3 Fundamental of Investing

Today we are going to talk about 3 fundamentals  of investing which can make you way richer than a friend of yours who earns same as you do, but does not invest the way you do.

The 3 fundamentals are:

1.        Start early      
2.        Invest regularly    
3.        Choose the right investment vehicle.

Let us take an example to see how long term investing can work:

Had you invested Rs. 10,000 to buy 100 stocks of WIPRO in 1980, it would have made you immensely rich, see how:

Year	Bonus	No. of shares
1981	1:1	200
1985	1:1	400
1986	Price split to Rs. 10	4000
1987	1:1	8000
1989	1:1	16000
1992	1:1	32,000
1995	1:1	64,000
1997	2:1	1,92,000
1999	Price splitto Rs. 2	9,60,000
2004	2:1	28,80,000
2005	1:1	57,60,000
2010	2:3	96,00,000
2017	1:1	1,92,00,000

Today WIPRO’s stock price is 288.60 (as of 15 Dec 2017). So, your holding today would amount to around Rs. 556 crores with a CAGR of 42.94%.

Now, we are not tempting to by WIPRO. This example is like the hen giving golden eggs. We don’t know if any company can give you such returns now. But what we want to stress is long term investing can deliver excellent results.

Private players stepped into the mutual fund industry in 1993. So, MF history is not that old like stocks to quote and example here, but there are funds which have given above 20% CAGR since inception. Now, if the magic MF investing can show in the long term can overpower this WIPRO example or no, is what only time can tell.

Let’s take an MF example.

Mr. A invests Rs. 1.5 lacs in PPF each year for 35 years. PPF average rate assumed 7.5% p.a.

Corpus created 2.55 crore.

Mr. B invests Rs. 1.5 lacs in small and mid cap funds, giving returns of 15% p.a. for 35 years.

Corpus created 18.57 crore. And some good small and mid cap funds have given returns way above 15% of returns p.a. since inception. So, just imagine the kind of corpus which can be generated

So invest regularly and see that you invest in the right kind of vehicle. Now, when investment horizon is more than 10 years away, you should invest in small and mid cap funds which have potential to deliver highest returns. Once, category is finalised, choose the best fund on all qualitative and quantitative parameters.