Passive income can be made or earn by investing in dividend stocks, mutual funds, and savings accounts. In these platforms, you can invest your money and your money will give you returns. Also we will be learning which is better mutual fund vs stocks.
You can understand stock like your friend is starting his business and he approaches you to give some money to him and he will give you profit according to your money. The same concept is with stocks but in stocks, you buy shares of companies, and companies share price increases and decreases.
What’s in it for me?
- Dividend Stocks
- Mutual Funds
- Generate Passive Income By savings bank account
- The power of compounding
- How money makes money?
- Investing in stocks and Mutual funds
- Who is Warren Buffett?
- Stocks vs Mutual funds
Stock is ownership security which shows the share of anyone in any company. The company gives shares to people to get money which then put back in the company’s business. For taking ownership of any company you have to buy stocks of that company.
The value of stocks is different for different companies. Some company’s stocks are very costly while some company’s stocks are quite cheap. When you invest in stocks and if the company generates profit then the value of stock raise and you will get profit.
As share prices might be high or low and you do not have enough money to buy shares of your desired companies here comes the role of mutual funds.
In mutual funds, many people gather their money together and buy some or many shares in which everyone has their portion according to their money. But you think it will be really difficult for any person to search for some people who want to invest their money in stocks or share market.
So here we have different companies who have their mutual funds, you only have to give them money and it’s their responsibility where they invest your money. Basically, in mutual funds there is a very little chance of loss as money is not invested on a single share, your money is divided between shares of different companies. Therefore if you have less knowledge about the share market you should invest in mutual funds.
In recent past years if you want to invest in mutual funds you have to go to offices of mutual funds or the officer comes to your home. Almost every bank provides you mutual funds and many different companies which only works like a mutual fund company. Companies take some amount from the money you invest as their fees.
Generate Passive Income By savings bank account
Mostly everyone has a savings account in which we deposit money which we save and we receive a salary in our account. But you should know that you can also get a good amount of returns on your savings. Some banks give a good return on savings account like 6% or 7%. They provide this much return because they will be developing banks.
Developing banks are those banks that do not have a very large amount of customers, and because they want to grow their CASA% (Current Accounts and Savings Accounts) they give a large percentage of return on the savings bank account. But these banks did not provide this scheme for the long term when they get a good amount of customers or current accounts and savings accounts they start reducing their return percentage.
The power of compounding
By the power of compounding, I mean that compound interest formula that we learn in the 6th or 7th standard. But it teaches us so much that we did not know. The formula is
A = P ( 1 + r/n ) nt
A = final amount
P = initial principal balance
r = interest rate
n = number of times interest applied per time period
t = number of time periods elapsed
Here I am providing you a table taking Rs. 1 as my principal amount and giving you the result for 10 years, 20 years and 30 years, which will show us how much money we will get if we invest in Mutual Funds ( taken 10% return ) or stocks (taken 15 % return) and a high return saving account (taken 5% return) –
|Years||Mutual Fund||Stocks||Saving Account|
Now compare it with a large amount invested. Now you are watching what is the power of compounding. If you have invested Rs. 1 then you will get 66 rs. In 30 years with stocks and it is 66 times the amount you invested and in mutual funds, you will get 17 times the amount you invested but in savings account which is high return savings account you will only get 4 times the money you invested. Now that is not magic that is the power of compounding. Imagine if you have invested Rs. 1000 or Rs. 10000 or more than that. We compared mutual fund vs stocks downward in this blog.
How money makes money?
You can say that money can make money or money can earn money it is not possible or it is a magic trick. But I will say that if you call it a magic trick than anyone can perform this magic. Right now we only discussed what is stocks? Or what are mutual funds? Or How to invest in them? What was this if money is not working for you than what was that? how money itself grows from Rs. 1 to 17 or 66.
This happens in real life and this is not any magic trick. You just need some knowledge and some money to invest. When you buy any share or invest in mutual fund money eventually goes to the company and then the company uses that money in growing their business and generating profit. Then your money also grows and you also get your part in the company’s profit.
Here is a video of Sandeep Maheshwari on Making money form money.
Investing in stocks and Mutual funds
When you invest in stocks or mutual funds you give your money to companies who use your money in their business and you hold a share in that company. If the company gains profit or have had a loss, the same thing happens with you too.
There is also a great effect of news in the share market as the price of share rise and fell according to news coming about any company or any field so you should also consider news before buying or selling shares.
We compared mutual fund vs stocks below.
Who is Warren Buffett?
Warren Edward Buffett is an American businessman and a great investor and a philanthropist. He is chairman and CEO of his own company which is Berkshire Hathaway and he is the 4th wealthiest person in the world (as of 2020).
Warren Buffett is famous for his investing skills and considered the world’s best and successful investor. In 2008 he was ranked as the world’s richest person by Forbes. We can learn lessons from investing and generating passive income through his life. He also wrote many books about investing.
Mutual fund vs Stocks
|You invest in a single company only.||Investing is done in many companies with the same amount.|
|You are investing alone.||There are people with you and you all are mutually investing.|
|It have high risk if you invested in a single company.||It has less risk as your money gets invested in many companies.|
|You can use your knowledge to perform tasks of buying and selling.||There is an expert who is working for any company and he decides where and when to invest.|
|If you have good knowledge of the share market you should buy stocks on your own.||If you have less or no knowledge you should avoid buying stocks. Instead of this buy mutual funds.|
|You get high returns comparing to mutual funds as you have not to give charges to the company.||You get fewer returns as compared to stocks as there are many charges like expert charges you some money for his expertise.|
Investing in anything and investing in something good was always different. We all invest our time every day but the task we do make it good or bad investing. I recommend you to get the idea about investing in mutual fund or stocks and start investing from very next day.
People always wanted to earn money without doing any work. I assure you this a real way to make money from your money. So I discussed basics with you and I hope you got and idea about how all these things work. So start investing your time and money in a good place.
Yes investing in mutual funds and stocks is safe. There are many scams which are occurred previously but in 1992 SEBI (Security and Exchange Board of India) was established.
Which takes care of the authenticity of transactions happening in the share market. After the establishment of SEBI investing in Share Market and Mutual Funds is safe.
You can invest in stock in the share market. There are two share markets in India one is BSE (Bombay Stock Exchange) another one is NSE (National Stock Exchange).
So if you want to buy or sell share you can go to the market and some brokers can find another person who is also interested in buying/selling than transactions happen.
If you have to buy mutual funds you can go to banks or call the mutual fund officer in your home. This is one way or we can directly invest from your home. There are many apps for investing in mutual funds and share market. You also need a DEMAT account for the share market and these apps also make your DEMAT account.
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