Personal Finance

Benefits of Investing in Stock Market5 min read

January 18, 2021 4 min read

Benefits of Investing in Stock Market5 min read

Reading Time: 4 minutes

Do you often hear about a friend of friend or relatives or office colleagues who have earned a good amount of money by investing in stock markets, after which you think it’s an amazing idea to invest in markets. But, that idea takes a backseat because you tend to think about the cons of investing like risk and the fact that it may be time-consuming. But let me tell you that diversifying your financial portfolio beyond fixed deposits, gold, and mutual funds is necessary and there are great benefits attached to it.

Also, investing has become much easier with evolving technology, now buying or selling stocks is just a click away. Now each one of you can invest in markets and enjoy all the benefits one can get from investing in stocks. Let your money work while you relax and enjoy!

Here are some benefits of investing in equity markets

Gains

The most important aspect of investing directly in markets is the potential of the market to deliver the kind of gains it does.

Historic data suggests that stock markets have always passed the test of time, they have risen in value over a period of time, even though individual stock prices fluctuate on a daily basis.

Investing in companies that showcase a stable graph of growth and tend to clock higher profits every quarter or investing in sectors that add to the economic growth of the country will result in steadily building your wealth and increasing the value of your investment over a period of time.

Hassle-free trading

Buying and selling stocks or stock trading is no longer a complex mechanism. With the Paytm Money app on your mobile phone, trading is just a click away.

You can regularly monitor your investment in stock markets and trade along with your full-time jobs as it’s no longer a long and tiring process.

Guard Against Inflation

The primary purpose of investments is to secure our future, but we need to check in upon inflation from time to time.

If inflation and the rate of return on investments are similar then our gains become nil. The rate of return on investments should be ideally higher than inflation.

Stock markets or benchmark indices (Nifty and Sensex in the case of India) have always stayed ahead of inflation.

For instance, if inflation is around 3-4%, then markets have clocked in yearly gains of around 10%.

Liquidity

Stocks are termed as liquid assets i.e. an asset that can be easily converted to cash, which has many buyers at any given point in time.

The same is not the case for all assets, it is difficult to find a buyer for some assets like property. It could take months to cash in on the investment made in the property. However, in the case of stocks, it is much easier.

The average daily volume of transactions on NSE and BSE is high, which means that there are multiple buyers and sellers for a single stock.

Advantage of the Booming Economy

The stock market is always a factor in the booming economy and reacts to all the economic growth indicators such as GDP, inflation, corporate earnings, and so on.

Stock market investors are the ones who can take direct advantage of a booming economy and the value of the investment grows in proportion to economic growth.

When an economy is on a path of growth, corporate earnings are boosted, as a result of which the average income of an individual increases.

This in turn affects consumer demand, leading to an uptick in sales. Hence, the value of your investment in a particular company increases i.e the share price increases.

A Well Regulated and Transparent Framework

The Indian stock market is regulated by the Stock Exchange Board of India (SEBI). SEBI is responsible for regulating the stock exchanges, their development, and protecting the rights of the investors.

This means when investors invest in financial products on the stock market, their interests are well-protected by a regulatory framework laid down by SEBI, which helps in reducing risks of fraudulent activities by companies.

Flexiblity To Invest in Smaller Amounts

As a newbie investor, you can start with small investments in the market by buying small-cap or mid-cap stocks or buying large-cap stocks but in smaller units. Stocks do not demand a lump sum investment amount.

Another feature of directly investing in stocks is that you can buy at your own discretion there is no compulsion of investing a particular sum of amount every month.

Dividend Benefits

A dividend is an additional income for investors, which is paid annually by most companies.

Dividend payments arrive even if the stock has lost value and represents income on top of any profits that come from eventually selling the stock.

Dividend income can help fund a retirement or pay for even more investing as you grow your investment portfolio over time.

An Ownership Stake in the Company

Buying a stock essentially means that you are buying an ownership stake in that particular company. It will give you a sense of ownership in the company that you like.

It means that you as a shareholder play an important part in a company’s decisions, you have the power to vote in those decisions. There are several instances when shareholders have prevented company management from making unreasonable decisions that are detrimental to their interests.

The company’s annual report will be sent to you in order to know about the overall growth of the company.

Conclusion

You must actively look at investing in stock markets and diversifying your financial portfolio because with that you can stay ahead of inflation. Apart from that, you will have the freedom to choose which companies to invest in, and also it will serve as a much-needed liquidity cushion.