Investment in Stock / Capital Market Money - Money -Money
Why the stock market has influenced not just the youngsters (millennials) but people of every age.
There are numbers of reasons why you should also invest in stock market instead of the traditional methods of investing for better benefits.
We can find at some of the major reasons why you should invest in the share market.
1. Beat the Risk of Inflation
Inflation is a common phenomenon of the economy & often affects the return of an individual. The stock market is said to keep pace with the inflation rate and beat it. If you pick the right stocks you can actually get great returns even when there is high inflation.
The stock market always stays a step ahead of the inflation rate. The average return that the stock market can generate in a year is almost 12-16% which is far better than the average annual rate of inflation.
2. Benefit of Economic cycle growth
The economic cycle goes through variations and does not stay the same always. The changing economic cycles also affect the stock prices of respective industries.
So whenever the economy is in the expansion phase or growing immensely, there are better opportunities for the company. This creates a direct impact on the stock prices as well.
So, if you figure out the stocks that are in sync with the expanding economic growth, there is a great chance that you can also get great returns in a long run.
3. Compound Interest instead of Simple Interest
When you understand the power of compounding, how stock market investment helps you in understanding the way of making a profit from it.
The stock market works wonders in giving great profits because of the idea of compounding attached to it. So if you invest in the right stocks for longer horizon, you can actually earn money in the share market and much more than any other traditional investment option.
Let us understand this with the help of an example. Suppose you invested ₹1,00,000 in the first year and got a 12% yearly return on the same. This means your amount is became, ₹1,12,000 at the end of year. And now for second year return will be calculated on the new invested / principal amount which is ₹1,12,000. If you generate a 12% return in the second year as well, the amount will now be, ₹1,25,440.
So, in this way you get great returns from the stock market.
Share Market Investment
If you are looking to invest in the share market, then there are number of types that you can choose from.
Investment in Equities – Primary Market (IPO/FPO) / Secondary Market
You can invest though IPO/FPO of the Companies which are going to raise the capital from public through equity shares or you can open account with market participants (Stock Brokers) and invest in equity shares of companies already listed in the stock market. You can also trade effectively in the stocks.
Mutual Funds – If you don’t want to invest directly in the stocks, you can choose a mutual fund and get great returns on it. Some mutual funds are capable of giving good returns as they are managed by Fund Managers having better knowledge of investing in stocks.
Systematic Investment Plans (SIP)- SIP plan is also a great way to invest periodically with discipline a pre decided amount for mid to long term in Mutual Funds and get benefits of the stock market.
Currency- You can hedge your foreign currency fluctuation risk as per your requirement / commitment in foreign currency through stock market.
In the above SIP-15-15-15 when you will be investing Rs. 15,000 for 15 years and expected return 15% p.a. *(which generally equity in India gives) , then against your investment of Rs. 27,00,000 you will get return of Rs. 74,52,946 and your Corpus will be of Rs. 1,01,52,946*
Further the same amount when you will opt for SWP (Systematic Withdraw Plan), you will get 1,18,000*/month for next 30 years.
*Investment in capital market is subject to market risk, please read offer documents before investing
In the above two illustration No 1 when you will be investing Rs. 3000 for 15 years and expected return 15% p.a. (which generally equity in India gives) , then against your investment of Rs. 5,40,000 you will get return of Rs. 14,90,589 and your Corpus will be of Rs. 20,30,589.
In the above two illustration No 2 when you will be extending investing Rs. 3000 for 15 years + 6 more years and expected return 15% p.a. (which generally equity in India gives) , then against your investment of Rs. 7,56,000 you will get return of Rs. 45,62,018 and your Corpus will be of Rs. 53,18,018.
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