why an investor should invest in equity market

8/22/2019 Why an Investor Should Invest in Equity Market

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By

Sourav Chakraborty


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Equity is the residual claim of the investors in assetsafter all liabilities are paid.

Equity market generally refers the stock market.Equity investment generally done by the investors inanticipation of capital gains and dividends. Investorsinvests in short term or long term basis.

Long term investments generally refers theinvestments hold over one year.


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AVOID MARKET VOLATILITY

One of the main concerns for any type of investingis market volatility. volatility measures the degreeto which price changes over time.The advantage of long-term investing is found inthe relationship between volatility and time.Investments held for longer periods tend to exhibitlower volatility than those held for shorter periods.A security can be highly volatile on a daily basis

but show long-term patterns of growth or stability.


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HISTORICAL PAY OFF

Staying invested in the market over the long term hashistorically paid off. It is very difficult and risky to timethe market. However, staying invested in the marketover the long term has historically paid off. Although

short-term fluctuations seem random, the stockmarket tends to reflect the overall growth andproductivity of the economy in the long run.


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IF WE CONSIDER SENSEX THEN WE CAN SEETHAT IT STARTS WITH A BASE INDEX OF 100

IN 1978. IN 2012 IT IS OVER 16000. SO IF WECONSIDER IT IN COMPOUND INTEREST RATETHEN WE CAN SAY BY THE FORMULA

FV=P(1+R/100)n

or, 16000= 100(1+r)34

or, FVIFr%34 = 160

or, r = 16.19%(approx)SO THE GROWTH RATE IS OVER 16%


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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

3,990.653,262.013,383.85

5,872.486,626.49

9,422.49

13,827.77

20,325.27

9,720.55

17,473.45

20,621.61

15,534.67

0

5000

10000

15000

20000

25000

1 2 3 4 5 6 7 8 9 10 11 12

Open

Year

If we follow the trend we can easily say that it provides upward trends

over the year. So long term investors get more benefit.


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TAX BENEFIT

Most cases long term gains ( held over 12 months) yourmoney are taxed at rate below your income tax bracket.Short-term gains, on the other hand, are taxed as

regular income .


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OTHER BENEFITS

Long-term investing saves you other expenses,like Transaction cost, Broker charges etc.

Certain mutual funds may defer sales charges ifyou hold your shares for a long period.

Long term investment is also useful for saving for

retirement or a college education, for a futurehouse, or to provide funds for the long-term careof your parents.


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Before long term investment you'llneed to choose some portfolios andstrategies based on your risk toleranceand desired returns and also must keepin mind that along with its benefits

come the drawbacks of limitedliquidity.


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why an investor should invest in equity market

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