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Embarking on the journey of investing in shares can be both thrilling and rewarding. Whether aiming to build wealth for the long term, generate passive income, or actively participate in the growth of companies, understanding the motivations behind share investment is crucial. In this blog, we will explore the reasons why people choose to invest in shares and provide valuable insights into the process of buying shares. Whether a novice investor or looking to refine an investment strategy, this guide will equip one with the knowledge and confidence needed to navigate the world of share investment.
Table of Contents
Defining Shares
Shares, also commonly referred to as stocks or equity, represent ownership in a company. When individuals purchase shares of a company, they become shareholders, holding a portion of ownership in that specific corporation. These shares are units of ownership in the company and provide shareholders with certain rights, such as voting on important matters and receiving a share of the company’s profits in the form of dividends. The ownership structure of a company is divided into shares, and each share represents a claim on assets and earnings. Understanding the basics of shares is fundamental for anyone venturing into the world of investing.
Types of Shares
- Common Shares (Equity Shares): Represent ownership in a company with voting rights and potential dividends.
- Preferred Shares: Carry specific privileges, such as priority in dividend payments, with limited or no voting rights.
- Blue-Chip Stocks: Shares of large, stable companies known for reliability and often paying regular dividends.
- Small-Cap, Mid-Cap, and Large-Cap Stocks: Categorises companies based on market capitalisation, influencing risk and growth potential.
- Growth Stocks: Represent companies expected to grow at an above-average rate, often reinvesting profits.
- Value Stocks: Considered undervalued based on fundamental analysis, appealing to value investors.
- Income Stocks: Known for providing regular income through dividends, attractive to income-focused investors.
- Cyclical Stocks: Tied to economic cycles, performing well in times of economic expansion.
- Defensive Stocks: Remain stable during economic downturns, often in industries like utilities and healthcare.
- Convertible Preferred Stock: Offers the option to convert shares into a predetermined number of common shares, combining features of both preferred and common stock.
Benefits of Investing in Stock
Simple Investment
As things are going digital, an investor must know that to start investing, all they need is a reliable broker. A SEBI (Securities and Exchange Board of India)-registered broker like Share India offers an easy onboarding process and KYC facilities online. One can open a free Demat account and trading account with the Share India trading platform. All that is needed is to download the app and register the email ID and mobile number. Along with this, one needs an essential document such as an Aadhaar card or PAN card. Opening an account is a completely paperless and hassle-free process.
Annual Dividend
A dividend is a small profit or reward that a company offers to its existing shareholders. It is an extra return that one can make by holding shares of a particular company. It doesn’t matter if the stock price is in a downtrend, the company may still issue dividends for the shareholders as long as it’s profitable. Having a dividend share in one’s portfolio can help earn a fixed return over time.
Liquidity
A major factor for investing in the share market is liquidity. Liquidity refers to the ability to convert assets into cash. Compared with other assets such as gold, property etc. share market assets offer more liquidity, which is why investing in the stock market can be a great choice.
Better Return in the Short Run
One of the biggest benefits of investing in stock is that it has the potential to generate better returns in a short period of time. As compared to other investments such as FDs or bank deposits, the stock market offers better return opportunities.
Diversification
Investors can diversify their portfolio by investing in shares, gaining ownership in a business and exposing themselves to the potential for increased share prices. Regulated by the Securities and Exchange Board of India (SEBI), the stock market is overseen to safeguard investor interests and maintain a robust framework.
Conclusion
In recent years, investors of all age groups have shown interest in the stock market. Regardless of experience level, trading is a continuous learning process. Investors should carefully consider their stock choices, seek expert opinions, and stay informed about news and events. Brokers like Share India offer various resources for learning about the stock market. Utilising tools such as a brokerage charges calculator provided by platforms like Share India can help investors assess potential costs and optimise their investment strategy for well-informed decisions.