Benefits of Investing in Share Market

Benefits of Investing in Share Market

Is it advantageous to invest in stock markets despite the risks involved. Remember, share market investment is the surest way to create wealth in the long run. When you invest in the stocks, it is not just about the dividend in share market. It is also about the capital appreciation, which is one of the key share market benefits that makes equities attractive from a long term investment perspective.

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Investing in share market brings a lot of benefits to the investor. Of course, the caveat is that you invest after adequate share market analysis and doing your due diligence. It is very difficult to make profits in the stock market through blindly investing in stocks. It can work occasionally, but in the long run, it does not help. Here we look at some of the key benefits of investing in share markets.

There are a number of benefits of investing in stock markets or share markets, as they are popularly known in India.

1) Firstly, stock market investing is the best way to create wealth in the long run. Of course you don’t catch multi-baggers every day. However, if you have an adequately diversified portfolio of quality stocks, you are more likely to make profits than lose money. For long term planning, long term goals and long term wealth creation, there is no substitute for equities. Of course, you have the choice of opting for direct equities or for equity mutual funds, but the logic is you need equities to create wealth in the long run.

2) Equity investing or share market investing, gives you ownership of the company you  are invested in. Having ownership means you become a shareholders and play a vital role in a company's decision. Apart from participating in the profits and losses, earning dividends and voting at the AGM, you also have an asset on hand and that too an appreciating asset that can be leveraged in multiple ways.

3) A big advantage in the modern era is that stocks are substantially liquid. Of course, stock market investments are still subject to market risk, so the price can fluctuate. But, once you have decided to monetize the stock, it hardly takes time and the money will be in your bank account in just about 2 days flat. Also, in case you don’t want to sell the shares, you can also monetize the shares by either taking a loan against shares (LAS) or you can also offer your shares in demat as margin for trading in the market. Equity shares can provide liquidity in multiple ways.

4) Share market investing offers diversification. For instance, investors put hard-earned money into multiple types of investment. When you own bonds, realty and gold, you also need an asset that has low correlation with these asset classes and also appreciates and creates wealth over time. Equity shares fit the bill to perfection. They help you to diversify your investments and reduce the risk in investing.

5) Equity investors can earn regular dividends. Now dividends are paid by companies out of profits and distributed to the shareholders. It is an additional income for the investors in the company which is normally paid multiple times during the year in the form of interim dividend. Dividend income can also help an investor to fund a retirement or pay for another investment to grow their portfolio over time.

6) Perhaps the biggest reason people invest in stock is the capital gains that accrue to them over time. Over time, as the stock market rises in value, the price of a particular stock can rise or fall. That is where the quality of investments come in handy. Investors putting money in high quality and growth oriented companies see profit growth as well as stock price growth in tandem. Normally, people invest in stock for the long term capital appreciation. There are examples like Infosys, Eicher Motors and Bajaj Finance that have been virtual multi-baggers over the years.

7) SEBI regulation makes equity markets relatively safer. Of course the price risk and the volatility risk are still there. But SEBI intervention has made the equity investing more organized and predictable. SEBI is majorly responsible for regulating the stock exchanges, their developments and protecting the rights of all the investors. This helps to reduce the risk of investing in the stock markets.

8) Entry barriers to the stock market investing are quite low. You can buy as low as 1 share of a stock into your demat so you can actually start off trading equities with a very small capital and gradually built it up over time. Another major advantage of directly investing in the stock markets is that investor can buy based on their own choice and their preferences.

9) Stock markets are the best proxy for the growing Indian economy and the growing consumer market in India. The Indian has been one of the best growth stories in recent years and now it is also expected to be a growth story in the coming 10 years as it moves towards a $5 trillion economy. But, how do you capitalize on this trend. You can do that by buying a portfolio of quality diversified stocks in the stock market and watching your money grow.

10) Online trading has made the process of buying and selling stocks very simple. It can almost be done in one click. The bigger advantage of online investing is that you can get a full picture of the trade from the order stage to the execution stage. Since the entire execution happens in front of you, there is no risk of opaqueness in the stock markets.

However, to make the best of all these advantages that stock markets offer, there are some basic requisites. Firstly, it is always advisable to start with a plan and build your equity portfolio around that plan. Secondly, use the services of a good broker or a financial advisor to get guidance on what to buy and what not to buy. Thirdly, when you invest in equity share markets, focus on the risk than on the return. If you manage risk well, then returns will take care of itself. Lastly, make the best of technology to be a successful investor. Today, the online trading facility gives you access to a plethora of stocks, unmatched information, high end analytics and quality research. The onus is on you to make the best of all these advantages in your equity investing journey.