November 24: NSE and SEBI have organized an online seminar on “Long Term Safe Investing in Stock Market” during the celebration of World Investor Week. Here, CA Govind Jhawar from Finideas highlighted secured long term investments in the stock market. He said that one could create good wealth in the stock market with long term investment as we create wealth in Property.
When we talk about long term investment, we first think of property. The main reason for this is that its price never becomes zero and sooner or later increases. Instead, if we consider a long-term investment in an individual stock, there is always an apprehension that maybe that the company may perform in the future or not? That is why we can’t rely by investing in any Individual company. You know what has happened to companies like King Fisher Airlines, Suzlon etc. So, the thing comes that where to invest for a long term in the stock market?
On finding the answer, our focus shifts to Nifty50. If we invest for a long time in Nifty, we can get good returns. The reason is that Nifty50 itself is a portfolio consisting of the top 50 companies listed on NSE. Moreover, it is also a self-management portfolio which means that the company that performs will remain in this portfolio or else it will be out. Once there are many companies of Anil Ambani Group were part of the Nifty. But as soon as their performance decreased, they got out. This means, as long as there are 50 companies on the NSE, Nifty can never be zero. On the other hand, It always keeps performing companies in his portfolio. So, as India’s economy grows, our investment in Nifty will show us good returns.
But still, a fear sets inside us. That is, Nifty will also fall in the worst market scenario. In 2008, Nifty had fallen by 52%. What about the security of our investments in those times? So, the answer is also present on NSE, and that is Insurance. Just as insurance is available for car, health, property, life insurance is also available for Nifty. Such insurances are called options in the market language. Calls and put options were born to insure wealth if the market does not move in our favour. However, it is a different matter that today 80% of the volume on NSE comes from options trading. The advantage of put options is that when the Nifty falls, its price increases. This means that after investing in Nifty, if we also buy put option as its insurance, then our capital remains safe. Here the put option works in a similar way as all other insurance works. Just like we get a claim on a car accident, we get back the lost money as soon as there is a recession in Nifty. So, all in all, when the market rises, we get the benefit of the growth of Nifty, and our portfolio also increases, and when the market falls, our capital remains safe and can never lose more than the premium of the insurance.
If we think that taking big risks in the market gives a big return, then it is a superstition. If the big return comes through a big risk, I’ll open a stationery store and start selling people on credit. Took a big risk? Should we see bigger returns now? You would say forget about the returns; it is a big deal if the customer himself comes back. Either it is stationery or stock market business, only a smart calculation gives us good returns.
We will automatically get good returns in the long run, even if we focus on reducing the risk. We had a focus on this concept and did research. We got great results. The money of a person who has invested only in Nifty has increased his wealth 13 times in the last 18 years. While the capital of those who invest in Insurance has increased 22 times. On the other hand, the capital of Nifty’s investors had lost 52% in 2008. But even at such a time, the capital of those who took the insurance of put option with Nifty did not break more than 5%. This insurance called put option gives us peace of mind even in a recessionary environment.
If we use a little more cleverness and use Futures contact also in the portfolio, our returns will increase even more. If we invest 30% in nifty ETFs, 70% in Nifty futures and also take insurance of this entire investment, then we can earn more return in less investment. In the last 18 years, people have made returns on an average of 19% per annum by investing in this way. More information on this type of investment is available on the Finideas website at https://www.finideas.com/
The fund manager Mr Govind Jhawar is a Chartered Accountant and Certified Treasury Manager. He is associated with the market since 2001 and has been teaching the people through various courses in the derivatives market since 2006. Our company Finideas is associated with more than 75 members of exchanges like NSE, BSE and MXC and provides multiple services related to the derivatives market to them.