05 April 2016

How your money grows owning a Share? Money from Plant to Tree

Investing in shares is an alternative way to increase your wealth apart from other investments made in Gold, Real estate and etc.. Risks are evenly high in Stock market because of crashes (as we saw in the global financial crisis of 2008–2009), but if you’re patient, have assessed your risk carefully and have a diversified portfolio that performs well, your money plant will grow in to a tree. So what do you get owning a stock? Proud ownership of a company and you have an ownership stake in the corporation that issued it, or offered it for sale. The size of that stake depends on the number of shares you own compared to the total number available. Now lets see what are the ways though which your money grows.


The company that issued the stock may pay a dividend which is a part of company’s profits. The company’s management may declare dividends either in between a financial year called interim dividends or at the end of the financial year called final dividends. However, it is not mandatory for the companies to pay dividends. It can use the profits for alternative uses like expansion. The decision to pay or not to pay dividends is taken at the annual meeting.


This is the main reason why people invest in shares. A stock's price may go up while you own it. If it does, you can sell some or all of your shares for a profit if you want to which is known as Capital gain, or you can hold onto it, which increases the value of your portfolio. Investing in stock has risks, though. You may have a negative return rather than a positive one. So you should properly access the risk of stock that you own. Remember, Shares need time to increase in value. With enough time and diversification (buying a range of shares spread across the economy), you’re unlikely to lose on the share market. If you’re impatient, and you’re not well diversified, you could lose money in shares.


A bonus issue is an offer of free additional shares to existing shareholders. These new ew shares are issued to shareholders in proportion to their holdings. For ex: the company may give one bonus share for every 10 shares held.


Shares are considered as assets and hence, banks accept shares as security for loans. Apart from that, Brokerage firms allow you to borrow money from their account based on the current shareholding you have in your demat account. If you see an opportunity in markets, but don’t have the cash right now, you can adopt this route.
That’s how your money grows and one important factor that investments in stocks are preferred over investments in real assets or solid asset is because of HIGH LIQUIDITY Shares are highly liquid. You can receive your cash in two days. It can be converted into cash in no time. With online trading, all it takes is the click of button to sell you holdings.  

One philosophy you should remember before making any investment is “High returns always carry high risk”. Its simple equation High risk = High return