i know one of my close Gujarati friend who leveraged aggressively in Jan'08.. he could not square off due to busy schedule in office along with me.. i was giving him company while sweating in AirCon. office

A small chance of distress or disgrace cannot, in our view, be offset by a large chance of extra returns. If your actions are sensible, you are certain to get good results; in most such cases, leverage just moves things along faster. Charlie and I have never been in a big hurry: We enjoy the process far more than the proceeds - though we have learned to live with those also - Warren Buffett

Investment leverage, simply put, is borrowing to invest. That is, it is using someone else’s money to achieve your investment goals. Whether you know it or not, you may have already taken advantage of this strategy. For example, if you’ve had a mortgage, a car loan or loan for child's marriage, you’ve used someone else’s money to achieve your goal of home ownership, higher education or a more comfortable retirement.

Investment leverage is similar to the examples above. Leverage is simply borrowing money to purchase investments, with the goal of achieving greater wealth. Now, it’s probably easy for you to see how a mortgage can help you achieve the goal of home ownership. However, it may be less clear how taking out a loan to buy an investment can help you achieve the goal of greater wealth.

With traditional investing, you set aside a portion of your income each month to purchase investments and your investments gradually grow over a long period of time. With leveraged investing, you take out a loan and make a single large investment purchase on day one. Then, you set aside a portion of your income each month to make interest payments on the loan. The amount you pay for loan interest may be the same as the amount you would normally contribute to a traditional investment plan. But while your “out of pocket” costs may be the same under both strategies, leveraged investing has the potential to generate far greater returns. Here’s why:

Compound returns refers to the fact that investment growth accelerates over time as the growth from one year is added to your initial investment to create a larger investment that can grow the next year, and so on. The key to successful compounding is having the largest possible amount growing for the longest possible time.
While traditional investing benefits from compound returns, it fails to fully take advantage of them. Assume you have 15 years to invest and plan to make regular contributions each year. Only the contribution you make today will grow for the full 15 years. The contribution you make one year from now will only have 14 years to grow, and so on. With leveraged investing, you contribute a much larger amount on day one and the whole amount can grow for the full amount of time, say 15 years. The effect of compound returns is much stronger with leverage, which can result in better investment results over the long term.


Before deciding to invest with leverage, it’s important to understand that this strategy involves a greater degree of risk than traditional investing. If you use your own cash to purchase an investment, your gain or loss you experience will equal the gain or loss of the investment. However, if you use borrowed money to purchase an investment, the gain or loss you experience will be greater, relative to the performance of the investment.

In addition, regardless of how your investment is performing, you’re still obligated to pay the interest on your loan. Investment leverage can be a powerful tool for accelerating investment growth. But be sure you understand and are comfortable with the potential downside before you decide to use this strategy.

@bearish
Leveraging requires little more risk appetite. If you have a sure income stream like salary, you can try with small leveraging.
For example if you set aside Rs.2850 every month (Recurring deposit@7%), it will take you 32 months to accumulate Rs.100000.

But with the same amount 2850 as EMI, you can have Rs. 100000 at day One to Invest in the market and you have loner period to repay the loan say 48 months. Also you need to understand how much interest you are paying against this leverage and how much you can earn through market.

If your plan turns against you, you will lose your borrowed capital plus you will have to pay entire capital + interest from your alternate source of income.