We all have that one guy or one relative who always says that don’t invest in the stock market, it’s too risky, you’ll lose all your money, and you’ll get vanish. So, in this article, I am going to give you some points that you can use in defence of the stock market.
Here we are going to talk about some benefits of the stock market and why you should invest in it. Investing in the Stock market can be risky. We all know that, but if you know how to manage the stocks you buy and have more financial literacy, then at the same time stock market can make you really wealthy and can create passive income!
But before getting into all the perks that stock market offers, you must know your WHY. Why to invest in stock market? Refer this article here.
Table of Contents :-
Here Are the Benefits:
3) Loan Against Stocks held in Demat Account
4) Protection Against Inflation
6) You Become Equity Owner of The Company
7) You Get Voting Rights in Company
9) Well Regulated Framework
Let’s understand each one by one! So, without wasting your time, let’s get into it.
There are many types of stocks, as you can see in the below image, and there is one type of stock called growth stock. Growth Stocks are basically the type of stocks that have solid fundamentals, performed well historically, generates a good amount of revenue and expected to grow rapidly in future (Rise is the price of the stock).
If you are a teen who has some amount of money and time also, then it is better to put that money in growth type stock because that can generate good returns in future years. Now it’s not enough to get returns, but how much return does it give? So, on average, a bank gives you a return of 4%-5%, but at the same time, a growth stock can deliver you 13%-14% returns easily, which is quite attractive and lucrative to get. Growth Stocks don’t pay much dividend because they reinvest all the profit in their business, aiming for the expansion of the empire.
If you buy some growth stocks and hold them for some years (Long Term Investment) and then sell them whenever you want or need them, then you can get huge returns.
“Govt seeks Rs 19,000 crore dividend from oil companies: report”. Does government get 19,000 crores from dividends? Well, this is shocking, isn’t it! Let me explain it to you. First, let us understand what dividends is. Dividends are basically a fraction of a company’s profits that is paid to the people who own shares of it. Dividends are a great source of passive income.
Well, I won’t lie, 19,000 is a huge amount of money to get as a dividend for a retail investor, but you can still get a good amount of dividend from dividend stocks (The stocks which pay a dividend at regular intervals.) Let’s say you own 1000 stock of a company called “ABC”, and it pays $5 as a dividend twice a year, then you get $10000 as a dividend which can pay for your expenses. Owning that 1000 stocks would not be easy, but even if you start buying them at intervals, someday, it can pay you as a good source of passive income and can help you to become financially independent.
3) Loan Against Stock Held in your Demat Account:
In life, it is not always bad to take a loan, there are debts that can help you to achieve your goals faster, but not every bank is willing to give you loans easily without any securities to deposit and here comes your Demat account in play. Do you know? That you can take the loan against the stocks held in your Demat account! Well, it is possible, there are some conditions, but it is possible. It also includes many benefits:
a) Loan Process is easy; you can use Net banking to apply and approve.
b) Pay interest only on the amount you use
c) Set your own loan limits (minimum Rs 1 lakh and maximum Rs 20 lakh)
d) No need to submit any documents
e) Attractive Low-interest rate and processing charges
f) Choose the shares and mutual funds you want to pledge, and enjoy the flexibility to change them in the future
4) Protection against Inflation:
Inflation is really quite a problem we have today! But not to worry, you can use the stock market to stay in the game and beat inflation. Inflation is “Price rises with time”, the resources become expensive over the years, and this is what we call “inflation”!
The money remains the same, but the prices rise up. And now you cannot buy the same thing you can afford in the year 2000 with the same money in 2020. But you can choose good stocks with strong fundamental and good potential for growth. You can easily beat inflation. For More Information, you can read this really useful article of ours https://capitalistcabin.com/stock-market-investment-free-guide-to-beat-inflation/
This is one of the investors favourite reason to invest in “LIQUIDITY”. “Liquidity in basic terms is how easily you can convert an entity into cash”. Shares do have high liquidity; you can easily buy and sell shares within seconds with the ease of 4 to 5 tap on the screen. The problem with other investment instruments like real estate, bonds, business etc., is that they do not have that much liquidity as much as shares have.
If you are stuck with a bad real estate deal, then you will have to wait for days, months or even years to get out of it, and this is a serious problem because the money you spend on the deal is not stagnant, and you can use that money. The stock market overcomes this problem; even if you have made a wrong trade, you can easily sell those shares and get your money back.
6) You Become Equity Owner of The Company
Well, isn’t it cool to be an owner of a huge company or be a part of that company’s journey? If you buy a share of a company, you become a shareholder of that company, which makes you an equity owner of that company. The Best part of being an equity owner of the company is now your investment’s growth is now attached to the growth of that company. If the company plays well and move forward to growth, then you will get a huge ROI (Return on Investment).
There is a saying that “Treat your stocks as a business, and it will return profits just like a business”. So, all you have to do is find a company you trust and do some research on their performance and management. If you believe in that company, invest your money in it and treat it like it’s your business. Don’t afraid of small fluctuations and go for the long term, and I am sure it will give you a good return.
7) You Get Voting Rights in Company
As a shareholder of that company, you get the right to vote in the company’s decision. Each and every shareholder of the company has an equal right to vote in the company’s decision.
Every voter gets one vote to submit. If the shareholder of that company cannot attend the annual meeting of investors and company, then he can submit his proxy voting through e-voting. Whenever there is an annual meeting for voting, you will get an email on your registered email address (Demat Account) with venue and timing, also an option for e-voting where you can vote without even going out of your home.
This is one of the most important things to remember, “Diversification”. If you have ever read a novel on investing or listened to the podcast on investing, you must have heard of the term “Diversification”.
Diversification is basically to invest your money into multiple assets, so even if things go wrong with one investing instrument, the other instruments will balance it out. There is a saying, “Never put your eggs in one basket”. Let’s understand this if you have $50000 in your account, and you bought land of all of $50000, and suddenly due to cancellation of the nearby projects or any other reason, the price of that lands start depreciating, and now your investment gives you negative return.
That’s going to turn your face red, and obviously, you would not want to be in that position. So, let’s take the second scenario if you have invested the same amount of money and invested it in multiple assets like stocks, golds, land, bonds etc. then even if lands depreciate, you will still have stocks, gold and bonds with you having some good returns that can balance out the negative returns given by land. And that’s how diversification can solve the problem of risk management. So, stocks can help you to diversify your portfolio and gives you a healthy investment return.
9) Well Regulated Framework
Many of the Investing Instruments does not have a validated, regulated and transparent framework. In the case of real estate, the seller might manipulate the buyer into buying troublesome land, which might have some conflict with Govt or neighbours. And after buying that land seller will be free to move, but it’s the buyer who will get stuck into the problems and have to deal with them. But in the Stock market, there are the least chances of that manipulation.
After past scams and frauds in the stock market now developments have been done, Now the stock market is well regulated by the centralized authority that takes actions and maintains ethics in the market by punishing those who try to break the ground rules or try to do insider trading. In the USA, the stock market and derivative market is regulated by SEC (Security and Exchange Commission) and CFTC (Commodity Futures Trading Commission). In India, the stock market is regulated by SEBI (Securities and Exchange Board of India). So, it’s safe to invest in stocks markets these days.
Globalization really played an important role in booming the economies of nations. Globalization can also be utilized in the stock market. Do you know that you can buy the stocks of reputable US companies like Apple, Netflix, Nvidia etc., from India by just tapping on the screen 4-5 times? It’s really that easy! Yes, by using apps like grow, you can buy US stocks by sitting at your home in India. Buying stocks of other nation also helps you in diversifying your portfolio.
For e.g., Due to some economic crisis, Election Result or war, your nation’s stock exchange drops significantly, and your portfolio is going all red, but if you have invested some amount of your money into foreign stocks, then you wouldn’t have to worry about it that much. You can also invest your money into the Mutual Funds that invest in foreign exchanges.
Fun fact: When you buy a US stock from India, not only you are putting your money in That stock but also in the USD vs INR Currency. Which gives you a little edge on investment because INR value is decreasing, and it’s going to benefit you when you convert the dollar into rupees after selling your stocks.
Do you still feel confused? Don’t worry; we got you! Comment Below, And we will reply to you within 24 hours or Just Hit us with a DM on Instagram @capitalistcabin. We would love to help you. Till then – We would love you to read our Personal Finance blogs!