People usually invest in the stock markets for higher returns. True, stock markets are unpredictable and equities are considered the riskiest class of assets, but it is also a fact that equities provide the highest return over the long term, if chosen carefully. However, higher returns are not the only benefit which a stock market provides. Stock market investments, in fact, have many unique and significant advantages which lure investors towards the market. Here we are taking a look at some of them:
1. Hedge against inflation: To begin with, stock investment is the best way of protecting against inflation. “Over a long period of time, equity investment returns are normally significantly higher than inflation. This is true across different periods of time and geographies. Moreover, usually the equity returns in the long run not only beat inflation, but are better than the returns from other asset classes,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
2. Amount of choice: Secondly, equity allows you to invest in amounts of your choice and affordability. If you opt for equity mutual funds, which are one of the best ways to invest in stocks, you can start with as low as Rs 500. So, it is wrong to assume that stock investment is only for the rich.
3. Liquidity: Stock investments are always liquid and you can get back your money within a few working days. That is because a large number of investors buy and sell their stocks on a regular basis, which makes equities a liquid investment, unlike other assets which take some time to sell. For instance, if you want to sell your property, it may take even a few months to find a buyer.
4. Flexibility of redemption: You need not redeem your entire equity investment at one point of time. You may stagger it over a period of time as per your requirement. This flexibility in redemption is a very useful feature of stock invdestment.
5. Easy to track: Since stock investments are traded regularly, it is fairly easy to track your investments and get an update whenever you wish to.
6. Tax advantage: Stock investments in India enjoy various tax advantages. Dividends and long-term capital gains are tax free. “Even short-term gains are taxed at a meagre 15%. Moreover, you get Sec 80C advantage on investing in equity-linked saving schemes. No other form of investment enjoys so many tax advantages,” says Kapur.
This is, however, not to suggest that there are only good things about stock investments and you will always make big money by investing in the stock market. The fact is you may even lose your entire investment if you don’t follow a disciplined investment approach and invest in the market without a great deal of research and a sound understanding of the market. So, be careful and it will pay you in the long run!