For many share market is a place to make some quick buck. However, it is not the case. Besides this, there is a stigma attached to share market. Many people think it is for gamblers. This is also not the case. Today, share market has emerged as a viable investment avenue. In fact, a large number of invest a portion of their savings in share market with a long-term vision. This emergence of share market as an investment avenue which can reward in the long-term has certain factual basis to it. Let us understand this with help of certain important variables:
High return
Good quality businesses typically generate high return on equity. Generally the Return on Equity (RoE) exceeds inflation and compensates for risks. Hence, returns in shares beat the rate of inflation in the long term. If an investor can spot some multi-baggers, then she can create considerable wealth. Dividends declared by companies can further enhance returns and improve cash flows.
Tax-efficient income
While salary and interest income is taxed at marginal rate of tax, the capital gains earned on investments in shares are taxed at lower rate of tax. Gains earned on stocks held for less than one year are taxed at 15 percent rate of tax and gains earned on stocks held for more than one year, are taxed at 10 percent rate of tax if the gains exceed Rs 1 lakh.
Participating in multiple businesses
If you decide on becoming an entrepreneur, then you have limited bandwidth. It is also difficult to run ten businesses simultaneously. However, when you buy shares of ten different companies you effectively have stake in ten different businesses. You benefit from these multiple businesses at the same time without getting involved into their operations. This approach of investing in shares of different companies not only increases chances of making more money but it also reduces risks. This means that if one business fails or does not deliver as much as it was expected to do still there would be some other business which will reward you. Share market investments thus help you to benefit from the growth in various businesses.
Liquidity
Compared to physical assets, financial assets enjoy more liquidity. Shares of reputed companies are liquid. You can sell it in no time and realize money in two days. The settlement of stocks takes place on T+2 basis.
Legacy creation
If you own a business then handing it over to your next generation may be a task if the next generation is not interested in running it. But when you own shares (stake) of a company, then you can easily transfer it to the next generation. The stocks are held in a demat account. It is a convenient way of holding shares. It can be handed over to the next generation.
Given these factors, it is advisable to invest in mutual funds. The presence of an expert in the form of a fund manager who works day in and day out on your investments also ensures that you need not be overly worried about your investments.
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