Stock market is not taken seriously in India. But first of all, what is stock market https://en.wikipedia.org/wiki/Stock_market Stock market is a place where buying and selling of shares takes place. 3 parties are involved in it .A buyer,a seller and a broker who sells and buys the shares on behalf of the customer.
Stock market was started in India in 1875 by Premchand Roychand https://en.wikipedia.org/wiki/Premchand_Roychand. Today ,it has become one of the top 10 exchanges in the world .The stock exchanges also signals the performance of the country as whole.I believe that all the students and people should know about it.
But in India, 90 percent have no idea about the stock markets and above all many have misconceptions about it.Many people go to the extent of labeling it as gambling.
In US, 58% of the people invest in share market compared to India where only 3 % of the people invest in share market .https://swastika.co.in/blog/population-participating-in-stock-markets-by-country/
I tried to figure out the reasons for it. I found out that our education system does not give any information about the stock markets from school to post graduation.The family also advises to stay away from the markets just because they also do not know about them.But if we see from positive view it has many advantages of which I will list out 6 major benefits.
- The first benefit is that it helps in financial planning .For more information on financial planning ,you can visit my blog post here https://sidworld.in/5-ideas-for-financial-freedom/
- Financial planning is planning for your future in such a way that when your expenses increases slowly ,your income also increases and you plan for your child’s expenses and retirement in advance and simultaneously create some alternate sources of income ,so that it does not create tensions in family when you really need it.
- Passive income- The second benefit of investing in stock markets is you start getting passive income in the form of dividends. Every good company distributes some of its profit to shareholders as dividend. It can vary from company to company .Some company gives once a year and some multiple times .So it results in additional income for the person holding the share. For example if a person has 1000 shares if ICICI Bank and the company declares dividend of Rs.50 per share ,then the person will recieve Rs. 50000 as dividend income .If the person holds the shares for 20 years, he will continue getting dividend for 20 years.
- Higher returns than inflation -The returns in stock markets are more than the inflation rate .The bank provides an investment product known as Fixed Deposit .It gives a turn of 5% – 9% depending on the bank or financial institution. Then there is one more product called Recurring Deposit which gives a return of 6%. But the inflation of our economy is more than that. So the real returns are negative most of the time. Besides these returns are calculated on simple interest.
- Whereas in stock market ,the returns are compounded over time . The returns are more than the the inflation. So investment in stock market are always more than the returns provided by the tradational products like FD or RD .
- The only caution which you have to maintain is that you have to select good quality stocks which have a good brand value in the market.
- Increase in wealth- The third benefit of investing is the most attractive reason of investing in stock markets.In Indian stock market ,there are many shares listed on the stock exchange .The prices of shares keep on increasing over time. There are many companies whose share price have increased so much over time that it has proved to be multibaggers https://multibaggers.co.in/. Some people have become wealthy just by investing in the shares of good companies.
- For example there is a Tata Company called Titan which was listed in stock market in 2003 .The share price of Titan was Rs.3 .Today the same stock trades at Rs.2681. The increase is investment is of 890 times .
- This example is just for 1 company .There are many companies which have proved multibaggers . So ,if there is risk ,there is return also . And the risk decreases over time if the investment is diversified and well-researched.
The returns in stock markets are so high that if you understand the concept ,you will start disliking the tradational products like Fixed deposits.
- Liquidity-There is a lot of liquidity if you buy stocks .For example a investment made in real estate https://sidworld.in/plots-as-investment/ is very good for returns but at the same time if you want to sell it at a short notice, you will not be able to get good returns on your investment. But stocks are so liquid that once you sell the shares ,you will get the money in your bank account in less than a week.
- Ownership-The fifth benefit is the sense of ownership. When you buy stocks from the stock market ,you are not just investing but you are becoming a owner equivalent to the percentage of stocks held by you. If you buy 1% of the shares of any company ,you get 1% voting rights in the management of the company .If you buy 10% of the shares of the company ,you have 10% voting right in the company.
- Easy to start- Investing in stock market has become very easy. 20 years ago, investing in stocks was very difficult. There was internet which was vey expensive and for each share , share certificate was used and the process used to take months. Today everything has become digital. A new dmat account can be opened in 5 minuted and shares can bought and sold within seconds . A person from Delhi can buy stocks listed in New York and a Canadian citizan can buy Indian shares on a mobile phone.
A person can even buy stocks if he has only Rs.100. I mean to say one does not need big capital to start investing. It can be started from small amounts also .
Besides these benefits ,a stockholder also benefits from spliting of shares, or when the companies issues bonus shares. These benefits altogether makes investing in stock markets quite attractive.