If you are a full time working professional and want to have a side hustle for earning apart from salary then the stock market is the perfect option. One should build a habit of starting investing in stocks or SIP as soon as possible to benefit from compounding. We have 2 options to do so, one by directly buying stocks or by doing an SIP.
Beginning Stock Trading
If you are an absolute beginner in the stock market then you should start by analysing/budgeting your take home salary. I will take an example of someone earning 100,000(1 lakh) per month for simplicity. You can use below formula:
Total Savings = Earnings – Expenses
100000 – 50000 = 50000 (50%)
It’s good if you are able to save atleast 20% of your take home salary and it’s awesome if you could save upto 50% or more (the more the salary, the more you can save).
If you have a passion for equity market and are keen to learn more about it, then you can start with a small amount initially and analyze how the market behaves in different macro economic conditions. You can have a look at my other article on this using below link:
SIP Investing
The other simpler route to entering the financial markets is through SIP. It’s often said that if you are able to beat the benchmark indicies like Nifty50 or Sensex then the investment is worth it. In bullish markets SIP’s can beat them by a big margin, but in bearish or flat markets they might match or even struggle below the benchmark index.
One should choose an SIP which has a good track record and has fund managers who have a clean image and known for their skills in the past. It’s good if the SIP is from a big brand company which has almost negligible chances of failure as they don’t have corporate governance issues. This step is very important as the greed of the corporate leaders or fund managers can tarnish the image of the company in only a few days. Good track record and corporate governance are mandatory.
Example: SIP Investment Over Time
Let’s take a simple example of how an SIP of ₹5,000/month grows over different periods:
| Duration | Total Investment | Estimated Value (12% CAGR) |
|---|---|---|
| 1 year | ₹60,000 | ₹63,383 |
| 3 years | ₹1,80,000 | ₹2,03,391 |
| 5 years | ₹3,00,000 | ₹3,99,944 |
| 10 years | ₹6,00,000 | ₹11,61,695 |
| 15 years | ₹9,00,000 | ₹28,94,528 |
Note: Returns are based on an assumed CAGR of 12%. Actual returns may vary.
People often say to buy a SIP with a target or goal in mind. I would say invest, invest and invest. Break only in case of an emergency and that too a smaller amount. Let it run as long as possible without any hesitation in your mind.
What is compounding
Trading stocks can also make you rich but long term investing will make you wealthy. Compounding is the only path to wealth and time is the best friend of compounding. The more time you give, the more you compound, it’s that simple.
Compounding can lead to exponential growth in investments if followed with discipline and patience. As said by Einstein “Compounding is the eighth wonder of the world”, an investment truly shows its magic when investments are held for years or decades.
Example: ₹1 lakh invested at a 20% annual return will grow to ₹1.9 crores in 30 years.