The Sensex is seen as the barometer of India’s growth and reflects the changes in the economy over the years
Gopabandhu Mohapatra
The Sensex is seen as the barometer of India’s growth and reflects the changes in the economy over the years. If any company has 100 shares, in which 30 are held by the government or the promoters and the remaining 70 are available for trading to general public then, those 70 shares are the free-floating shares and thus the free float factor will be 70%. Sensex comprises of the 30 largest and most actively traded stocks on BSE, providing a gauge of India’s economy. The Sensex comprises of the 30 stocks which are selected according to the criteria set.
The base value of the Sensex was taken as 100 on 1 April 1979 and its base year as 1978–79. It took the Sensex 11 years to cross the 1,000 mark in 1990, but it crossed the next 3,000 points in less than a year. The journey from 4,000 to 5,000 levels for the Sensex took 7 years and was reached in 1999. In 2006, the Sensex crossed the 10,000 mark. The Sensex hit the 20,000 mark in December 2007. There was crisis that hit world markets in early 2008 and by October that year, the Sensex had lost 64% of its value to sink to 8,500 points.
Alternatively, over the next 5 years, the market consolidated and grew steadily on the back of recovering the economy and a second round of reforms in 2012. From 2014 onwards, the market has been tracking Indian economic reforms. Over this period, the Sensex steadily moved to 30,000 and then the new high of 39,000.
By January 2021, the Sensex crossed 50,000 and by September 2021, the Sensex crossed 60,000 mark. During December 2023, the Sensex crossed 70,000 mark with an all-time high of 70,057.83 and by July 2024, the Sensex crossed the 80,000 mark. Historically, the BSE Sensex Stock Market Index reached an all time high of 82,559.84 as on 2nd September 2024. It is a matter of pride for BSE that Sensex has completed 45 years. It was the first real-time index of India and caught the imagination of the investing public.
If stocks of companies in industrial, material and consumer discretionary segments, such as engineering, cement, fertilizers and consumer electronics, dominated the initial composition, the services sector came to represent it with the inclusion of financial services, telecommunications and others in the mid-1990s. From early 2000, sectors such as information technology, financial services, consumer discretionary, healthcare and even energy became important components of the Sensex.
If you had invested Rs. 10,000 in a basket of stocks representing the Sensex and the same was rebalanced every time the Sensex underwent a change, then your corpus today would be over Rs. 45 lakh. The same amount of money invested in gold over the same period would be worth Rs. 4 lakh today and in bank fixed deposit would have grown to a little over Rs. 2.5 lakh, without factoring in the tax. With these numbers, there is no argument that supports a portfolio that is looking for growth not having adequate exposure to equity investments.
With Sensex reaching a new milestone, mutual fund investors are concerned about the ideal allocation they should have at the current point of time? A mutual fund provides diversification through exposure to a multitude of stocks. The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund. This type of risk is known as unsystematic risk.
Therefore, if you’d like to invest in individual stocks, it is recommend that you compile your own basket of stocks so you don’t own just one stock, but make sure that you are sufficiently diversified between large and small companies, value and growth companies, domestic and international companies, and also between stocks and bonds—all according to your risk tolerance. This is where it might be helpful to seek out professional help when constructing these types of portfolios.
Stocks have been the preferred investment avenues for decades since they allow investors flexibility, liquidity, transparency and a highly regulated environment keeping fraudsters at bay.
While stock investments can help generate wealth, it requires time and effort to evolve from a novice into a successful investor. Hence, start young and slow, keep the risks in check, and slowly ease yourself into this world.
Investors may not have the time or the required knowledge and resources to conduct their research and purchase individual stocks or bonds. A mutual fund is managed by full-time, professional money managers who have the expertise, experience and resources to actively buy, sell and monitor investments. A fund manager continuously monitors investments and rebalances the portfolio accordingly to meet the scheme’s objectives.
Portfolio management by professional fund managers is one of the most important advantages of a mutual fund. For many investors, it could be more costly to directly purchase all of the individual securities held by a single mutual fund. By contrast, the minimum initial investments for most mutual funds are more affordable.
Buying shares in a mutual fund is an easy way to diversify your investments across many securities and asset categories such as equity, debt and gold, which helps in spreading the risk – so you won’t have all your eggs in one basket. This proves to be beneficial when an underlying security of a given mutual fund scheme experiences market headwinds.
With diversification, the risk associated with one asset class is countered by the others. Even if one investment in the portfolio decreases in value, other investments may not be impacted and may even increase in value. In other words, you don’t lose out on the entire value of your investment if a particular component of your portfolio goes through a turbulent period. Thus, risk diversification is one of the most prominent advantages of investing in mutual funds.
You can easily redeem (liquidate) units of open ended mutual fund schemes to meet your financial needs on any business day (when the stock markets and/or banks are open), so you have easy access to your money. Upon redemption, the redemption amount is credited in your bank account within one day to 3-4 days, depending upon the type of scheme e.g., in respect of Liquid Funds and Overnight Funds, the redemption amount is paid out the next business day.
However, please note that units of close-ended mutual fund schemes can be redeemed only on maturity. Likewise, units of ELSS have a 3-year lock-in period and can be liquidated only thereafter.
An important advantage of mutual funds is their low cost. Due to huge economies of scale, mutual funds schemes have a low expense ratio. Expense ratio represents the annual fund operating expenses of a scheme, expressed as a percentage of the fund’s daily net assets. Operating expenses of a scheme are administration, management, advertising related expenses, etc.
Finally, remember that stock investing is not gambling. You are not taking chances but making informed decisions. Hence, keep all speculations away and grow into an expert investor with time. We hope that these free share market tips help you in your journey.
(Author is a former Banker. Views are Personal)
