Introduction to Stock Markets PDF

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More Information About Book:

Name of BookIntroduction to stock markets pdf
Name of AuthorZerodha
Language of BookEnglish
Size of Book2 MB
Total pages in Ebook111
Category of BookStock Market
Source Archive

Introduction to Stock Markets by Zerodha is a comprehensive guide for anyone who wants to learn about the basics of investing in the stock market. The book covers topics such as the need to invest, the role of regulators,

the types of market intermediaries, the process of IPOs, the functioning of the stock market, the concept of market indices, the commonly used jargons, the trading terminal, the clearing and settlement process, the corporate actions, the key events and their impact on markets, and the importance of developing a point of view.

The book also provides supplementary notes on rights, OFS, FPO, and the 20 market depth data. The book is written in a simple and engaging manner, with examples, illustrations, and quizzes to enhance the learning experience. The book is suitable for beginners as well as experienced investors who want to refresh their knowledge and skills. 

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The Need to Invest

Why should one Invest?

Before we address the above question, let us understand what would happen if one choose not to invest. Let us assume you earn Rs.50,000/- per month and you spend Rs.30,000/- towards your cost of living which includes housing, food, transport, shopping, medical etc. The balance of Rs.20,000/-is your monthly surplus. For the sake of simplicity, let us just ignore the effect of per- sonal income tax in this discussion.

Here is how the cash balance will look like in 20 years as per the table:

  1. To drive the point across, let us make few simple assumptions.
  2. You are 30 years old and plan to retire at 50. This leaves you with 20 more years to earn.
  3. The employer is kind enough to give you a 10% salary hike every year.
  4. The cost of living is likely to go up by 8% year on year.
  5. You don’t intend to work after you retire.
  6. Your expenses are fixed and don’t foresee any other expense.
  7. The balance cash of Rs.20,000/- per month is retained in the form of hard cash.

    Going by these assumptions, here is how the cash balance will look like in 20 years as per Table

    Few things are quite startling from the above calculations:

    1. After 20 years of hard work, you have accumulated Rs.1.7 Crs.
    2. Since your expenses are fixed, your lifestyle has not changed over the years; you probably even suppressed your lifelong aspirations – better home, better car, vacations, etc.
    3. After you retire, assuming the expenses will continue to grow at 8%, Rs.1.7 Crs is good enough to sail you through roughly for about 8 years of post-retirement life. From the 8th year onwards, you will be in a very tight spot with literally no savings left to back you up.

    What would you do after you run out of all the money in 8 years’ time? How do you fund your life? Is there a way to ensure that you collect a larger sum at the end of 20 years?

    Let’s consider another scenario as per Table 1.2 on the following page where instead of keeping the cash idle, you choose to invest the cash in an investment option that grows at, let’s say, 12% per annum. For example – in the first year, you retained Rs.240,000/-, which when invested at 12% per annum for 20 years yields Rs.2,067,063/- at the end of the 20th year.

    With the decision to invest the surplus cash, your cash balance has increased significantly. The cash balance has grown to Rs.4.26 Crs from Rs.1.7 Crs. This is a staggering 2.4x times the regular amount. This translates to you being in a much better situation to deal with your post-retirement life.

    Now, going back to the initial question of why invest? There are few compelling reasons for one to invest:

    1. Fight Inflation – By investing one can deal better with the inevitable – growing cost of living – generally referred to as Inflation.
    2. Create Wealth – By investing one can aim to have a better corpus by the end of the defined time period. In the above example, the time period was up to retirement but it can be anything – children’s education, marriage, house purchase, retirement holidays, etc.
    3. To meet life’s financial aspirations.

    1.2 – Where to invest?

    Having figured out the reasons to invest, the next obvious question would be – Where would one invest, and what are the returns one could expect by investing.

    When it comes to investing, one has to choose an asset class that suits the individual’s risk and return temperament.

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