Want to know how to invest 1 lakh in stock market as a beginner. A simple 2 step approach for saving capital and earning good returns.
Disclaimer: Stocks mentioned in this article are only for educational purposes and not a recommendation for any investments. Please do your own due diligence before investing
Starting to invest in stock markets is not difficult anymore.
One can open an online Demat account with discount brokers and start buying and selling on tips or news.
Is this investing?
Well, a lot of people think so.
This is speculation and not investing.
Usually, investors speculate while starting in the stock market and lose the capital.
They never come back again cursing the stock market as a gamble.
Investing is a game of conviction building based on research and risk understanding.
All this requires some experience and patience to go through a learning curve.
But you cannot get experience without investing, right?
I will talk about a solution in this article on How To Invest 1 Lakh In Stock Market as a beginner.
My goal is not to help double your money in 25 days 😜 but a decent return of 20-30% over a few months which is not bad in any terms.
Generating 20-30% with low risk will boost your confidence to stay in the stock markets and learn more.
Patience is the only prerequisite in this approach.
The method I will discuss is from my personal experience of 3 years in the stock market.
It has helped me generate decent returns along with capital protection.
I earned the confidence to stay in the market for long-term wealth creation.
So let’s start.
What is the Goal?
As per Warren Buffet rule of investing:
“Rule No. 1: Never lose money.
– Warren Buffet
Rule No. 2: Never forget rule No. 1”
Our goal is to save capital and learn the process of investing.
#1. Save Capital
The major reason investors lose at the beginning is trying to invest in random stocks based on tips or news.
One of my colleagues a few years back invested 1 Lakh rupees in a single small booming stock based on news and tips.
In a matter of a few months that stock tanked by more than 50-60%.
He not only lost the majority of capital but also the confidence to invest in stock markets.
That’s why when you are starting focus on not losing instead of quick money.
That doesn’t mean that the companies in which you are going to invest will not fall after you invest.
If it falls you should have enough conviction to hold or buy more.
#2. Learn Stock Market
Beginners enter into the stock markets with an expectation to start making money from day 1.
Making money from day 1 in the stock market is only possible due to luck, not by rational investing.
Investors who have made fortune from the stock market have put in the time and effort for several years.
There is no one mantra to start making money but it’s a continuous journey of learning.
You have to keep on learning about the company, growing industry, changing markets.
Subscribe to some great youtube channels and newsletters and learning should be easy.
How To Save Capital?
#1. Diversify
As our first goal is to save capital, diversification is the key.
In greed to make quick profits beginners invest entire capital in 1 or 2 stocks.
Less number of stocks is a recipe for high risk.
You should diversify among different sectors and in different companies within the sector.
What does that mean?
Let’s say you believe India is growing and a lot of industries will grow with it then what industries could be?
You could say
- FMCG
- Consumer Products
- Banking
- AMC
- Insurance
- etc
So these are the industries you can diversify into.
To diversify within sectors instead of investing only in HDFC Bank in the banking sector you buy
- HDFC Bank
- ICICI Bank
- Kotak Bank
Invest between 5-10% of capital in one stock, so to invest 1 Lakh we will have to select at least 10 stocks.
#2. Have Holding Power
What is Holding Power?
Holding power is the ability to hold onto the stocks in which you have conviction based on the research.
Never invest the money which you need in the next 3 years into the stock market.
You should not depend on stock markets to pay your monthly bills and day-to-day needs.
If you depend on stock markets for expenses then you will panic to see your best stocks falling by 10-20%.
How To Invest 1 Lakh In Stock Market?
Let’s come to the actual method of how to invest 1 lakh in stock market. Since we are starting new will keep it very simple.
Find the answers to the below 2 questions and you are done.
- What to buy?
- When to buy?
Find great companies and invest at right time.
Step 1: What to buy?
We will only buy big brand companies which have a market cap above 20,000 Cr. because our primary goal is not to lose capital.
Investing in large-cap established companies can reduce downside risk.
Another criterion is to invest in companies that have ROCE > 30%.
Companies generating more than 30% return on investment are cashflow-rich companies.
Also, consider the ROCE of the past 10 years to ensure that the companies are constant performers.
Finding companies with these criteria is very simple thanks to tools like https://www.screener.in/
Follow the below steps:
1. Register to https://www.screener.in/
2. Go to the SCREENS menu
3. Click on CREATE NEW SCREEN
4. In the box below you have to enter your query
5. Enter the below query in the box and click on RUN THIS QUERY
Market Capitalization > 20000 AND
Average return on capital employed 10Years > 30% AND
Return on capital employed > 30 %
6. Finally, you will see a list of some great companies
Ignore the PSU/ Government companies from the above list.
There is a high chance that you might have heard about the companies and be using their products already.
Yet, never thought about investing in these.
News channels or social media do not talk about these companies.
Look at the Free Cashflow they generate and have very low debt.
At the start, we should invest in this kind of company so that we can build our confidence with decent profits.
>> Read How To Do Fundamental Analysis
Step 2: When to buy?
Should we buy it immediately?
No.
The price at which these companies are available is also important too.
Because we want to see some results in short term to get motivated in the stock market.
The right time to buy this company would be when they are around 20% down from their All-Time High.
The question here would be “do these companies fall 20%?“
Yes, they do.
This is HUL’s chart.
As you can see the company has fallen by 15-20% several times in a year but then also recovered and made a new high.
These companies can give quick results but you need a few months of patience in stock markets.
This is a chart of ASIAN PAINTS another great stock
Try and follow the same for any other company from the list.
You will find several other opportunities.
These charts are from tradingview.com use the link to register and use them for free.
Was this simple?
It will get simpler after some practice on a few other stocks.
Conclusion
What is the best way to invest 1 lakh rupees?
Find great companies with a proven track record and buy when they can give around 20% return in a short duration.
This is how I started investing in stock markets buying great and known companies when they fall.
I wasn’t aware of tools like a screener.in and tradingview.com in the beginning.
Tools make research very easy and save a lot of time.
Starting in the stock market can be full of excitement but also anxiety and stress at the same time.
Patience is the only way to begin.
The approach we discussed in this article is far better than buying and selling based on news and tips.
The stock market is the game of conviction and you will get the conviction only by doing your own research.
Let me know what you think about this approach by commenting below.
Also, share your experience after you try the strategy.
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