The primary objective of investing is to ensure that every person is able to meet his or her future financial objectives. Rise in inflation makes it inadequate for individuals to simply earn and save some part of their incomes. To meet the price increases due to inflation, investments become important. The stock market is one of the oldest and most popular investment avenues due to several benefits of investing in stocks.
Higher Liquidity
In the Indian stock market, two exchanges, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) play important roles. Most companies trade their shares on either or both of these exchanges. This provides higher liquidity to investors because average daily volumes are high. Therefore, if an investor wants to buy or sell any product on the stock exchanges, this liquidity makes it easy.
Versatility
The stock market offers different financial instruments, such as sharesm, bonds, mutual funds, and derivatives. This provides investors a wide choice of products in which to invest their monies. In addition to providing investment choices, this flexibility is beneficial in mitigating the risks inherent to stock investing by enabling diversification of investment portfolios.
Higher Returns in Shorter Periods of Time
Compared to other investment products like bonds and fixed deposits, stock investing provide investors an excellent possibility of making greater returns in comparatively shorter time periods. Adhering to the stock market basics, such as planning the trade, using stop-loss and take-profit triggers, doing the research and due diligence, and being patient can significantly mitigate the risks inherent to stock investing and maximize the returns on share market investments.
Acquire Ownership and Right to Vote
Even if an investor acquires a single share in a company, he acquires a portion of ownership in the company. This ownership, in turn, provides investors the right to vote and offer his contribution in the strategic movement of the business. Although this may seem like an exaggeration, it is true and there are several instances when shareholders have prevented company management from making unreasonable decisions that are detrimental to their interests.
Regulatory Environment and Framework
The Indian stock market is regulated by the Stock Exchange Board of India (SEBI). The SEBI has the responsibility of regulating the stock exchanges, its 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. This significantly helps in reducing risks due to fraudulent activities of companies.
Convenience
Technical development has influenced every aspect of modern living. The stock exchanges are also using various technical advancements to provide greater convenience to the investors. The trades are all executed on an electronic platform to ensure the best investment opportunities to investors in an open environment. In addition, broking service providers offer online share trading facilities that make investing convenient, because investors can place their orders through a computer from the comfort of their homes or offices. The demat account makes it easier for investors to hold all the products within their investment portfolio electronically in a single location, which makes it easier to track and monitor the performance.
Although stock investing has several benefits, investors must also be cautious while making their decisions. Understanding the stock market basics and doing their research before investing is advisable to mitigate risks and maximize returns.
FAQs
What is the most important thing in the stock market?
Some of the most important things to know about the stock market are – how the market works and how it is impacted by global and domestic economic developments. When it comes to individual stocks, you study their fundamentals, which include historical financial performance, key ratios, management, corporate governance, corporate actions, etc.
What are the benefits of the stock market?
Some of the benefits of the stock market include building wealth over time by earning returns on your investment. Furthermore, it also helps to diversify your portfolio by investing in diverse sectors. Some equity instruments also offer increased flexibility and liquidity in the market.
Why the stock market is important?
The stock market is essential to the economy as well as the investors. For the economy, it allows companies to raise capital by offering stock shares and will enable investors to be a part of the company’s financial achievements. For the investors, it helps them build wealth by earning returns over their investments.
What are the advantages and disadvantages of the stock market?
The advantages of the stock market include capital appreciation, dividend payouts, portfolio diversification, liquidity, and co-ownership in companies. The stock market also has disadvantages, including high risk, volatility, high brokerage on trading, companies going bankrupt, etc.
