Why to Invest in Stock Market

31 July 2016 | 1123 Views | By Mint2Save

Finding a successful money making story via stocks is not a difficult task at all. The newspapers, TV channels, internet, stock brokers, investors etc. are filled with various various news and results that have made people rich via some wise investment in equity markets or to quote simply, stocks.

Stocks are usually considered as a higher risk avenue and people find themselves better away from it. However, when invested prudently and for a long time, stocks and shares are those rare investments that create wealth. Let us discuss 5 reasons that would help one to take an optimistic view over stock market investment.

Higher Returns that beat inflation: There is no actual growth to the savings and investments unless the beat the inflation. Let’s use an example to understand the relation of investments with inflation.

Let’s say you have around INR 10,000 in your bank account. The bank provides you a return of 4% on the investment that you have made.

The inflation, say is around 10%. This means that the purchasing power Rs. 10,000 would be

10000

_______________

(1+10%)

= INR 9090.90/-

So, with 10000, the actual value you are going to reap after an year is Rs. 9090.90 or 9091, when rounded.

When invested in a savings account which reaps a 4% interest, the inflation would beat down the interest by 6%. Hence, the value after an year would be

10000

_______________

(1+6%)

= 9433.96/-

Based on the similar calculations, the savings in a 8% Fixed Deposit or Recurring Deposit also do not match up against inflation.

However, stocks, on average, reap a return of 15-20%, thus beating out inflation and growing your investment (say 10000) in this manner:

10000x(1+5%)= 10500

The values discussed detail about the purchasing power and not the actual value in your investment.

Dividends and Bonus Shares: A genuine company doesn’t shy away from sharing its profit with the customers and this usually happens via dividends and bonus shares.

Tax Free: The financial world really lacks those investments which are not only helping you save tax, but also fetch good returns. Shares are undoubtedly one of them. When invested for a year or more, all the earnings from that stock are tax free.

Long Term Benefits: The real benefits of investing in stock and shares come when you stay invested for long. Returns in the range of 20% or 30% are easily imaginable and attainable then.

Let us take an example of some of the popular companies whose stocks have fetched us good results, beaten inflation and created wealth.

When Maruti Suzuki was listed in 2003, it was priced at Rs. 213/-. If Rs. 10000 was invested back in 2003, it would have fetched 46 shares of Maruti Suzuki.

As of 2016, July, the same share is priced at Rs. 4700/-, making those 1000 grow to Rs. 2.16 Lacs.

The money growth and returns are phenomenal, but one should not forget that Maruti Suzuki is credible company and has supplied good products at a global level. Selection of a good stock/share is of prime importance, once done prudently, you can expect good returns and wealth creation.

Availability of Wise Investment Opportunities: Well qualified and experienced advisors for the stock market have been in the picture since a long time and have provided out of the box ideas to retail investors. Thus, this risky investment market, advisory significantly reduces the market risk and fetches good returns.