Many of us assumed for the prolonged duration that the money plant that we have planted in our garden gives us plenty of money in the future. Am I correct? Sometimes, I wish to earn money or having enough money to afford all our expenses throughout our lives was that easy. Ha-ha! But later on, this dream cloud burst. We all need money at every stage of our lives. So, one of the best ways is to invest our funds. Investing can be considered the most vital component of our lives. An individual can do the same by first practicing saving money. Are you guys able to guess the reason Why To Invest your funds?
Well, before knowing the reason why should an individual invest their money? What do you people understand by the term INVESTMENTS? I will explain what I think is meant by INVESTMENTS. According to me, Investments is to divide the funds in the current period with an aspiration of attaining some gains in the future period. Investment, therefore, has many meanings and can be seen from distinct angles and sides. The two primary and vital features of investment that I can think of are either the present offerings it holds or the returns one can get later on.
WHY TO INVEST IN THE SHARE MARKET?
Let us come back to the former question: Why Invest? Simply put, to create wealth. And why would you want to create wealth? Well! It is obvious to fulfil your financial goals of life like education, retirement plans, vacations, and many more. The trouble is that most of us have a single source of income and various needs are immediate, medium-term and long term. If we move from one goal to another with our accumulated savings, we leave with almost nothing for our long-term goals. We can say it is not significant to keep our money in a savings bank account. However, use it to make investments that will help you create wealth over a long time.
I read it somewhere: Invest bit by bit for a longer duration, and you will end up having a lot in your hands. So, being a rational person, who does not want their wealth to grow? The stock market can be the proper manifestation of a money plant if you invest your funds correctly, make wise decisions and be aware of the risks inherited. It is not possible to forecast the movement of the stock market. Amid unpredictability, the benefits of investing in the stock market are still the same. What has changed is the perspective of people for the stock market and the risks it associates with it. There is a long list of reasons why to invest in the share market. I will discuss a few with you peeps out of them.
INVEST TOEXPAND YOUR WEALTH
As we already know, the foremost reason why to invest is to grow our wealth and have ample amounts for our future. Investing your money can allow you to expand your wealth. Most investment instruments like stocks, certificates of deposit, or bonds, provide or offer you returns on your capital over the long term. This return allows your money to create wealth with time.
Specific returns, time duration and numbers are not what matters the most. They may differ from person to person. The most vital thing is that investing in the share market can help you expand your wealth in no time. That’s why it is one of the primary reasons why people invest in the share market.
SAVE TODAY FOR FUTURE WEALTH
Investing your money in any asset comes along with a compromise in the present utility. As a result, the investor waives the use of funds for his/her investment in the current utility. One can expect some higher utility in the future. To accelerate your wealth, you are required to keep it in the right place that offers higher return rates. The rate of returns and the money are directly related. As the former goes up, the latter will also rise.
Investing in the share market, thereby, allows you to earn possibly higher returns on your investment if you invest wisely. Thus, investing here gives you a chance to amalgamate your money in the long run and gather wealth for various life goals. If you purchase the shares of a financially sound and stable company and hold them for quite a period, you can make a fortune for yourself.
INVEST TO SAVE YOUR WEALTH FROM INFLATION
What does inflation mean? It is the extensive hike in the cost levels in an economy with time. It brings a decline in the value of your investments and the purchasing power of a rational person. An item costs you INR 10 today, possibly may cost you INR 30 in the next year. Now, the question is: how can one beat inflation? The answer to this question is: by investing. If you will not use your money in making further investments and leave it untouched in your savings account, the money will lose its purchasing power. By investing in the share market, you can expect relatively higher returns than other instruments like mutual funds, public provident funds and many more. Should you remain invested in the share market for the long haul, it will help you counter inflation.
As per the provided data, Indian banks are not even paying 3% on savings deposits. Even this 3% return may not sustain for a long time as other foreign central banks have cut close to 0% or even a negative percentage. It means that you could also face this situation one day when your savings deposits will earn a 0% return or possibly a negative return. Inflation can affect your savings to this extent. To avoid getting yourself into this scenario, it gives you one primary reason: why to invest your funds. If returns and inflation rate moves in the opposite direction, it may directly affect your money. It might become minimal, zero or maybe negative. Investing in the share market can provide you with double-digit inflation returns when done wisely and intelligently. It will help you reach your target in a relatively shorter time.
RETIREMENT PLAN V/S FIRE MOVEMENT
Why do you guys think that the majority of people invest their money? Well, everybody has their reasons, but majorly it is for the retirement purpose. Am I Right? Every person relies on their salaries for meeting their needs and wants. It becomes harder to sustain your lifestyles after retirement when one does not have a source of income. The solution to making our after retirement life easy is to invest a portion of your income during your working years. Though, the government provides the facility of defined benefit pension plans for their employees. However, you cannot entirely depend on structured contribution plans.
I read the following in my high school: Every business is inherited with risk. The higher you take the risk, the chances of earning handsome amounts also get higher. As we already know, the movement of the share market is unpredictable and volatile, which results in higher risks. Being at your young age, you might be willing to take more risks when compared to your future self.
The FIRE MOVEMENT in other words Financial Independence, Retire Early. It becomes a super hit amongst millennials. It is a goal that many are striving for these days. Saving and investing a large proportion of income from a young age can allow a person to retire at 40-45 years of age, instead of 60-65 years. Do not wait to put the retirement savings that you carry into available investment instruments. One of the many best options is investing your funds in the share market.
INVEST TO ASSIST IN TAX EFFICIENCY
As per The Economic Times, one way to handle your tax savings before the financial year ends is by using equity investments or investments in the share market. One can do this by selling and then purchasing back your equity investments. It is possible only when your profits are under INR 1 lakh, every financial year.
The tax rate on long-term capital gains (or LTCG) from equity is 10% (plus surcharge and cess as applicable) after you have held the shares for a year. It consists of equity stocks and equity mutual funds. The tax rate on LTCG of 10% is applicable only if the gains go beyond INR 1 lakh per financial year. It is simply put profits or LTCG up to INR 1 lakh is exempted from tax. The LTCG tax on equity was announced in the Union Budget on February 1, 2018.
UNDERSTAND THE POWER OF COMPOUNDING
To understand how your wealth multiplies by investing, the concept of compounding comes into play. If you allow your invested money to stay for a long haul in the shares, you will reap good results. It is one of the main reasons why to invest more. So, start investing if one has not done it until now. Let us take an example to understand more clearly how compounding works and how much power it has.
Year 1:
- Amount of money invested: INR 100
- The returns that you earned: 10%
- The total money you have at the end of year 1: INR 110
In this case, here, you invested INR 100 in the first year and @ 10% of interest rate. Your return is INR 10, and the total amount you received is INR 110.
Year 2:
Scenario One
You retrieve/take out a portion of your investment. Let us assume INR 10. Earlier your investment at the end of the first year was INR 110. Now that you have retrieved INR 10, the amount of money you will have for investing in the second year will be INR 100.
- Now, amount of money invested: INR 100
- The interest you earned from stock: 10% of INR 100
- The total money you have at the end of year 2: (10% of 100) + 100 that is equal to INR 110
Scenario Two
You left your investments untouched and let the compounding play its role. You now have INR 110 with you. In this scenario, the interest you earned in the last year gets carried forward. As a result, the amount of money that you invested in the second year is INR 110.
- Amount of money invested: INR 110
- The interest you earned from stock: 10% of 110
- Total capital at the end of year 2 (10% of 110 ) + 110 equalled INR 121.
Therefore, if you leave your investments in the share market for a longer time and let compounding do its job, your wealth will grow at a faster pace. NOTE: Do not touch your investment in the share market during its tenure. Keep it invested for the good returns of the stocks soon.
INVEST TO REACH YOUR FINANCIAL AND LONG-TERM GOALS
As an individual starts adulting and grows through life, the new financial requirements also grow. How can one cope with increasing financial needs? The solution is by investing. Investing is one of the primary ways in accomplishing the financial goals that you have. Investing in the share market can assist you in earning a higher rate of return when compared to a savings account. You will be able to generate profit either over the long term or within a quicker duration. You can use these returns in meeting your financial goals like a purchase of a house, car or any other asset, starting your own business, educating the kids and many more.
As per the data, Bajaj Finance, a non-banking finance company, between December 2009 and December 2019, gave 13,000% returns in its stock. Do not assume! Every stock investment will convert a lakh-worth of your funds invested into crores. But it certainly will serve as an immense instrument to multiply your wealth to the best possible extent if kept for a long haul. If you start investing in the Indian stock market, the working of the stock market will assist you in attaining your long-term goals.
INVEST TO START AND EXPAND A BUSINESS
Investing is a vital part of every business start-up to make it successful. By investing in the shares of a company, you are investing your funds in the company and helping the business entity grow and expand its business. An increase in the value of the company’s share leads to a boost in a company’s sales. It helps you create brand loyalty in the market and attract more purchasers of the product. A rise in the value of a company’s share allows the company to operate at a bigger scale and may have profitability a hike. Many investors like to support the new entrepreneurs and contribute a little part to establishing new job opportunities
AUTHOR’S LAST WORDS
Everyone wishes to have a stable and secure future for themselves and their family. No one knows what the future holds for us. To ensure a stable and secured future, one should start investing more in the investment instruments instead of just keeping them untouched for a longer time in their savings account. Investments especially come into play after the ‘Retirement’. When one retires from his/her job, the invested money acts like a pillar for their old age, especially if the salary they get from their jobs is the only source of income.
Investing your funds in the stock market can be thrilling and fascinating. Although, you cannot get good things without compromising or paying a cost. The cost which you have to bear here is just a little bit of research and analytical work. Know the level of risk you are ready to take, decide the type of broker you want to join in hand with, and you are all set to start investing.
Amidst the unpredictability of the market’s movement, the returns or profits of investing in the stock market remain unmatched to any other tool’s returns. What haschanged now and what needs to change is the people’s perception of the stock market. The myths that some people still believe. People should know that investing is not an option but a necessity. It can help you in various ways and especially in the hour of an emergency. One should look after their wealth effectively and derive the maximum in the future. Now, you have a better understanding of the need and importance of why to invest your funds wisely and in the correct investment tool.
Thanks for Reading!!!
Disclaimer: This article is issued for general informational and educational purposes only and does not intend to give investment advice. Any references to an investment’s past or potential performance should not be construed as a recommendation of any specific outcome or profit.
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Composed By: Aarushi Jain
