Why invest in stocks, what is the way?

By iittm Editor November 8, 2022 1:08 PM IST

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Often the list of billionaires keeps coming in front of us. They are called billionaires because their stock holdings are valued in billions. Billionaires from Jeff Bezos to Bill Gates and Elon Musk have the vast majority of their wealth in the form of their own companies or stakes in other listed companies. Call it stocks or equity, it is a part of the company that issued it. You bought it i.e. you got a special stake in the assets of that company. And when the business of companies increases, their profits increase, then obviously the value of their shares increases and with this the investors become rich.

You can get a hallmark of this from the estimate of how much wealth the Indian stock market has created in the last 40 years. Comparing this with assets like gold, bank FDs and PPF accounts, the picture becomes clearer. If someone had invested one rupee in gold in 1982, then its value would have been 30 rupees 14 paise today. The value of the FD would have been Rs 43 64 paise. Had the same money been in the PPF account, it would have increased to Rs 48 67 paise. But today the Sensex is about 566 times as compared to 1982.

Stock market is the king of returns
If someone had invested five thousand rupees in the Sensex in 1982, then in the year 2022 its value became 28 lakh 25 thousand rupees. In comparison, the value of this investment in gold will be Rs 1.5 lakh today. The same five thousand rupees in bank FD would have increased to Rs 2 lakh 15 thousand today and in PPF by Rs 2 lakh 45 thousand. This is the wealth making ability of the stock market. 10, 20, 30 or 40 years, whatever period you look at, the stock market has outperformed every asset class.

Apart from this strong growth potential over the long term, the tax aspect
is another major advantage of investing in stocks. Stocks and Mutual Funds are not only the best way to make money in the long term, but they are also the least hit by tax. If you are in the highest tax bracket of 30 percent, then the tax liability will be made according to this slab on the returns received from bank FDs. On the other hand, if you hold the investment in shares for a year or more, only 10 per cent is taxed.

growth potential
India’s economy is growing the fastest even in this difficult period. India’s GDP is estimated to be $5 trillion by 2026. By 2031, GDP could be $10 trillion. The biggest contributor to this growth will be the corporate world of India and obviously the biggest beneficiary will also go to him. Therefore, if you invest in the shares of these companies, then you too will be able to become a participant in this growth story of India and obviously the rich too.

Investment opportunities in the stock market can be found not only in Indian but also in foreign companies. If you want to invest in companies like Apple, Microsoft, Netflix, Nike or Amazon, then there are many international platforms and mutual funds for this. There is no harm in diversifying your portfolio outside India. Many global companies have a great track record and have good growth potential.

The only caution is that you have to pay attention to the difference between good and bad companies, only then you will be able to make money from the stock market. Shares of good companies will increase your money fast, while shares of bad companies can cost you big.

Homework is necessary
Nowadays all the information is available on the internet about investing money in the stock market. You can do the research yourself. Before investing in shares, one should go through the website of companies and understand their financial statements. Why did sales increase? Or why the profits decreased? Is the company’s market share declining in its segment? What is the reason? Is the share at fair price or not? You should find answers to such questions. If you cannot do this yourself, then take the service of a broker. He can help in choosing good stocks. Investing in mutual funds is also a good way as they are managed by professional fund managers and regulated by the market regulator SEBI.

Remember one thing that if you want to create wealth from the stock market, then invest money for a long period. Broadly, the investment should be for five to seven years. If there is a downtrend in the market during this period, then you should not panic and sell your investment at a loss.

How to open Demat account?
Demat account and trading account are required to invest in listed shares. Both of these should be linked to your bank account. Apart from shares, you can also hold mutual funds, gold bonds, government securities and insurance plans in a demat account.
To open a demat account, a depository participant has to be selected. You can do this through banks, stock brokers and online investment platforms. You can fill the demat account opening form by visiting the DP’s website. Documents related to Know Your Customer like identity proof, address proof, bank account statement and income proof will also have to be provided. After providing the KYC details, you will have to go to the service provider’s office for verification. By the way, many depository participants nowadays also do the verification through webcam or smartphone. Thereafter, you will have to sign an agreement with the Depository Participant. This agreement details the DP and your responsibilities and rights. And finally you are given the Beneficial Owner Identification Number. Through this ID you can access the demat account.

It is better that you choose a Depository Participant who offers all the three services – Savings Account, Demat Account and Trading Account. This makes trading very easy. Factors like account opening fee, annual maintenance fee and transaction fee should also be taken into consideration while choosing a DP. Some depositories do not charge for intraday trading.

After accessing the account, you log in. Select the shares you want to buy. Money will be deducted from your bank account for this purchase. After selecting the stock, decide at which price you want to buy it. After this you will take the necessary steps for the purchase and the order will be transferred to the DP. The purchase process will be completed when the seller’s price matches with your price. Shares are credited to your account within two days after the trade.

in Indiainvesting in stock marketThe issue is quite new. According to an estimate, less than 4 percent of the people in the country invest directly in stocks. In comparison, 48 percent of people in America invest in the stock market. The stock investment environment in India is gradually consolidating. Online platforms have made it very easy to buy and sell shares. Those who can choose good stocks can also make good money from the market.

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