How to make money in stocks

Do you want to know how to earn Rs 10 crores in 30 years? What kind of investments would you need to achieve this?

Do you know what passive income is and how it can work for you?

What are the general rules for putting money in investments that can be volatile?

What are the rules of selling a stock/ portfolio that has generated huge returns?

Do you know what rebalancing your portfolio is? What are the benefits of regularly rebalancing it?

In a chat with readers on May 16, Get Ahead money expert Sanjiv Mehta answered these and many more queries related to generating wealth from different asset classes like stocks, mutual funds, real estate, etc.

For those of you who missed the chat, here is the transcript.

Part II -- Save Rs 3,000, become a crorepati

siddhartha asked, Hi Sir, I am an IT professional. I want to become rich. It's very hard nowadays to live with a fixed salary. Please let me know how can I earn more and make my family happy.

sanjiv mehta answers, The ower of passive income is great. Saving only 10 per cent of your earnings every month can help you if you use this amount to earn 9 per cent return on this saving. Your passive income will surpass your income generated from active employment. Saving and investing well will make your family happy.

Sidharth asked, Sir I am a businessman. I want to invest approximately Rs 1-5 lakhs. Which sector should I invest to get handsome returns whether real estate or stock market? If stock markets, then please advice in which stocks?

sanjiv mehta answers, Three principles which you must follow for investing in any volatile asset class are:

1) Diversification, 2) Appropriate time horizon and 3) Right valuations

If your time horizon is of three years, stocks will be a very good bet. A longer horizon also facilitates entry in real estate. For specific stocks, a good time saving technique will be to outsource to a good fund manager who invests in a well-rated diversified equity fund.

Anu asked, I am an NRI having Rs 5 lakhs deposited in an Indian bank. This has been the case for the past couple of years. Now I have learnt that keeping money in the bank is not the good thing because you are losing opportunities to make more. Please suggest what I can do with it to make some right investments that can help me increase the amount?

sanjiv mehta answers, Bank deposits have very little real return that is if you subtract inflation from the nominal rate -- you are right that the bank returns are less. You should move a bigger part of your deposits towards equity.

vass asked, Sir, with a long-term view what would be the best assets one should have? I am getting Rs 40,000 per month and I can save upto Rs 30k as I am a bachelor aged 23. Please suggest me the way I can create my assets in the long-term.

sanjiv mehta answers, You have a splendid opportunity of saving Rs 30,000 every month at the age of 23 years. You should utilise the power of compounding to the fullest. Rs 30,000 every month with a return of 12 per cent per annum for 30 years will give you Rs 10.2 crores. To earn such a return, stocks and real estate will be good vehicles. As the interest rates are rising, a small allocation to high interest debt alternatives will make the portfolio robust.

ramprasad asked, As per my understanding pure equity is the best for long term investment to generate wealth. So I have selected few equities from the IT sector, Pharamacy and Auto. I am somewhat able to manage what stocks to pick. But could not know when I should sell/exit/redeem from a particular stock. Are there any guidelines to hold or to exit a particular stock?

sanjiv mehta answers, Equity is the best long term investment. Long term studies in various countries including India prove that conclusively. Exit will be mainly dependent on the same principle of valuation which helped you in selecting stocks to enter. If earnings growth has kept pace with stock appreciation, you can continue. If you have been lucky to get appreciation much more than earnings growth, you should exit.

raksha asked, Sir I'm a new investor. According to you should I invest into mutual fund or directly into stocks so that I get safe returns within a short span? My investment horizon is say for 6 months to an year.

sanjiv mehta answers, Appropriate time horizon is one of the key principles for investing in stocks. Long-term fundamantals are much easier to predict as compared to short-term developments. With a time horizon of six months you should stay with debt instruments like fixed maturity plans, FMP.

epowerenergy asked, Can I borrow money and invest in real estate. If I borrow the commitment would not be less than Rs 50,000 per month. Will I benefit in the shorter period?

sanjiv mehta answers, Real estate is one asset class which benefits from borrowing especially at a time when interest rates are relatively low. However, you should go with a long-term horizon rather than looking for short-term gains. Seven to 10 years will be a good time horizon.

Shivshankar asked, Hi Sanjiv, is this a right time to invest in property in Navi Mumbai? My budget is Rs 20-25 lakhs. Or should I invest in stocks for the medium term? Which will give better returns to an NRI like me?

sanjiv mehta answers, Real estate calls for customised, local and intensive research. Units in the same area could have their own pricing dynamics. If you lack that research for investing in real estate, stocks will be better where there are mutual funds with good track record.

z asked, Sir, in view of the recent rate hike by RBI, is it beneficial to shift some of the equity holdings to debt, as the expected rate of return on equity has increased by 4 per cent over last year?

sanjiv mehta answers, Portfolio rebalancing at regular intervals is very beneficial for preserving profits. With interest rate hike, the Indian economic cycle has moved and shifting some of your allocation to debt will be useful. Debt returns have also become attractive. However, stocks still remain attractive with good economic growth and corporate results. Therefore a balanced portfolio with a tilt towards stocks will be good.

anand asked, Hi Sanjiv, my family (9 members ) earns Rs 20 lakhs per annum through our business. What is the recommended saving that we should do every year?

sanjiv mehta answers, With this income you can easily have a very consistent lifestyle -- a very good current lifestyle and at the same time ensuring good retirement lifestyle. The only requirement is to save 10-20 per cent (depending on your current age) and generate on an average an annualised return of 10 per cent for these savings.

Divya asked, I want to invest Rs 20,000 a month. What would be a risk-free investment with high returns and if possible tax exemptable?

sanjiv mehta answers, Risk-free and high returns might not go together. However, if you follow the 3 principles mentioned in my earlier answer, you can generate very good returns at minimal risk. A combination of stocks and real estate will be good. To avoid paying long-term capital gains tax on stocks you just have to hold those for a period of one year for them to become attractive from taxation perspective.

Sathish asked, Hello, I am an NRI. I like to invest money with a long-term investment horizon which is safe and fetches the right rate of return. Which option should I look for since I am not in India and I am not able to venture into real estate? Can you please guide me?

sanjiv mehta answers, Diversified equity funds mainly with some allocation to debt instruments like FMP will be better suited for you. Some structured products which guarantee capital protection but with good participation in stock appreciation will be a good add on.