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Zerodha’s Nithin Kamath’s money mantras for the young

In Kamath’s view, financial freedom is as much about developing and honing skills, as it is about money management.

November 14, 2022 / 09:39 AM IST

“I blew up when I was 21, and I think blowing up and having to recover from what I had borrowed, taught me a bunch of life lessons,” says Nithin Kamath, Founder and CEO, Zerodha.

Living in a Marwari neighbourhood, and becoming friends with them is what introduced the concept of stock market trading to the founder of India’s largest stock broking house ― Zerodha.

“Then I was hooked,” says Nithin Kamath. “My dad worked in a bank and used to invest in all the popular IPOs of that time,” he adds.

Even though his dad wasn’t an active investor, he used to talk about his investments at home. And the conversations around stocks at home acted as a secondary catalyst to his investment and trading journey.

Kamath started actively investing in the stock market when he was 17, made a decent pile till 21, before it all blew up at the time of the Information Technology crash (Y2K) and he lost all his money.

“I think, I did more learning from the blow-up than I did from trading in the markets,” he says.

While he started investing in equities at an early age to beat inflation in the long run, he cautions that it’s important to invest in skills. It is important to study when it's time to study and invest in acquiring new skills, more than investing in equities.

Kamath has his piece of advice for you if you have turned 18 and crossed the threshold of being tagged a ‘child’. While it’s good to have a bank account and stash your cash there, he advises against letting your money sleep in your bank account.

In a conversation with Moneycontrol, he lists down five points to keep in mind when you are young.

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Start investing and make it a habit

It is important to enjoy and live your youth years well, but it is also important to inculcate the habit of saving small portions of your pocket money. You won’t be able to force yourself to follow something strictly if it doesn’t come naturally to you. Starting early helps you stick to the habit.

The objective should be to start building the habit of saving and investing in early years.

Invest in experiences and not in material goods

When you are young, it is important to invest in experiences as they make you acquire skills and grow. So, if you love basketball, then buying a ticket to go and watch a basketball tournament is something you should invest in.

“But should a guy who is still in college use his pocket money to go buy an iPhone? I don't think so. I don't think it improves the quality of life in any way,” he adds.

Invest in index funds

Investing small amounts in mutual funds is a good way to build financial discipline. Investing in index funds, along with tracking newspapers, helps you understand the market dynamics.

This also helps you accumulate wealth over the long term because it’s unlikely that any fund manager will be able to beat the index in the future.

Once you make yourself comfortable with market movements and industry dynamics, the next logical step can be investing in direct stocks, he suggests.

Never invest on borrowed money

Though it is important to try and experiment with different things, it is important to understand that it should not be done on borrowed money.

“I blew up when I was 21, and I think, blowing up and having to recover from what I had borrowed, taught me a bunch of life lessons,” says Kamath. It took me a few years to pay back the money I had borrowed to invest in the stock market. Ever since, I have never ever borrowed. I have followed the same principles in my business. We could have grown exponentially on borrowed money, but we didn’t do that.

He also adds that one should only stick with the instruments one understands, when it comes to long-term wealth creation. 

Focus on developing skills

Curiosity is the first and foremost skill a person needs to develop to be able to excel in any field, Kamath says.

That is what I want to tell my six-year-old son. Many people make the big mistake of focusing too much on money. Don’t just focus on investing in equities and mutual funds. Instead, focus on skill development. Invest in yourself. Learning the right skills is absolutely necessary. If you’re good at something, money will come eventually. Financial freedom is as much about developing and honing skills, as it is about money management, he adds.