you pick might become bearish. Try and hold onto them. They might recover with time and give good returns.
  • Opt for diversification so that you can invest in stocks across market sectors for maximum profitability
  • Keep abreast of the latest news and stories of the stock market. This would give you an insight into the right time to buy and sell stocks.

In fact, the last point is quite important. The stock market is an ever-changing universe. You need to know what is happening in the market daily so that you can change your position in stocks. Moreover, you should get your trading queries resolved with the help of experts. One app that lets you do this is the Koppr app.

 

Read Our Complete Guide on How to invest in stocks in India for trading or long-term investment?

 

6) The Koppr app – making a difference in stock trading:

With the Koppr app, you can plan your finances and get complete guidance on stock trading. The app also features the latest news that you can use to stay informed. Get access to –

  • Blogs
  • Videos
  • Articles
  • Trending topics
  • Latest news
  • Podcasts
  • Videos
  • Channels, etc.

Also, for any queries and help, you can connect with Koppr Tribes, a platform that brings you together with other stock investors and experts –

Lastly, you can take financial courses, test your knowledge by participating in quizzes, attend live financial workshops and do more with your investment journey. Have a look –

So, besides the apps for stock trading, Koppr can be the best complemental app to enhance your knowledge about the avenue. Download the Koppr app and stay updated with the latest happenings in the market which not only affects stock investments but also other avenues like mutual funds, bonds, gold, etc.

With a diversified portfolio, you need to be an all-rounder investor with knowledge of different avenues and how they are affected by market movements.

Koppr lets you do just that. So download the Koppr app and start stock trading with complete knowledge of the stock market. After all, knowledge is a powerful thing, a factor that can make or break your portfolio.

A Complete Guide on How to Read Stock Charts – Basics to Advanced

A Complete Guide on How to Read Stock Charts – Basics to Advanced

Stock charts or technical charts are one of the two most important components of technical analysis. If you are a daily trader or want to become one, these charts will be your best friend.

Whether you are new to trading or a professional trader, you have to use charts to analyze price trends, movement, reversal, and everything you need to know for trading any asset.

This article will read about different types of charts, different information that you can find from a chart, trends and their analysis, how to read stock charts, and other crucial details.
 

A Complete Guide on How to Read Stock Charts – Basics to Advanced:

 

1) What is a stock chart?

 

Stock charts or stock market charts are real-time or historic price charts for different stocks, bonds, or any asset for that matter. These are a graphical representation of prices over a period of time for different stocks and other assets.

These stock charts portray the price movement in the form of lines, candlesticks, bars, and others. You can understand the price trends and any reversal in the trend following these charts.

These charts are also integrated with technical indicators to provide the buy and sell signals. You can find the highest or the lowest price within a given span, for instance, 1 year or 5 years, and similar metrics on the charts.

Learn How to Pick Stocks and improve your stock market investments. Take our comprehensive course Now!

 

2) Types of stock charts

 

Before you learn how to read stock charts, you need to know how many types of charts are there as you first need to identify the type of chart you are going to read. There are mainly 5 types of charts that are used in the technical analysis. They are –

 

1. Daily Bar Chart:

It is one of the most popular charts which provide multiple information like opening price, closing price, and highest and lowest price of the day.

 

Daily Bar Chart

 

There are verticals bars that represent the range of price of the asset. The horizontal line which is going towards the left is for the opening price and the horizontal line going towards the right is for the closing price.

 

2. Head and shoulder charts:

This chart is for understanding whether the price trend is going to reverse or not. It is a reversal chart pattern. There is a “Top” which is formed at the highest point of an upward movement and when the upward trend is about to end. There is a “Bottom” which suggests the downward trend is about to end and that is depicted by the lowest point on the downward trend.

The higher peak in between smaller peaks are known as the “head” while the other peaks are known as “shoulder”

 

Head and shoulder charts

 

Thus, this chart is known as a reversal chart as it is unlikely that it would follow the previous trend as the Top and the Bottom marks the end of that particular “trend”.

 

3. Line charts:

These charts are the most commonly used and easy-to-understand charts in technical analysis. The ‘X’ axis of the graph represents the time and the ‘y’ axis represents the price.

These charts are mainly used to depict the closing price of each day of the asset. The closing prices are plotted and a line is formed.

 

Line charts

 

As you can see in the line chart above for ABC Company (hypothetical), the closing price for 5 days has been depicted in the chart. The closing price on day 1 was Rs. 100 while the same on the 5th day was Rs. 117. To check the exact value on the chart, you need to move the cursor on the exact date.

 

4. Candlestick charts:

The candlestick charts are advanced technical analysis tools. These are a bit complex but once you understand they can help you a lot in analyzing the price trend and other factors affecting the price of the stocks/ assets.

These charts use green and red/pink boxes to indicate the market trend. The green boxed form when the closing price is higher than the opening price (bullish) and red or pink boxes form when the opening price is higher than the closing price.

 

Candlestick charts

 

The thin line below and above the boxes shows the highest and lowest price of the day.

 

5. Point and figure chart:

In these charts, you will find ‘X’ and ‘O’. The price in these charts is plotted against the change in direction. When the price rises, ‘X’ is formed and ‘O’ in case of a fall in the price of the asset.

 

Point and figure chart

 

Do you have any questions related to Stock Market? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App

 

3) 5 Things to look for in a chart

There are certain things you need to first identify and understand for reading charts –

1. You need to first identify which type of chart it is. Whether it is a bar chart, line chart, candlestick, or any other as mentioned in the above section.

2. Check the ticker above the above where the company’s information is mentioned and all other necessary details.

3. The next thing you need to do is to choose the time frame for which you want to check the chart. There are daily charts, weekly charts, monthly charts, and charts for the last five days, 6 months, 1 year, 5 years, and 10 years, and maximum time frame. You can select the 1-year time frame and the price movement that had happened in the past year will be visible on the chart in front of you.

4. By moving the cursor on a specific day or bar, candle, you can find out all the information related to that particular day or time.

5. You must check the volume of trade besides checking the price movement. This will help you understand the momentum of the price movement.

 

4) Volume Analysis

As mentioned above, volume is a key factor in analyzing charts and predicting tend in the market. In every chart, you will find the volume more or less. This is because of the reason that volume is a key technical indicator.

The volume patterns you need to know for reading charts are as follows –

 

1. Market up with High Trade Voume= Bullish Trend:

On days when the market is going up and the trading volume is high indicates a bullish trend. It usually means that the price of the stock will continue to increase.

 

2. Market down with Low Trade Voume= Bullish Trend

On the other hand, if the volume of trading is low on a day when the market is going down, also indicates a bullish market. This is because of the fact that not many investors/ traders are participating in the market when it is down and thus it is a temporary slowdown and correction which is not going to last for long.

 

3. Market down with High Trade Voume= Bearish Trend

Now if the volume of trading is high on the days when the market is going down (stock price decreasing) then it indicates a bearish trend or a market when the whole market is selling.

 

4. Market up with Low Trade Voume= Bearish Trend

Finally, if the volume is low on days when the price is going up also suggest a bearish market to persist and the increase in the price is just a short-term counter-trend retracement.

So, volume is crucial because just by looking at the price no one can anticipate whether the trend is going to persist or reverse but when you monitor price movement along with the volume of trading, it can give you a clear picture of the market.

 

Got a finance related questions? Download the Koppr App and get expert answers to your questions

 

5) Trend Analysis

So, charts are basically for analyzing and anticipating market trends but to understand the trend and analyze the same? Here are the details of analyzing the trend in few simple steps:

 

1. Persistency of the trend:

The first thing you need to see is for how long the trend is persisting. No trend will be forever, it will change over time. If any trend is continuing for a long time and there hadn’t been any retracement as well (not significant corrections) then it is a sign of being alert for a trend reversal soon.

 

2. Volatility of the stocks:

Some stocks are stable while others are volatile. If you are trading a volatile stock, then even within a long-term trend, the graph will be going up and down regularly. You need to focus on the long-term for all these volatile stocks and need not consider the changes in the short term.

 

3. Signs for trend reversal/ momentum indicators:

Some certain signals/ indications suggest a potential reversal in trend. You need closely observe and analyze those indications. Especially momentum indicators help you recognize if the trend is going to reverse or not based on the volume of trading.

If you can analyze and anticipate the trend in the market, you can easily trade any asset smoothly. However, anticipating it requires precision and fine observation skills.

Read our complete guide on How to Analyze Stocks to Get Good Returns.

 

6) Technical Indicators

Stock market charts without any technical indicators are just like graphs to look at. Yes, you can check them and analyze certain things but if you want to make them helpful in your daily trading, then you need to integrate the technical indicators in your charts. Here is a list of two basic and most important technical indicators to use with stock market charts.

 

1. Moving averages:

The first one is the moving average. It is a key tool in technical analysis. The average stock prices over some time are plotted on the chart for analysis.

There are different types of moving average as well mainly depending upon the time frame. There are 50-day moving average, 200-day moving average, and others. The 200-day moving average is one of the crucial ones in chart analysis.

If the trader is bullish about any asset/stock then he or she needs to check whether the stock price was above the 200-day moving average of the stock price or not. On a chart, the 200-day moving average has to be plotted, and then the daily price movement has to be monitored.

On the other hand, if the trader is bearish, then he or she would want to price to remain below the 200-day moving average.

If the price crosses the 200-day moving average from below then there is going to be a bullish market reversal. While if the price line cuts the 200-day Moving Average from above, then a bearish trend is going to start.

 

2. Support and resistance:

Another important technical indicator to know about when reading charts is support and resistance levels. These two levels also help in identifying any upcoming trend reversal.

The support level is the level when the demand for the stock is too high to let the price of the stock fall. The resistance level is the level on the upward side where the selling pressure is high and doesn’t let the price move up that level.

It helps the traders to buy at the support level price and sell at the resistance level price and earn profit out of it. If there is a price-breakout for any stock having very strong support and resistance level, then it indicates a further price movement in a similar direction.

For instance, the resistance level of ABC stock is Rs. 1000 and for a long-time, it was trading below Rs. 1000. However, now the price has finally reached Rs. 1010, this means the resistance level has been broken. This indicates a further price rise for ABC Company’s stock.

Are you interested in Technical Stock Analysis and want to make your portfolio much stronger. Check out our course here

 

7) 8 Tips on How to read a stock chart

As you know by now, the important things to check in a chart, let’s try to read the chart given below. It is a Tata Motors Ltd. chart on 27th of July, 2021.

 

How to read a stock chart?

 

1. It is a candlestick chart
2. The opening price for today is Rs. 293
3. The last closing price was Rs. 292.5
4. This means it opened today at a higher price than last trading session
5. The volume of trading is 25.6 Million
6. The 50-day moving average is Rs. 325.63 while the 200-day moving average is Rs. 262.03.
7. The price has cut 50-day moving average from above which signifies a bearish trend and as you can see in the chart, the price is dropping for Tata Motors.
8. The volume on the days when the price is decreasing is higher which also suggests a bearish trend.

Wondered how hedge funds trade within seconds? Our Scalp Trading course may provide an insight.

 

8) 6 Other IMPORTANT information you can find in a chart

 

1. Dividend yield:

In some charts, you can also find the dividend yield of the company. The dividend yield is the percentage of return on the dividend. This is calculated by dividing the dividend received annually by the market price of the stock at present.

 

2. Dividend per share:

Similarly, there can be dividends per share also represented in some stock charts. This is the annual dividend paid by the company to the shareholders.

 

3. 52-week high and low:

These 2 numbers are very important to the traders. You can find these 52-week highs and low often in most of the charts either at the top or the bottom.

The 52-week high is the highest price reached within the past 52 weeks or 1 year. Similarly, the 52-week low is the lowest price of the last 52 weeks.

 

4. Price to Earnings Ratio:

The P/E ratio may be also found on some charts as it is a key metric for stock analysis. It is derived by dividing the market price of the stock by the earnings per share (EPS) for the last year.

 

5. Net change:

This is another metric given in any stock chart and it is the change from the previous day’s price. In the chart given above, the net change is -0.25% which keeps on changing as the price of the stock changes.

 

6. Market capitalization:

Most stock charts also include the market capitalization of the company. This is the value of the total number of stocks outstanding.

For instance, if there are 1000 outstanding stocks of a company and the market price of each stock at present is Rs. 100 then the market capitalization of the stock at present is Rs. 100,000.

Do you want to invest for a long term goal? Read our complete article for long term investing here

 

Conclusion

So, reading charts is a bit tricky, however, you can learn to read them and then use them for your daily trading. If you want to learn how to read stock charts and pick stocks wisely and trade, then you can enroll in technical courses at Koppr.

Check all our stock market related courses here:
1. Stock Market Basics
2. How to pick stocks?
3. Futures and Options
4. Fundamental Analysis
5. Value Investing
6. Intraday Options Buying Strategy
7. Nifty Hedged Short Strangle
8. Options Spread and Options Chain
9. Learn how Scalp Trading Works, etc.

You can choose the course according to your interest and enroll for the same if you wish to learn about the different stock market strategies that can help you build your stock portfolio.

Charts can be extremely helpful in daily trading as they have all the required information in one place and you can just check everything on that single page.

Moreover, if you can integrate the technical indicators and use real-time charts, it can provide you with buy and sell signals too.

Moreover, like Benjamin Graham said in his book, the Intelligent Investor that “An intelligent investor is a realist who sells to Optimists and buys from Pessimists”. After reading all the stock charts, you will realise how true this quote is!

 

Find latest banking and finance news including stock news insurance news, personal finance and more only on Koppr App. Download Now!

22 Money Lessons From 5 Great Investment Gurus

22 Money Lessons From 5 Great Investment Gurus

You may be a self-made man or woman but you must have come across or are still in the shade of a mentor or a guru. Since continuous learning is imperative in the field of investment, an investor needs to follow the investment gurus and understand how they are making it in this ever-volatile market.

Here following doesn’t mean blindly following anyone but understanding the concepts, ideas, and then doing your own thing in your way.

So, in this article, you will read the following investment lessons from investment gurus across the globe. Then you have to make use of these lessons in a wise manner to get the most out of the market.

 

Investment Lessons From:

1) Investment Lessons by Benjamin Graham

 

a) Learn From your mistakes and never give up

The first lesson for prospering in any field is nothing but not giving up. Benjamin Graham, the writer of “The Intelligent Investor” and the mentor to the world’s most popular investor – Warren Buffet lost all his capital in the stock market crash of the year 1929.

The Great depression followed and made Benjamin Graham realize the risk of investing the hard way.

However, he didn’t quit, unlike many who just left the market post the crash and the depression.

He started analyzing stocks and investing in stocks that had a lower price than the actual market price. It is said that even after losing so much, he generated a 20% return on an annual basis on average with the proper money management and risk management skills.

Key Learning

So, it is all about learning from the mistakes you make. You need to “find” the right way, and then go ahead. Quitting is not just an option if you are serious!

 

b) Investing is not gambling or speculating

The second lesson from this great investment guru ever is not to take investment as gambling or speculating. Gambling or speculating can lead to short-term gains, however, that is not the right approach neither would it fetch you profits in the long term.

Investing is all about understanding your risk appetite and then investing the money for the long term according to your financial goals and ideal asset allocation.

Key Learning

As an investor, you should ideally understand where you would like to invest and then make an informed decision by knowing all the associated risks.

c) Finding out the real value/ Intrinsic Value

Benjamin Graham is known for his famous book on investment “The Intelligent Investor”. In this book, he has mentioned value investing and the concept of intrinsic value. Intrinsic value is the actual or real value of a stock. The market price can be according to different factors but the intrinsic value is derived from the fundamentals.

For instance, the market price of ABC stock is Rs. 1500 however after thoroughly analyzing the fundamentals of the company, you found out that its intrinsic value is Rs. 2500. Then you should ideally invest in that stock as sooner or later, the market price will reach the intrinsic value.

It can, however, be the other way round as well. Suppose the intrinsic value is Rs. 1500 and the stock is currently trading for Rs. 2400. So, it is overpriced, and at some point in time, the price would drop to Rs. 1500. The concept of intrinsic value is very crucial to understand for every investor.

Key Learning

Understanding the concept of Intrinsic Value and then investing according to the same is very important for any investor.

d) Reducing the downside risk factor

Another important lesson from this man is that an investor must consider the downside risk of the investment every time he or she invests. The downside risk is the maximum loss that an investment can incur given the worst-case scenario.

Key Learning

So, as an investor, you need to plan for such a scenario and then keep a margin of safety at the time of investing. The margin of safety is the difference between the market price of the share and its intrinsic value.

Note: Thus, the lower the intrinsic value than the market price, the higher would be the margin of safety and lesser downside risk.

e) Expanding your horizon

Benjamin Graham believed in value investing. His investments’ horizons were long enough to beat the short-term volatility in the market. He believed and it is a fact as well that market in the long-term would reflect the intrinsic value if not in the short-term.

Key Learning

So, as an investor, you need to expand your time horizons to realize the intrinsic value of an investment instrument.

Before every Financial Planning ask these 5 questions to yourself. Check out our article here

 

2) Investment Lessons by Warren Buffet

a) Invest in a business that you understand

Warren Buffet, the most popular investor across the globe, a student of Benjamin Graham believes in investing in businesses that he understands. He said that if you do not understand a business, and put your hard-earned money in it, you are not investing, you are gambling.

Key Learning

To invest wisely, you need to understand the business first, how it operates, its market, whether it has demand in the market or not, and other factors.

If you take a look at the Warren Buffet portfolio, you will find stocks of the banking sector, consumer goods, and others that are simple to understand.

b) Productive assets are the best investments

According to Warren Buffet investing in productive assets can be beneficial in different ways. It can provide a constant return, unlike idle assets which will suddenly increase or decrease one fine morning.

Warren Buffet is against investment in gold as that is an idle asset. For instance, the gold price rallied in the year 2020 due to covid-19 and reached an all-time high but then again it fell drastically.

Key Learning

The productive assets/ businesses can help you earn regular income as well in the form of dividends.

c) Diversify but within the right limit

As an investor, you must have heard many advising not to keep all the eggs in one basket. This is true enough, but keeping one egg in each basket would cost you a lot for the baskets as well which may wipe out all the profit.

As per Warren Buffet, diversification is good but overdoing it can reduce the value of your investment.

Key Learning

According to him, as an investor, you can plan your investment portfolio with bonds, mutual funds, equity, risk-free government investments like PPF and NSC, and others. Apart from these, there must be insurance for dealing with medical and life risks.

d) Don’t keep too much cash in hand

Cash is a bad investment as per Warren Buffet. You may think keeping cash is important for emergencies, obviously it is but a limited amount. If you keep all your money in cash and do not invest, you are doing it wrong as per Warren Buffet.

Key Learning

Since idle cash does not attract any return, which you could have otherwise earned if you had invested the cash in some profit-yielding assets – or even if you had deposited the same in the bank.

e) Stop being a part of the crowd

The stock market is highly volatile because most of the investors have a herd mentality. This means that if the market fell a bit, most investors would start selling and if it increases a bit, they start buying following others.

Key Learning

It is good to listen to others but following anyone blindly can be harmful. Warren Buffet never believes in this mentality. He rather believes in carving his way in the market.

Here is the comprehensive course on How to Plan your Finance. Take the course here

 

3) Investment Lessons by Peter Lynch

a) Accept your losses

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” – Peter Lynch.

The first lesson by this great investor is to accept losses in the short term to gain in the long term. He believes in staying invested in the market for the long-term and do not get disturbed or distracted by short-term gains.

According to Peter Lynch, as an investor, you must avoid two emotional states of mind – one is a concern and the other is capitulation. It will help them become successful investors in the long run. When there is a market correction, most investors become concerned and do not act wisely. Market corrections are great opportunities to invest at a lower price.

Key Learning

So, as an investor, you must keep your concern out of the scenario and take advantage of the market correction, as advised by Peter Lynch. The second emotion is capitulation happens when the value of your investment falls drastically due to a correction in the market.

However, staying calm and invested in the market is what is advised by Peter Lynch as the market would turn around in the long run and all the losses in the short term can be wiped out.

Moreover, selling the investments due to market correction in the short term can result in a huge loss of capital as well.

b) What, Why, and When of investment

Peter Lynch advised that investors must understand what they are buying, why they are buying and when they are buying. Suppose you are buying ABC stock, you must understand what ABC Company does, their business.

Then you must find out why this investment is good for your portfolio. Whether it is going to give you good returns in the long-term or not. Then the time or when you can buy ABC stocks. This is one of the most disciplined approaches of investment and wise too.

Key Learning

When you invest accordingly, you may not become a billionaire overnight but surely get good sleep at night as you need not worry about your investments much.

c) Early investments are good but not too early

Peter Lynch said “I often think of investing in growth companies in terms of baseball. If you buy before the line-up is announced, you’re taking an unnecessary risk.” This means that an investor must not jump into any investment too early.

For instance, a new IPO is coming into the market, and without knowing much about the company, just to invest at a lower price, you apply for the IPO.

Key Learning

If you are aware of the company, its business, its business plans, then investing in the business is feasible. However, investing too early can be risky without knowing the details of the business and prospects.

 

Got a finance related questions? Download the Koppr App and get expert answers to your questions

 

 

4) Investment Lessons by Rakesh Jhunjhunwala

a) Look for companies with a competitive edge

The first lesson from the very own Rakesh Jhunjhunwala, India’s biggest and most famous investor is that you must invest in companies that have a competitive edge. It simply means that the company is having some sort of upper hand over its competitors.

For instance, in CRISIL, when Rakesh Jhunjhunwala invested in this credit rating company, most of the investors, traders were scratching their heads as why Jhunjhunwala invested in a credit rating company.

That was back in 2002 when credit rating was kind of a new concept in India. Soon, the reason got pretty cleared as the company flourished and CRISIL ratings become an integral part of many businesses. His investment grew drastically from Rs. 200 at which rate he bought the stocks.

Key Learning

There are many credit rating companies in the country, but CRISIL is the name that reckons with credit rating in India and that is the competitive edge.

b) Trading or investing or both

This is a question that every stock market enthusiast scratches their head upon at least once in their lifetime. However, Rakesh Jhunjhunwala made use of both trading and investing for where he is now.

When he started in the stock market, he had very limited capital. So, he started trading, which gave him short-term profits. He then accumulated all the profits in the short term and invested the same for long-term gain.

Key Learning

So, his advice to the investors of this generation is to build the capital by trading stocks and then using the capital to invest and accumulate wealth in the long term.

c) Patience is the key

Rakesh Jhunjhunwala never sells his investments unless the fundamentals of the company become volatile. He invests in business and thus even if the stock price of the company is dipping, he doesn’t care.

However, if the fundamentals of the company go wrong or alter, then he sells. This requires immense patience to hold stocks that are giving negative returns. But that is what makes him a great investor.

Key Learning

So, when you are investing, keep your patience level high this is what Rakesh Jhunjhunwala would advise.

d) Learn don’t regret

Another lesson by Rakesh Jhunjhunwala which fits perfectly for investment as well as life is not to regret but learn. Learning from mistakes is the key to becoming prosperous.

Key Learning

If you keep on regretting your losses, you would not be able to move forward. Instead, evaluate what went wrong, rectify, or do not make the same mistake again in the next investment. This way you grow and your investment skills become better.

e) Being passionate about the stock market is what you need

The stock market is not just a 9 to 5 job where you go just to earn money. It is something where your passion is required. You need to be a focus on the job itself, researching stocks, analyzing them, comparing them, reading the fundamentals and everything must be your passion. Rakesh Jhunjhunwala always says that to become a successful investor, you need to learn as much as possible.

Key Learning

Learning about the stock market would give you the best competitive edge on the business.

 

Check out our video on How to Plan you Financial Goals

 

5) Investment Lessons by Vijay Kedia

a) Uncertainty is part and parcel of the stock market

Vijay Kedia, another reputed investor from India believes that market will always be volatile and as an investor or trader, you need to deal with it. He also believes that no one can predict the stock market completely. It can take a complete 180-degree turn anytime.

Key Learning

So, planning for the worst-case scenario is important at the time of investment. He also advises that as an investor, everyone must do their research and do not believe people claiming that they can predict the market.

b) Evaluate the management of the company

While most investors are more concerned about the numbers, Vijay Kedia also stresses the qualitative aspects of the company. Management decisions affect the company’s profit and growth hugely.

Key Learning

So, understanding the management, their decision-making abilities is very crucial for every investor. The company you are investing in must have a sound management team. This would reduce the cost, and optimize the profits. This in turn would increase the value of the company.

c) SMILE

Yes, SMILE is the key to successful investment according to Vijay Kedia. SMILE stands for
S – Small in size
MI – Medium in experience
L- Large in Aspiration
E – Extra-large in market potential

Key Learning

This signifies that choosing small companies with great potential is based on management and operations.

d) Review your investments

Vijay Kedia advises continuously monitor and review your portfolio. He says that periodically reviewing the investments, the fundamentals of the company, and management’s decisions are important.

Want to perfectly plan your investment and make your portfolio better. Check out our course on Financial Planning here

Key Learning

If the fundamentals of any company seem changed for bad, then the investor must drop that investment from his portfolio.

Conclusion

Investing requires patience, continuous learning, and motivation. Being aspired by famous investors, and understanding their moves in the market, their ideologies can fetch you great returns.

However, no one should follow anyone without doing their research. This is the most important lesson that every genuine and successful investor would give you.

 

If you are looking for personalized investment advice, Download the Koppr App and Seek expert advice for all your questions on finance.

20 Thumb Rules For Investing

20 Thumb Rules For Investing

In this world, there are rules for almost everything. Whether you are cooking some food or playing sports, everything has some rules binding it. However, whether you follow these rules or not, that is completely up to you.

While some people think that rules are limitations to someone’s ability others think rules protect them from falling apart.

Similarly, there is the rule of investing which are followed by some investors and some define their own rules.

However, in investing, especially when you are a beginner, following the thumb rules can mitigate a lot of losses and increase your chances of making money from the market.

Here in this article, you will be reading about 20 thumb rules which are beneficial for investors.
 

20 Thumb Rules For Investing:

 

1) Bulls and Bears make the money:

While everyone is afraid of the volatility in the markets, but this volatility can earn higher returns.

If the market is going up or down at a very slow pace, then it is highly difficult to amplify the investment. The returns are lower and also the time required is higher.

However, when there is volatility in the market and bull or bear is at its top pace, you can make money out of the market.

The terms bulls and bears describe how the markets are performing.

If the stock market is increasing, it is called a bull market and the economy is growing and is sound.

However, when the stock market sentiments are negative and the market falls with most stock prices decreasing, it is called a bear market.

For instance, the stock market index Nifty 50 at present is roaring and at an all-time high. It has reached almost INR 15900 and this indicates that the market is in a bull phase.

If you have shares of the companies that are going up, then you are bound to make a huge profit in this bull run.

However, most people invest when the market is bullish, i.e. it is rising and only a few people tend to invest when the market is falling.

 

Moral of the story: You need to invest when the market is volatile, irrespective of whether it is bullish or bearish. The volatile market fetches more return and a stable market.

 

2) Do not buy everything together:

It is the second thumb rule of investing that you must not buy everything together.

The market is going up and down all the time. So, if you buy every at once, and at the next moment, the market may go upside down and all your investment can go into vain.

Thus, you must analyse each market individually, each asset separately, and then invest.

Also, when you are buying in huge volume, there is no need to buy all at once.

You can buy the same instruments in multiple lots. This gives you the chance to wisely analyze and observe the market.

If anything goes wrong you can close your position and stop trading or investing in that instruments.

However, if you have bought in volume together, and then after some time, the market turns around, it can be sudden death as well.

Moral of the story: You can invest systematically. This would not only help you beat the odds of not investing everything together but also help you with rupee cost averaging.

It is always advisable to learn before you earn, You can enroll in many courses on the stock market, financial planning, mutual funds, and more. Check them here

 

3) Rule of 72 of investing:

The rule of 72 is really interesting. Who doesn’t want their money to get doubled up, isn’t it? However, the number of years for doubling the amount is not easy to anticipate.

This rule of 72 however, helps in finding out the number of years your investment would take to double itself. Only with the help of the rate of interest and the number 72, you can find out.

You need to divide 72 by the rate of interest. So, if the rate of interest is 8% and you have invested Rs. 2 lakhs then it would become Rs. 4 lakhs in 9 years.

Moral of the story: You can gauge the time you would need to double your entire investment portfolio (in a fixed return product) with the help of the interest rate.

This would give you a tentative value of the expected pre-tax portfolio (keeping other factors constant such as the associated risks).

 

4) Rule of 114 of investing:

Now as you know in how many years, your money gets doubled, aren’t you feeling the urge to know the number of years it would take to triple itself? So, you can find that out using the rule of 114.

Similar to the previous rule, here you have to divide 114 by the rate of interest.

So, given the example above, the Rs. 2 lakhs would be Rs. 6 lakhs in (114/8) years = 14.25 years or 14 years and 4 months.

Moral of the story: Again, you can find out the timeframe of when your entire pre-tax investment portfolio can be tripled. However, taxes can be a significant part of your portfolio if not planned properly.

 

5) Rule of 144 of investing:

Similarly, you can also find out in how many years, your invested amount can be 4 times.

For this, you need to use the rule of 144 which is similar to the previous two rules.

Here you need to divide the number 144 by the rate of interest which is 8% in the example above. So, your Rs. 2 lakhs will be Rs. 8 lakhs in 18 years.

Moral of the story: Similarly, the timelines for the pre-tax investment portfolio can be quadrupled can be calculated.

 

Learn more about different rules about investing, share your questions and get instant answers from our experts on Koppr App. Download Now!

 

6) Rule of 70:

You seem to be happy seeing all your money doubling, tripling but here is the catch.

The amount may increase but the value will not be the same as the amount due to inflation after time passes.

So, it can eventually get halved as well and that can be determined by the rule of 70. Here you have to divide the number 70 by the rate of inflation.

For instance, you have Rs. 20 lakhs and the current rate of inflation is 4%. So, your money will be Rs. 10 lakhs in the next 17.5 years.

Moral of the story: Inflation can really reduce the real value of your investment portfolio. So, if you need to grow your portfolio, you need to factor in inflation and then grow the portfolio to your desired returns to give you an inflation-proof return.

 

7) Emergency fund rule:

Life is uncertain, anything can happen within even a blink of an eye.

Even if you have a lot of investments, you may not be able to use them if they are not liquid enough.

Moreover, there are penalties for withdrawing money early from your investment instruments. However, the most important factor is, if you are using your investments in the first place to deal with emergencies, you can completely ruin your portfolio.

Obvious investments are for the financial security of the future, but for emergencies, you need to have a contingency fund. This will not only help you in smoothly handling emergencies but also help you safeguard your investments.

Moral of the story: Experts suggest at least 3 months of your monthly expenses be set aside for emergency in an easily accessible fund so that it can be seamlessly accessed even by your family members.

 

10) Insurance planning rule:

After emergency fund, another important part of investing in insurance planning.

You may be wondering how it is within the rules of investment, then you must understand that when there is some medical crisis, or natural disaster, or anything of that sort, your investments can go for a toss if you rely on them completely.

Especially for medical emergencies, it is important to have Mediclaim policies, health insurance policies, and other insurance policies to safeguard your life, assets as well as investments.

The insurance penetration in India is very low and it is still not bought, but sold. This is where most insurance plans are also ‘mis’ sold.

However, if the story changed, and everyone ’planned’ their insurances and bought them proactively, then the entire concept of mis-selling wouldn’t even exist!

Moral of the story: Insurance is your Plan B, i.e. your family’s safety net. This is why it is crucial to plan it ahead of time so that they are not in a fix in case anything happens to the primary breadwinner of the family!

 

8) The 4% Withdrawal rule:

For planning a financially secure future, you need to be very particular about the withdrawal rule.

Especially if you are planning for retirement, then you must follow this withdrawal rule of investing.

It says that you must not withdraw more than 4% of your retirement corpus in a year.

For instance, you have accumulated Rs. 2 crores for your retirement. Now, going by the 4% rule, you should only withdraw Rs. 8 lakhs which is Rs. 66666 per month.

Now, there is inflation which needs to be taken care of as well. Suppose, the inflation rate is 5%. So, in order to accommodate inflation, you can also increase the withdrawal by 5% every year.

So, in the first year, you withdraw Rs. 8 lakhs, and then in the second year you can withdraw Rs. 8.4 lakhs and so on so forth.

Moral of the story: The only aspect you need to consider while withdrawing from your Retirement Corpus is to ensure that the corpus grows at a higher rate than the expected rate of inflation in order.

 

9) 10% retirement rule:

When you are young, you would hardly think about retirement, isn’t it?

However, if you start investing early using the 10% rule of investing for retirement, you can save a huge corpus when you retire.

Suppose you started earning right after completing your graduation at 21 years and your starting salary is say Rs 21,000. Applying the 10% rule, you can save Rs 2000 every month.

This Rs. 2000 may seem a very negligible amount, but using the power of compounding, this small amount can grow like wonders. Here is a snapshot –

 

Calculating retirement corpus
Current age 21
Investment amount every month 2000
The average rate of return 10 per cent
Retirement age 60
Tenure of investment 39
Total Investment

Total retirement corpus

9.36 lakhs

1.15 crores

 

With just an investment of Rs. 9.36 lakhs, you can build a retirement corpus of Rs. 1.15 crores.

Moral of the story: The power of compounding is the 8th wonder of the world and the advantage of investing early manifests it to a humongous amount.

 

 

A complete course to power up your finance and build wealth early. Take out course on How to Plan your Finances and Make More Money.

 

11) Rule of diversification:

One of the most important things in investment is risk mitigation and the smartest way to mitigate risk is to diversify your portfolio. Rule of diversification tells you about the correlation between the asset classes.

The correlation between the asset classes you are investing in must be low or negative.

This means, if one asset class is getting affected or going down, the other must go up or remain unaffected.

For instance, when stock prices go down or there is a bear market, the gold price usually goes up. In fact, it is also considered a hedge investment.

 

If you compare the two charts above, you can understand that when the stock market was a little sluggish in 2020, the gold prices were at an all-time high.

Moral of the story: Each asset class reacts differently and thus you need to diversify using such assets that your risk of investment goes down.

 

12) Don’t buy damaged companies, but buy undervalued stocks:

A stock may be damaged which means it is undervalued but the company itself is damaged, which means the stocks are not worth buying. So, it is important to evaluate the company in the first place.

The stock prices can be anything in the market, you need to find out its real/ intrinsic value.

Moral of the story: If the intrinsic value is higher than the prevailing market price of the stock, buy the stock. However, if the company is damaged, the intrinsic value cannot be higher than the market price of the stock.

 

13) Pay taxes wisely:

There are multiple investment instruments that can help you save your taxes. Invest in ELSS, ULIP, FDs, and many others. When you are investing, you need to check the tax implications for each investment.

For instance, the profit from investment in stocks is taxed as per capital gain tax rules.

Moral of the story: Plan your investments keeping their taxes in mind, so that your real return, i.e. the post-tax income from it is high. Otherwise, your tax pay-out would wipe out a significant part of returns.

 

14) Make sure you do your homework:

Investing in any asset requires in-depth knowledge and analysis of the asset and the market. You can do your homework by analyzing multiple resources both fundamental and technical.

Moral of the story: You can also do your research by visiting the site of Koppr. Here you can get an abundance of information and data which can help you in your financial planning and analysis.

 

15) Book your profits:

Greed is not good for investors. If your anticipated or targeted price is achieved, then it is wise to sell the assets and book profit.

Moral of the story: The urge of earning more may end up in losing your capital investment as well. Hence, you need to weigh the pros and cons well before investing.

 

16) Expect corrections, make the most out of it:

Corrections are part and parcel of investment and the financial markets. There cannot be a continuous rise or fall in the prices. If there is an excess rise, it will eventually fall and vice versa.

So, you cannot be worried about corrections. Rather, you must understand how to use them in your favour.

For instance, if there is a correction for ABC stock price, and you hold 500 shares worth Rs. 1000 each.

You bought the shares at Rs. 700 each. So, you are already at a profit of Rs. 150000. However, after reaching Rs. 1000, it started falling. Wait, do not sell all your shares. Analyze whether it is a correction or momentary fluctuation.

If the prices decrease a little, no need to take any action. However, if the prices decrease drastically, then it is better to sell the shares and wait until the correction ends.

Moral of the story: Once the price is at the lowest and again starts climbing up, you can buy the shares back. This is a very tactical investing strategy which if followed properly can be very effective!

 

17) Keep your ears and eyes open while investing:

The prices go up and down within a blink of an eye. You missed the update, and the price becomes different the next moment. So, it is important to keep a constant check on the market.

Moral of the story: With the help of the Koppr app, you can monitor the market round the clock. You can find all news about the markets on this app.

 

18) Panicking leads to losses:

When you are investing in the financial markets, you need to stop being worried. If you do panic buying or selling, you would only end up in huge losses.

Moral of the story: Markets will be volatile and that is the basic nature of financial markets. However, if you start panic buying or panic selling often whenever the prices go up and down, then your investment would go for a toss.

 

19) Flexibility is the key:

If you are rigid about your investments, then it becomes difficult to mitigate risks.

When one asset price is tumbling, or a company is continuously running in losses, you need to sell them.

If you are rigid and do not alter your portfolio, then you will only end up in massive losses. You need to be flexible enough to alter your portfolio whenever necessary.

Moral of the story: Reallocation and rebalancing of portfolio is the key to profitable investment if done at the right time. You need to know your ideal asset allocation and then keep rebalancing your portfolio accordingly.

 

20) Listen, analyse and invest:

Finally, the most important rule of investment is to listen to everyone, then analyzing each point, and then acting according to your final findings.

Suppose, your financial advisor suggested one stock, your friend suggested another, and your colleague another one. You need to evaluate all three of them, also find your promising stocks.

Then analyse them all, check whether they are rightly valued or not.

Moral of the story: After thorough analysis, you need to pick the most suitable one for your portfolio. Listen to everyone, but do what you think is right and what you believe is best for you and your investment portfolio!

Rules of investing are pretty much interesting if you thoroughly read them. Following these rules are up to the investors and traders. You can choose which one to follow and which one not to.

However, these rules are for making your investments better and optimize your profits and reduce the risks.

All You Need to Know About Emergency Funds

All You Need to Know About Emergency Funds

Emergency funds as the name entail cater to sudden and unforeseen financial exigencies arising from a range of unexpected situations viz. job loss, accident, major illness, natural calamity, etc.

Thus the nature of these emergencies can be short-term or long term in nature, but the need for availability of such contingency funds is immediate when the need may arise.

An emergency fund not only helps you tide over your critical financial needs in your most difficult times; it also ensures that your investments for other long term financial goals remain undisturbed.

Such is the importance of building and/ or having a contingency fund at your disposal. But remember, an emergency fund is usually not meant to fund daily expenses of life unless emergent from unforeseen circumstances.

 

In this article, we will focus on all the things you need to know about emergency funds for you to plan and manage your finances prudently.

We aim to cover–

All You Need to Know About Emergency Funds:

 

1) The reasons why you may require an emergency fund:

For all of you who have witnessed and are still experiencing the wrath of the landscape scale Covid-19 pandemic for the past eighteen months, you are sure to have witnessed the worst emergencies so far in your life, either in the form of pay-cuts, job loss, death of a family member, natural calamity, etc.

Medical emergencies, job loss, and natural calamity if faced call for immediate requirement of money and here is where your emergency funds come to rescue.

You must keep in mind that your emergency fund is kept liquid in nature, such there if met with a financial crisis, you can avail of the money without delay.

Neither should withdrawal from the fund cost you an exit load or withdrawal penalty. This is the most critical feature of emergency funds that you must keep in mind when deciding on your investment vehicle to save for emergencies.

 

Do you have any questions related to Emergency Funds or finding difficult to manage? Koppr Tribe is here to answer all your questions. Join our Tribe Now. Download the Koppr App

 

2) Types of financial emergencies:

Emergency savings may be required to mitigate a range of financial emergencies that can be classified into –

  • Small/ Short-term emergencies
  • Big / Long-term emergencies

 

Small/ Short-term emergencies entail but are not limited to –

  1. Accident of personal vehicle on the roads or breakdown at home
  2. Unplanned and emergency family travel (inter-city) to give care to a sick parent/ elderly family member or attend a family funeral
  3. Home/ office repair work to be undertaken post a natural calamity like floods/ very severe cyclones
  4. Medication and/ or minor surgery required for unique illness not covered in medical insurance policies
  5. Major robbery or theft during the journey or at home
  6. Pet emergencies/ accidents that require professional vet care
  7. Business slowed down due to prolonged periods of lockdown owing to a pandemic situation where payments are also held up

 

Big/ Long-term emergencies may include but not limited to –

  1. Long periods post-job loss/lay-off
  2. The medical condition of an immediate family member that requires your 24×7 attention and care
  3. Medical condition for self that may require a sabbatical from your work
  4. Major damage to house due to a natural catastrophe
  5. Unforeseen and unplanned education fees for children to ensure ‘golden career opportunities are not lost

 

There will still be a section of people who may feel that while the concept of emergency funds is great, and is good for all others; but you do not need one just now as –

  • Maybe you do not need to shoulder any financial responsibilities at home at the moment
  • The family is financially stable as the father is still earning and has the family finance sorted

 

You may also think that just in case if at all, a financial emergency occurs, you will have the credit cards that you can swipe and meet your expenses and use your 45 days interest-free period to further plan balance transfer on other cards till you tide over the crisis.

Believe you in me, when crisis strikes, it is not easy to maintain such calm and composure to calculate and play with such high interest revolving credit. You might be putting too much at stake.

You might also be thinking that you are highly skilled in a niche job; demand for which is always high in the market.

That gives you a notion that in case there is still a chance of job loss, you will easily be able to find one.

In that case, I would urge you to consider the following before you choose not to invest in emergency funds.

  • What if the country faces a major economic downturn and/ or enters into a recession and your job is no longer in demand leading to a job loss?
  • What if your company gets merged or acquired by a larger company and the department you are a part of is now redundant resulting in your lay-off?
  • What if your parent in the home country gets paralysed or becomes immobile due to a major accident and you need to travel back as the caregiver and sole companion for your lonely parent?

 

Yes, sooner or later in life, everyone faces financial emergencies that need serious attention and makes emergency savings a critical part of financial planning.

To understand and get further clarity on the subject, we urge you to take a quick financial planning course from Koppr to make a conscious money decision.

 

3) What is not a financial emergency?:

I would also like to highlight here some of the situations that definitely do not consist of or should never be considered as a financial emergency and you must not lay your hands on the contingency fund you have created for them.

For example –

  1. You badly need to invest some money into your business for a deal you are looking forward to. This is because you should have had provisioned for future business opportunities from your earlier profits alone.
  2. You or your family member wants plastic surgery to enhance your facial beauty.
  3. Being an ardent football fan, you have got a great deal on vacation travel to watch the EURO CUP finals on 12 July 2021 and wish to avail of it.
  4. You have been invited to a destination wedding and you decide to fly at the last minute
  5. You have a sudden desire to change your home flooring to a complete wooden makeover
  6. Replace your HD TV with a high end large smart TV of the latest model to offset the inability to go to movie theatres, courtesy of the pandemic.

 

4) The right amount of fund to keep in your emergency fund account:

Emergencies as we saw can come in ways more than one and can range from a big one like a job loss to a small one like your family car breakdown.

In most cases, you may have noticed that misfortunes, when they strike; strike hard and in a series – so don’t be surprised if you can have a car breakdown when you don’t have a job too among other losses/ exigencies! Whatever the situation is, you will have to ensure that your living expenses are seamlessly met even when you don’t bring home an income for several months.

And, you will still have to pay your investment EMIs, loan EMIs along credit card dues without a worry.

You will find some extreme cases as well; where some people are seen to account for their luxuries like an annual vacation as well while planning to save for an emergency, while some others trim their budgets and stick to bare-bone living expenses budget to tide over the crisis times.

So to start with, make an exhaustive list of living expenses for any month and prioritize the key (must have/ need to) expenses that you must account for to seamlessly tide of the crisis period.

You would need to take a call whether to consider one or two small ‘to haves’ in the list depending on your current financial/ job status and affordability.

 

Though most of the financial advisors/ planners would suggest keeping aside 3 to 6 months of your living expenses in and as your emergency fund, it will be prudent to set aside and build an emergency corpus that consists of 6 to 9 months of your living expenses.

This suggestion stems from the widespread experiences we are witnessing courtesy of the Covid-19 pandemic since the beginning of 2020.

Even the Subprime Crisis during 2007 – 2008 had witnessed prolonged periods of job loss for the salaried class if you remember.

 

Watch our Video on How Should You Plan for Emergencies? Prepare a Family Emergency Plan

 

 

 

5)How to Build an Emergency Fund?:

Just as Rome was not built in a day, your emergency fund needs time to build gradually.

You will need to set aside a certain amount of money into a separate account every month, and soon in some time, you will find a considerable corpus built.

Wondering how much money to save for an emergency? Say, the modest monthly living expenses that you would like to maintain in the face of financial exigency is INR 15000 at any point in time.

So you will need a corpus of at least INR 90000 or INR 135000 if you aim to build a provision for 6 or 9 months respectively.

You can decide on the amount you want to set aside every month towards your emergency savings depending on your choice and intent – you may choose, say, for example, INR 5000 or INR 10000 a month to build your contingency corpus.

You may choose to cut down on your ancillary expenses or even small investments for a while, to build this all-important emergency fund.

 

Read how to can escape the world of being broke in just 4 Steps to Start Building your Wealth Now.

 

6) Different instruments available to build emergency funds in India:

Time is now to think about where to invest for emergency funds.

While deciding where to invest in emergency to build the desired corpus you must keep in mind a few things like;

  1. The fund must help you without hassle when you need it the most and must easily convertible into cash without any delay.
  2. While some emergencies give you a few hours and maybe a couple of days to get prepared, others can be ‘right here – right now’ kinds, so you must invest accordingly.
  3. Thus the investment options you decide on must be highly liquid to ensure you or even your representative/ chosen family member/ friend can access the money if and as required.
  4. The money must be easily accessible such that it gets transferred to your account preferably within the same working day.
  5. The investment avenue should get you decent returns as well.

 

a) A separate savings bank account:

The easiest option is to open a separate bank account in your chosen bank and keep depositing a specified sum of money into that account through auto-debit mode.

This will ensure forced saving without missing out on a monthly deposit you committed to making to save for an emergency.

Below is the list of banks offering the highest rate of interest on a savings account as of 24th Jun 2021.

 

Bank Name Saving Account Interest Rate
Jana Small Finance Bank 3.50% to 7.25%
ESAF Small Finance Bank 4.00% to 7.00%
AU Small Finance Bank 3.50% to 7.00%
Equitas Small Finance Bank 3.50% to 7.00%
Ujjivan Small Finance Bank 4.00% to 7.00%
Yes Bank 4.00% to 5.50%
South Indian Bank 2.35% to 4.50%
Kotak Bank 3.50% to 4.00%

Source: https://www.myloancare.in/savings-account/top-banks-with-highest-savings-account-interest-rate-online/

 

b) Cash in hand:

Though it is otherwise discouraged, along with emergency savings in a separate bank account, it is prudent for you to keep cash in hand in lieu of at least one-month expenses.

This is because some of the emergencies do not give time for you to go to your bank to withdraw the money or any other option.

Moreover, there can be other technical glitches like the following that can be best bypassed to a certain extent if you have some cash in hand.

    1. Failure of internet connection due to a severe storm or cyclone may not allow for digital payment/ transfer of cash
    2. System failure at the medical facility to not allow for online payments
    3. ATM machine does not work due to technical failure
    4. ATM can run out of cash at times
    5. Emergencies or hospitalisation in the middle of the night will also not allow you the scope to withdraw cash from the bank against a cheque.

Thus when considering where to invest in an emergency, you must also regard keeping some cash at home.

 

c) Sweep-in Fixed Deposits:

You can also look at siphoning off your emergency savings into a sweep-in FD if you do not want to open and maintain a separate account exclusively to invest in emergency fund. There are two benefits to this action of yours –

    1. Your money will earn better interest than lying in your savings account
    2. You still have 100% liquidity on the money as you can withdraw the money if and when required to mitigate financial emergencies by withdrawing the money with your bank debit card and/ or online transaction without delay on a bank working day or even on a bank holiday.

However, it is important to remember that only single holding accounts are entitled to have sweep-in FDs.

This is definitely a good security measure to protect the interest of the primary account holder.

 

d) Liquid mutual funds:

If your emergency corpus runs into a few lakhs of rupees, then you may also look at keeping a part of the fund in a liquid mutual fund of repute.

This is because, generally a liquid mutual fund gives more return compared to a fixed deposit, especially when the equity market is on the downturn.

However, as an investor, you must also know that liquidating the money from a liquid fund can take up to one to three working days.

A certain mutual fund allows for ATM card facility to allow the investor to pull out up to INR 50,000 a day from a scheme, Example – Nippon India Mutual Fund has their ‘Nippon India Any Time Money Card.’

 

Have you thought about your finances and other Financial Planning? Not yet, then out FREE course will help you to manage Relationships & Finance. Tale the course the NOW!

 

Caveat:

While a fixed deposit has a deposit insurance cover of INR 5,00,000 on it, there isn’t any such protection available on any liquid mutual fund investments.

Thus as an investor, it will be completely your call on choosing to invest in the various tools depending on your risk appetite and decide how to manage the emergency fund on your part.

 

7) Benefits of having an emergency fund:

There are several unsung benefits of an emergency fund as listed below.

 

a) It gives peace of mind:

Financial stress can be detrimental to health and life as the inability to provide for basic yet serious financial needs in the face of an emergency situation can be very depressing and disrespectful for the bread earner of the family.

It has been seen to create panic in people leading to loss of sense of balance and calm too.

The existence of an emergency fund gives peace of mind and psychological power to concentrate on other areas of life as you know you know you are protected against unforeseen expenses in case they arise.

 

b) No need for revolving credit and/ costly loans:

If you have your emergency funds in place to fall back on in the face of the short-term or long-term financial crisis, you know you will not need to swipe your credit card or take any loans to tide over the financial crisis in life.

This is because repayment of loans and interest on credit cards only adds to your mounting financial owes instead of lessening them.

 

c) It protects your long term financial goals –

This is because, in case of any financial emergency, you know your emergency savings will take care of your emerging financial needs.

You will not need to break any investments planned for your future dreams and aspirations.

 

d) Makes you a disciplined investor –

When you get into the habit of saving money in your emergency fund; you see the results in terms of building a corpus for a defined purpose on one hand and the tangible and intangible returns associated with it on the other.

This is bound to give you a sense of joy and accomplishment that will urge you to invest in bigger financial goals in life through disciplined investments.

So what are you waiting for? Download the Koppr app and start your financial planning today!