The share market or stock exchange is essentially a market where the shares, equity and securities of public limited companies are traded. It is the place where companies primarily float shares to the general public in order to raise capital through an initial public offering or IPO. The stock exchange is governed by the Securities and Exchange Board of India (SEBI). A share market allows traders and stock brokers to buy and sell the shares of a number of companies in order to make a profit.
The investments made in the share market can be either short term or long term. The shares or stocks of a particular company can only be bought and sold, however, if the organization itself is listed on the exchange. While only the shares of listed companies are bought and sold on the share market, other instruments like mutual funds, bonds and derivative contracts are also traded on the stock market. The practice of share trading is known to be a lucrative form of income and investment. However, it also carries a major element of risk, particularly in the short term.
Reasons to Invest in the Share Market
Some of the reasons why investing in the share market might prove to be a savvy financial decision in the long term have been listed below for your perusal.
- High Returns: Equities or shares provide almost consistently high returns on investment over the long term. A properly diversified equity portfolio can provide inflation-beating returns over the period of a few years or even decades. Therefore, investment in shares is one of the best long-term wealth creation strategies, as it will ensure that your savings are not wiped out by inflation over the years. Buying the shares of companies having excellent growth potential is one of the best ways of creating a sizeable retirement corpus within a few years.
- Liquidity: Shares are a highly liquid type of asset because they can be bought and sold at any time and at the trader’s discretion. The shares of large companies are traded in markets around the world and can therefore be liquidated quickly and with minimal hassle in case the owner has an immediate requirement for cash. This makes equity a preferred form of investment over fixed deposits, recurring deposits or direct investment in companies, as the investor can opt out at any time without suffering any penalties.
- Control: Share ownership essentially means that you own a part of the company itself. This gives you a certain amount of corporate control. The amount of influence you have over the decision-making process of the organization will depend on the type of share you own as well as the size of your shareholding. The more shares of a company that you own, the more sway you will have over key decisions such as the election of the board of directors.
These are some of the major benefits of investing in the share market. If you are a beginner, however, then you should seek the help of a reputed stock broker or share trading company in India to start your journey in the share market. This will ensure that you can maximize profits over the long term while minimizing the risk of capital loss over the short term.