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Wednesday, September 22, 2010

Your Savings & Investing in Stocks

Traditionally, Indians are Savers. The savings rate is as high as 30 percent. If not a direct savings in the bank, the money goes into a fixed deposit, gold or real estate. That trend might change soon if more people invest in stocks, which have outperformed every other asset class from 2001 to 2007.

Stocks have outperformed other asset classes by as much as 60 percent, yet only 3 percent of Indian population directly invest in stocks.

The main reasons for this is a lack of knowledge, awareness as well as unethical practices by a small minority of participants who encourage regular churning based on tips and rumours without giving proper financial planning to investors.

If someone invested in a Bank of India fixed deposit account in 2001, he or she would have an 8 percent return per year. If the same person invested in Bank of India stock he or she would have a total return of 3,300 percent as the stock rose from 12 rupees to 410 rupees.

Though Indians continue to be underinvested in the stock market there is more interest coming in from all corners. 200,000 new Demat accounts are opened every month. Recent transparency measures should also bring more people in. The stock market will no longer be treated as a gamble but will be put on par with real estate and gold.

The irony is that even though stock markets as a long term asset class have given the highest returns, short term trading in futures and options has also caused the maximum losses. The maximum numbers of bankruptcies were caused due to the stock market crash in 2008-2009 amongst high risk speculative traders.

It is a garden out there and one need to simply provide sufficient time to grow his quality seeds to get the fruits. One has to know what he is doing and has to be cognizant about it. With a little research and patience stock market investments can yield maximum returns.

So, how will you grow your savings? What are you investing in?