We have always listened to the benefits of investing in stock market. You may have heard about the profits your mates have got via the market and investing in stock has brought out some health changes, so investing seems to be more interesting and money-making but the question arises is there really any benefits of investing in share market or not.
Everything that comes with benefits has its backfall too. If the market brings profit it often brings loss too. But what is important to know is diversifying your financial portfolio beyond fixed deposits, gold, and mutual funds is necessary and also you can earn some great benefits with the help of this.
Counting on today’s time the technology has evolved which has brought out ease in the investment. Today, buying and selling stocks is easy. The market can be accessed by anyone no matter the financial state if you have money to invest you can go for it.
Here is the list of benefits of Investing in Stock Market –
2. Hassle-Free Trading
3. It guards Inflation
5. Easy to invest with smaller Amounts
6. Transparency and regulated work
7. Advantage for a growing economy
8. Benefit of Dividend
This is one of the most important factors for investing directly in the markets to the kind of gains it does. Past performance of the stock market data shows that the market has always passed the test of time, they have risen in value over a period of time. The prices may fluctuate on a daily basis.
Also, the companies investing showcase the stable graph and tend to bid higher profits every quarter or invest in sectors that help directly in the growth of the country building your wealth and increasing the value of your investment over a period of time.
Today, buying and selling of the stock trading of the stock Buying and selling stocks or stock trading is no longer a complex mechanism.
Guard Against Inflation
Another important purpose of investments is to secure the financial future. To secure the future it is important to monitor inflation from time to time. If the inflation and the rate of return on investments are equal to each other then the gains become zero. The rate of investment should be higher than inflation. Stock market or benchmark indices (Nifty and Sensex in the have always stayed forward from the inflation in India. Also according to the stats, the inflation is 3-4%, then the market hits yearly gains of around 10%.
Stocks are also termed as liquid assets which means an asset that can be easily converted to cash which indulges many of the buyers at some point of the time. It is not the same case for the assets The same is not the case for all assets, it is difficult to find a buyer for some assets like property. This could take months for the cash which is made in the property and less time in the terms of stocks. However, in the case of stocks, it is much easier.
Also according to the stats, the average volume of transactions in NSE and BSE are quite high. That indicates the fact that there are multiple buyers and sellers in the market.
Advantage of the Booming Economy
One of the factors for investing in the stock market is the booming of the economy and also the economic growth indicators such as GDP, inflation, corporate earning and many more.
Also, the stock market investors are the ones who can take direct benefits of the booming economy as the investments also grow proportional to the economic growth.
Economic growth plays a major role in the growth of cooperative earning. If the economy is high then the earnings are boosted in the cooperative. This results in an increase in the average income of an individual.
This also affects the consumer demand on the leading sales. This results in the value for the investment in the company you invested in and leads to an increase in share price.
Regulated and Transparent Framework
The Indian market is under the rules and regulations of the Stock Exchange Board of India (SEBI). SEBI is also a responsible body for regulating the stock exchanges, their development, and protecting the rights of the investors.
This also means that the time an investor invests in the financial product on the stock market then their interest will be well protected by the regulatory framework which is lead by the SEBI this helps in reducing the risk or any kind of fraud that can happen by companies.
Flexibility to Invest in Smaller Amounts
Also being a new investor you have to start with small investments in the market by buying the small-cap or mid-cap stocks or buying large-cap stocks but in smaller units. Investing in stock doesn’t demand any kind of fixed amount; it depends on the investor how much they want to invest.
Another best feature is that one can directly invest in the stocks that you can buy at your own discretion. There is no compulsion of investing a particular sum of money every month.
The dividend is a kind of extra investment for the investors that are usually paid annually. This payment usually comes when the stock has lost value and represents the income on top of any profit that comes from sling the stock.
This income can also help you fund a retirement or pay for further investment to grow the portfolio over time.
An Ownership Stake in the Company
Another profit of investing in the stock market or buying a share is you are buying the ownership of the company. share s gives you a sense of ownership which is a plus point. Shareholder plays an essential role for the company as you hold the power to vote in those decisions taken by companies.
Also, there are many instances where the shareholder has played a major role in preventing the company management from making haste decisions that are full of their interests.
Also, the investor gets the company’s annual report in order to know about the overall growth of the company.
The loss that comes with Investing in Stock Market
We have discussed the advantages of investing in the share market but as we know when there is profit there is a loss too. The share market is volatile which means there can be followed up loss too.
Here is the list of the loss that you can actually face in the share market
Commodity Price Risk
Talking about the first risk that is commodity price risk is simply the risk of the swing i the commodity market. The swings mean the volatility which affects the investment in the share market. The one investing in the share market get the benefits when the shares go up but loses equally if it drops.
Even the companies or investors who have no connection have to face the commodity risk. If the commodities price rises the consumers usually tend to follow the spending which risks the effect on the economy and the service economy too.
Another risk that comes with investing in the share market is the media stories or the news. These stories, news can make or break the company’s image. No company is safe from the headline risk and this risk is worldwide you never know when things get to change.
One bad news or bad headline can create a backlash for the company and will lead to degrading their share value and the sector. Often the large scale bad news such as the debt crisis can affect the economy too, so this doesn’t only target the stock alone but can have an effect on the global economy.
Another loss that can come is via the Rating risk that occurs when a business has given out a number to achieve or maintain. Every business has a credit rating which is important for every business. The credit rating affects the prices of the business and plays a major role in the pay for financing. Usually, the public traded company usually has the number that matters more than the credit rating. This number is called the analyst rating. If there is any up and down to the analysts rating on a stock it seems to have an outsized psychological impact on the market. The shift in the rating is either negative or positive.
Another well-known risk in the share market is the Obsolescence risk which leads to the way of extinction. The biggest opulence risk comes when the other party knows how to copy the product with the same quality at a way cheaper price. The update in the business is a continuous process. Seeing the current situation of the market, obsolescence risk can increase as the technology savvy and the knowledge gap is shrinking and people have more access to the information and the supplies.
Adding on the risk, the Detection risk is another risk in the share market. This is the risk that doesn’t come in notice soon of the auditor, compliance program, regulator or other authority until it comes out to give a bigger loss. This comes due to the improperly stated earnings or any other type of financial issue about the company hitting the news.
The detention risk can lead to damage in reputation which is difficult to repair and this reason can lead to the never recovering of the company from the financial fraud. This can lead to the share fall and investors can face heavy losses.
Legislative risk is also a known reference to the relation between the government and the business. This risk comes via the government influence or the actions contradict by them. This adversely affects an investor’s holdings in that company or industry. The risk can be calculated in several ways such as an antitrust suit, some new government regulations or standards, specific taxes and so on. The risk by the legislative varies in terms of the industries The legislative risk varies in degree according to industry, but there are some other effects.
In short, government action acts as the make and break rule for the interests of businesses and the public from grinding on each other.
This also works in both positive ways or negative ways for the potential investors. If the policy gives a positive kick to the company then there can be a profit but if this goes round the way then this can lead to the loss too.
Risk of Market value
Market risk is another well-known risk that comes in the share market. This happens when the market turns against the investment or ignores the investment. This usually happens when the market goes off chasing which is being the next hot thing or something that can gain the attention that leads to the many goods but in the process leave behind many deserving companies. Another reason behind the market collapse is because of the good stocks as well the bad ones due to which the investors are taken down the market.
For some investors, it looks like an opportunity to stock up the different stocks and have a portfolio full of great stocks at a time when the market isn’t bidding down the price. On the other hand, this doesn’t give the benefits of watching your investments flatline month after month while other parts of the market are gaining the profit.
The best way to handle this is not to invest in one sector of the economy. By diversifying your investments across several sectors, the investor has a great chance of hitting the growth of some of your stocks at any one time.
Fear of Taking Risk
Also, the risk in the share market when you are very conservative related to your investments. Being too careful about your investment can lead to you not reaching your financial goals. So one needs to be more active in the investment as the loss comes with gains too. Taking risk in the share market is important as without risk there is no profit possible. You investors who are new to the market can start with less but when they understand can take the risk as there is an ample amount of time to make the money.
Concluding the article of benefits of investing in Stock market as the market will provide you with profit. Try diversifying your portfolio as this will cut the risk of loss and will keep you above inflation. Apart from this, you have the freedom to choose the company where you want to invest. It is your money, your decision. This will also help in serve as a much-needed liquidity cushion.
If you want to Start investing in the stock market, you can choose the best stock broker in India