Benefits and Risks of Investing in Stocks

Stock market is one of the most popular forms on investment not only India but across the globe. Investing in stocks is a great way that leads to creation of wealth. Decline in the fixed deposit interest rates and falling real estate prices has now made equity investments more attractive. One of the reasons why investors are looking forward to equity investment is because it gives them opportunities and exposure to an array of industries from different sectors that provide growth and diversity within an investment portfolio. Historically, stocks have provided more potential growth in the long term and therefore investing in stocks, mutual funds, is important if you are planning to save for the retirement. You can also refer to sites like Bankbazaar.com, which give a fundamental analysis of the companies listed on the markets.

Benefits and Risks of Investing in Stocks

However, similar to other investments, equity investment has its own advantages and disadvantages. You need to invest smartly in order to lose less and garner sizeable amount of returns. Let’s take a look at benefits as well risks associated with investing in stock market.

Benefits

  • Wealth Creation: If you have invested in a stock after conducting enough research, there are higher chances of gaining good returns from it. With a diversified investment portfolio, you have better opportunities to get returns as each company belongs to a different sectors depending upon the economic condition. Economic growth leads to creation of income and as the former grows, it gives further rise to corporate earnings. Stocks have been always been considered as a long-term opportunity that helps in improving your health.
  • Ownership: When you buy a stock, you essentially own a small part of the company. The share of the ownership may be small but you can increase it by investing in several companies. This way, you can also improve your position in the market.
  • Capital Appreciation: The stock market is designed to grow up as time passes by. growth asset as they are essentially linked to the revenues of the company’s business. Stocks also have a potential to give your in a relatively shorter time. Eventually, the stock market tends to rise in value even if the prices of various stocks see a rise and fall on a day-to-day basis.
  • Income from Dividends: Investors who have invested in some top companies have a greater chance of getting income in the form of dividends. There are companies that pay out dividends in good as well as moderate economic conditions. Also, if an investor has a diversified portfolio, he/she will keep receiving income throughout the year in form of dividends from stocks that belong to different sectors.
  • Liquidity: One of the top features of stocks is that they are a liquid investment. As stocks are traded in all the major exchanges in the world, you can easily buy or sell them. In case of emergency, investors can quickly convert the stock into cash. It must be noted that stocks are not as liquid as the balance in your bank saving account. However, there still have a pretty strong liquidity element to it. In comparison to direct investments, stocks are relatively easier in case of ownership transfer and the movement of equities.

Risks

  • Volatile in nature: First and foremost, the nature of the stock market is volatile. The performance of market is based on several external factors like economic conditions, political stability, and so on. Moreover, you have to keep a tab on the stock value with the fear that the market might crash anytime. Plus, it is hard to plan your finances in advance as the returns amount is not fixed.
  • High risk of losing investment: If you don’t invest in the right type of shares or invest in the right company but it does not perform well, you may end up losing a chunk of your investment. Stock markets will never be risk-free as there will be constant fear of coming across a market crash.
  • Time consuming: Investing in stocks is not as easy as putting your money in a fixed deposit. You have to research and gain a lot of knowledge about stock before investing. Moreover, you have to keep a tab on the company’s performance and follow the news about the same. Stock investments requires a lot of time before you yield returns.

To sum up, investing as any other investment, stock investment has its own pros and cons. If you have done your research well and have created a well diversified portfolio, there are chances you will gain a decent amount of return from the investment. At the same time, you should be aware of the risks involved in equity investments. In addition to stocks, you can look at mutual funds as a secondary form of investment. There are several mutual funds that offer tax benefits .

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