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Why should you invest in Stock Market?

  • Akshatha Sajumon
  • 15 Feb
  • 7 minutes

We often hear about our friends, relatives or even office colleagues earning money through stock market investments. While most of us get influenced by such close associates and start believing that stock market investments can be beneficial, not many actually end up venturing into it. Stock market investments often tend to take a backseat since these are presumed to be highly risky and time-consuming. Most investment experts, however, would advise that a financial portfolio diversification can be achieved only by going beyond bank deposits, gold, and mutual funds. 

Also, investing in stock markets has become far easier. With evolving technology, one can open a trading and demat account to buy or sell stocks with only a click. The Indian stock markets have attracted more participants in the last couple of decades than ever before. This tells us that equity markets are the place to be if we want to target wealth creation. 

Let’s explore some of the top reasons why you must begin investing in the stock markets today.

Ownership stake in companies

Investing in a stock essentially means investing in a company. This is because stocks buy investors an ownership stake in the company, giving them a sense of ownership towards the organization.

Shareholders can play a crucial role in influencing a company’s decisions since they enjoy the power to vote for or against any major decisions. Several historical instances suggest how shareholders may have stopped many company managements from implementing policies or decisions that harm their interests. Every shareholder of a company is sent its annual report so that they are aware about its overall growth achievement.

Wealth creation

Stock market investments carry the potential to deliver substantial gains in the long run. Statistics suggest that stock markets have almost always stood the test of time and have risen in value over the years. Thus, even if individual stock prices swing on a daily basis, the overall value of an investment portfolio can rise in the long run. This, however, depends on one’s stock selection expertise, knowledge, risk-taking ability, and investment horizon.

By investing in companies that reflect a stable growth rate or in sectors that are expected to further the country’s economic growth, an investor can steadily build wealth and increase the value of his/her investment portfolio over time.

Seamless trading

Stock market trading is no longer a complex task, with a number of online platforms in the form of websites and apps offering trading facilities to investors across the country. Take, for example, the Fisdom app, which allows investors to regularly monitor their investment portfolio. Many investors can now seamlessly trade alongside their full-time jobs since trading or investing in stock markets is no longer a lengthy or complicated process.

Flexibility to modify investment quantity

New investors who are just starting off with stock market investment can begin with small quantities assigned to the market. Buying large-cap or mid-cap stocks in smaller lots can also help in containing the risk. Stock investments do not require a lump sum investment since investors can even buy 1 stock of a company, depending on their affordability. Directly investing in stocks allows investors to buy or sell stocks during trading hours as per their investment capacity without any minimum investment amount or time period restriction.

Regular income through dividends

Some companies may distribute their income to shareholders by way of dividend. This acts as an additional income source for investors, especially in case the stock has recently dropped in value. Dividend income is over and above any profits that can be fetched from selling the stock. It can help in increased liquidity in the hands of investors or investors can use the sum to make additional investment to grow their investment portfolio further.

Inflation beating returns

The main purpose of any investment is to financially secure the investor’s future. One factor that can impact this possibility is inflation that can rise from time to time. If inflation rises at the same rate as the rate of return on an investment, then an investor’s gains will be nil. Therefore, an investment’s rate of return should ideally be more than inflation.

Stock market investments mostly stay ahead of inflation. If, for example, the inflation rate is 3-4%, markets can fetch yearly gains of 10% or more, depending on the investment selection.

Higher liquidity

Stocks come under the liquid assets category, meaning an asset type that can be converted to cash easily, since it has many buyers at a given time. This is not the case with all asset categories and it can be difficult for an investor to find a buyer for certain assets, for example, property. Selling a property can take a few months or even years to generate cash from the investment. However, with stock investments, liquidating is far easier.

If we consider the average daily transaction volume on NSE and BSE, we can see that it is significantly high, meaning there are multiple buyers and sellers for most stocks listed on these exchanges.

Benefit of fast-growing economy

The stock market tends to easily react to any kind of economic growth indicators like inflation, rising corporate earnings, taxation, GDP growth, etc. Thus, stock market investors can be at an advantage of gaining from the growth in markets due to an economic spurt.

Whenever an economy is on its way to growth, there is a noticeable growth in corporate earnings and therefore the average earning of individuals also rises. This results in higher consumer demand, followed by higher sales and a rise in the value of a stock of a particular company which maximizes investor gains.

Regulated and transparent framework

The Indian stock markets come under the regulation of the Stock Exchange Board of India (SEBI). SEBI also looks after the development of the markets, along with protecting investor rights. Thus, when investors invest in the stock markets, they can be assured of an appropriate regulatory framework that helps in reducing overall risks of any possible fraudulent activities that companies may indulge in.

Conclusion

If not done already, investors must begin actively exploring investing opportunities in the stock markets to diversify their portfolio and stay ahead of inflation. Stock markets allow investors the freedom to pick companies that they wish to invest in and act as a liquidity cushion, apart from offering wealth creation opportunities.

FAQs

How can I begin investing in stock markets?

To begin investing in the stock markets, you can download the Fisdom app on your smartphone. The app has a hassle-free and fast KYC process and trading and demat account opening process.

Do I need market knowledge to start investing in the stock markets?

Having basic knowledge of the stock markets before making an investment in the same can benefit you while selecting the right securities for investment.

What are the risks of investing in the stock markets?

There are multiple risks that come with a stock market investment, including company risk, market risk, liquidity risk, regulatory risk, taxation risk, and diversification risk.

What are the alternatives to stock market investment?

Some of the alternatives to stock market investment, especially for new investors, are Exchange traded funds, index funds, and real estate investment trusts.

Are stock market investments only for long-term?

Stock market investments can offer positive returns in the long run, however, many investors carry out short-term or day trading to make the most of sudden price fluctuations. Day trading requires expertise and sufficient knowledge of the markets, hence, it may not be suited for new investors.

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Akshatha Sajumon