Friends a few weeks ago we started a new series which is called #AskGroww
In which we said, that if you comment on any of our videos with the #AskGroww and ask us a question
Then we will try to answer your questions in great detail
To continue that, today we have brought the second episode of #AskGroww
In which we will talk about those 4 questions
Which viewers have asked us
And we will discuss about those questions in great detail
I, Jagdeep Singh, welcome you to the Groww channel
Let us start the second session of #AskGroww
Let us talk about the first question
As you can see on the screen the first question that was asked to us
And this question asks us
Do we get the benefit of compound interest in mutual fund and stocks
Because in all the previous videos I spoke about
That whenever you get the benefit of compound interest
From any asset if you get the benefit of compound interest
Then you should try to invest in that kind of asset
So I will tell you that, yes, by investing in stocks
You get the benefit of compound interest
Now you must be thinking that I bought a share
How do I get the benefit of compounding in that
So what is the meaning of buying a stock?
That you bought the ownership of a company
If 100 people are the owners of that company
Then you also become one of their owners if you bought one of their shares
Depending upon the number of shares you buy
And what was its total equity
Then by that percentage you become the owner of that company
Now consider that the company you have invested in
That company made a Rs 100 earning this year
And after earning that Rs 100, the company has Rs 100 left
Now the company made an earning of Rs 100, now the company has two options left
That company distributes that Rs 100 as dividend among its shareholders
Now if you got that dividend and you invest that dividend somewhere
That you will start getting return on that itself next year
Then you're getting the benefit of compounding
But if the company did the dividend payout to you and you do not invest that dividend anywhere
Then you do not get the benefit of compounding
Now the second way is that company has many opportunities for investing
That the company feels that whatever earning it has made
It will reinvest that earning in its business
Through which the company will expand more in the next year
Because of which the company's share price will go up and the company's earning will increase a lot
So in the case where the company reinvests its profit
And the company earns more profit in the next year
So there you indirectly get the benefit of compounding
In the same way if I talk about mutual funds, then how do mutual funds work?
You give your money to asset management companies
If that Asset management company invests in equity
Then in some way even they buy the shares of that company
So even there they get some compounding by investing in equity
So apart from this as well there is another category of mutual funds which we call growth category
So the mutual funds in the growth category
There, the dividend they get from any company
They reinvest that dividend
So there you automatically get the benefit of compounding
So if you pay a little attention and invest in equity or mutual fund
So you definitely get the benefit of compounding
Let us talk about the second question
So this was the question that we were asked
What are company FDs?
What are the types of risks in company FDs and do we get more returns here?
So company FDs are, if I talk about NBFCs
Or some other companies apart from that
Who take money from people to run their operation
And give people benefit on that FD
So there is a small trick here
That in company FDs you normally get a little more return
Here the interest rate is a little more
If you make an FD in a company or in an NBFC
But here your risk also increases a little more
Because whenever you invest in any company, there, default risk
If I tell you in simple terms, then in the opposite counter party refuses to give you the money back
They don't just refuse but there is some problem in their business
Because all the profit a company gets is from their business
And the risk here is that, some problem comes up in their business
Because of which they won't be able to earn profit
And if they can't earn profit and if tomorrow you go to remove that money from your FD
Then they won't be able to give you that money back
So this is what we call default risk
So whenever there is a default risk in a company
So for the extra risk, they give you extra returns
So if you are a retail investor like me, who doesn't want to take any risk
So in that case, instead of making a company FD we should make a bank FD
Because along with return you should gauge your risk as well, that how much risk is there in that investment
Because it can happen in that risk, even if you invested somewhere else
Then maybe you got even more return than that
So if in FDs you're thinking that you want to take very less risk
Then you should normally invest in banks
But yes, it is your personal choice
Every investor has his personal choice
That if he feels that some company has a very good rating
Like it was asked in this question what rating A is
So, every company's rating agency rates it, about how stable it is
So if it has a triple A (AAA) rating, then it is very stable
If it's double A (AA), then it's slightly lower
If we come to B, its lower and C its even lower
So if you're planning on making an FD in any company
Then you should pay attention to what its rating is
How is its credit rating?
If its rating is very good
And a very credible agency has rated it
Then you can think of investing in that company
But I will tell you again that if you don't want to take any risk
Then you should always prefer FD in banks
Now that the talk of making FDs has come up I will tell you one more thing
That FDs can be made in post offices as well where you return is slightly more than banks
And it is considered a very safe FD option
Now let us talk about the third question
So this was the question that we were asked
That what is the difference between common stock, preferred stock and growth stock and which should a retail investor prefer?
So common stocks are those that we normally buy from the share market
In which it is upto the company whether they want to payout or not
So if the share price goes up then the shareholders can sell it and earn money
If it goes down, you will directly have a loss
Now let's talk about preferred shares
You must have heard a lot about this but you wouldn't know in detail how it works
So I will try to explain this to you with a very simple example, consider there is a company A
It has common stockholders, preferred stockholders and debt holders as well
Now some problem comes in the company's operations and it completely shuts its operations down
In this case there is an obligation on the company, that whatever money it gets by selling its operations and assets
They first have to pay that money to debt holders
Because debt holders get the highest priority
So whenever a company shuts down its operations
Then they first pay that they have to payout
Then priority wise, it first has to give it to debt holders
When it gives all the money to the debtors
After that they start giving the money to shareholders
And when I talk about shareholders
After paying off the debt money, if the company thinks of paying off the equity
Then in equity, the company first gives the money to preferred stockholders
At the very end it will start giving money to common stockholders
Apart from this, if I talk about preferred stockholders
Then are a number of benefits in preferred stocks
Like you can define your dividend in this
Like it is fixed on a company, it has an obligation
That they have to give a certain percentage of dividend to the preferred stockholders
But a small problem in the case of preferred stocks is that you cannot directly sell it in the market
Because you have to sell them in a slightly different way
Now I will talk about growth stocks, what are they and how do they work?
How can they be identified?
Consider you're talking about a company A you have to figure out whether it is a growth stock or not
So first you have to see what its industry is like
Now consider that I'm going to talk about the banking industry
That you know that next year the banking industry is going to grow by 10%
It is a common notion that this industry will grow by this much
But you know that if this industry has ten players
Then among the ten players this is player A whose chances to get ahead are 20%
Which means that if the industry grows by 10%
Then in that case company A grows by 20%
So whenever a company grows a lot more than its industry or its capability then we call it growth stock
And if you want to identify a growth stock
Then you should start researching in advance and see in the early stages
Whether that company will grow a lot in the coming time
Because if growth stock starts growing from one time
Then its equity price and share price already increases a lot
So if you want to identify a growth stock, you should do it at the earlier stage
And after that you should invest in it
And in growth stock there are a lot of chance for you to earn some money
Now I will talk about the last question and the most interesting question for you all
Like this user has asked us, that when will we be able to buy stocks in Groww
And not only this user but a lot of users have commented and asked us
When will Groww have stocks?
So I want to tell you that Groww is going to get stocks very soon, and whenever we make this announcement
So I will specially make a video on Groww stocks
In which I will tell you that the stocks that are going to come on Groww
How is it different from the other places
Because I think that the coming Groww stocks is going to be completely different
If you compare it to anyone else in the industry
So it id going to come very soon, maybe in a few weeks
But I won't give you the fixed date just yet
The day it comes out I will make a separate video for you
In which I will tell you how you can open an account in that
What is its pricing? What is its value proposition?
And how it is completely different from the other brokers
So you can comment down below and use the #AskGroww and ask us any question
And I will try that in the coming time
I will answer your questions in complete detail
So that whatever topic we discuss in detail
It should be a learning session for all our viewers
And with the help of #LearnGroww
We can make a community where we can comment
Consider that if you're thinking of investing in company A
You get some question in your mind so you ask the question here with #AskGroww
So it is possible that another viewer who knows about that company
They can comment and answer your question
So when we help one another and reply to each others comments
Then automatically we make a community
Where we start learning from each other
And when we start learning from each other
Then we can get out of speculations and think of a long term investment
Because in that case the chances of arbitrage become very less
And very clear and good information reaches all of us
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Happy investing!