An organization or establishment which enables the stock traders to deal with sale or purchase of shares/stock is considered as stock market. This is a place through which companies raise their long term funds by issuing stock (generally shares) or other categories of securities. It is regulated by Stock Exchange Board of India (SEBI), where the issuing companies are required to follow guidelines of SEBI. Hence there is certainty in protecting interest of investors’ investing in stock market.
Benefits of Stock Investment:
- Higher market valuation:
Investment in stocks is beneficial because there is certainty of growth in personal funds invested in stocks, along with the risk factor. The growth rate may be higher as compared to debt investment. Market price of shares fluctuates on daily basis but generally it is more than the nominal value of shares which results in higher market valuation. Hence, the capital market is expected to continuous growth in the long run.
- Protection to investors’ interest:
Capital market is regulated by Stock Exchange Board of India. Every listed companies are required to comply with rules as well as regulations provided by SEBI. Investment in share market is also considered important because shares are the ownership capital of the company and shareholders are considered as true owners of the corporation. In order to maintain security of shareholders’ fund, they are assigned voting power in substantial decision making of the company in general meeting.
- Results to overall growth:
It promotes saving as well as investment. In this way, individuals’ funds are saved and are subject to growth. These funds are utilized by the corporates in productive activities which generate profits for company’s growth as well. At the same time, it also results in economic growth due to growth in capital market.
The funds invested in stocks are utilized by board of directors in a transparent way. They are accountable for reasonable return of the funds. Shareholders are entitled to the annual profits of the company which are allocated as dividends. Hence, they are assured of reasonable returns to their capital. Hence, it is beneficial in short run and even in long run also as it generates long term wealth also.
- Establishing public confidence in listed companies:
Listed companies are required to perform ethically while utilizing these funds. Corporate Governance could be the best measures for companies to establish public confidence. Corporate governance measures should be followed by every listed company which refers the management as the trustees of shareholders. Apart from that, the liabilities of shareholders are limited to the face value of the shares held by them.
- Relationship of stocks with capital market:
The behavior of stock exchange could be studied with the help of beta. Beta is the measure which shows the relations of stock with stock market and its fluctuations. Higher the beta of any stock, more risky it is to invest in that particular stock as compared to low beta stock. This will help investors while making decision regarding the investment. Investors are supposed to have knowledge regarding this.
These are some pros of making investment in stock. It’s beneficial for both corporates as well as investors which ultimately lead to economic growth. Stock exchange is considered as better place of investment for those investors who are keen to take threat for the growth of their fund.