India is the second most populated country with 139 crores and more citizens living in different parts of the nation. Additionally, we expect a rise in the population every year based on future projections. But still, only 1-2% of our population are active participants in Stock investment.
In simple words, more participants better would be for the financial Market as it results in boosting the economy and enhancing prosperity in the country. Making a comparison with some strong countries like USA and China that are economically strong and more developed than our nation. And one of the reasons behind their economic surge can be the contribution of their citizens in stock investments.
Around 10% of China's population participates in stock investment and 50% of the US population is contributing to the Stock Market. So, this concern brings us to write on the topic Prime reasons behind most Indians not investing in stocks and what all benefits are there for stock market participants.
Stock Investment Advantages
Investing in stocks has a two-way advantage that is fruitful for both the listed companies and the investors who are putting in money for buying their shares. Check out the following advantages given below:
1. Getting a part of the ownership
When you are infusing your money into buying shares of a company then you are rewarded with a part into that particular company. And your ownership would be limited to the worth or the number of shares you have bought.
Example: If the worth of a company is Rs.100 crores and buying Rs. 1 crore worth shares of that company entitles you with an ownership of 1% in that company.
2. Earn dividend and capital appreciation
Although the stock market does not guarantee you a profit but investing in a financially sound and reputed company may do wonders for you. Your investment in a profitable company not only helps in your capital appreciation but also rewards you with a quarterly dividend. Now, the dividend is a reward that is given to the shareholders as a portion of the company's earning.
And capital appreciation is merely the hike in the amount that you have invested in a company.
Example: When you bought 100 shares of a company at an average price of Rs. 50, then you have made an investment of Rs.5000. After, a month if the share price rises to Rs.60 then your current capital turns out to Rs. 6000. That elevates your capital by Rs.1000.
3. Tackle Inflation
Every time there is a constant rise in the price of goods and services that simply increases the cost of living of an individual. And for tackling the rising prices or inflation we need additional funds. And that funds can be poured from our invested money.
As per the financial analysts, the stock market gives great returns on an annual basis and has constantly outperformed inflation. Example: If the inflation rate is 4% and on the other hand the expected rate of return generated from the stock market is quite higher. That makes it easy for investors to tackle the constant price rise of goods.
Prime reasons behind most Indians not investing in stocks
Given below are the top reasons behind most Indians not investing in stocks:
1. Lack of financial literacy
Most of the Indians are financially illiterate that is the main reason why they escape from investing in stocks. They are unaware of different financial assets that are available and how to invest in these securities for earning handsome returns.
There are different campaigns that are launched by brokerage firms and private companies for generating awareness among the public.
We have also experienced many cases in which people aspire to invest in stocks but are hampered by an environment full of myths about the stock market. So, it is crucial for financial institutions and firms to spread financial knowledge for boosting participation.
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2. More comfortable with traditional modes
Traditional modes of investing include putting money in savings account or securing a fixed deposit. These are the two traditional modes that are widely accepted by most people in India. There is no wrong with these two ways but they need to know that the attained returns are even less than the rate of inflation.
We also oppose the trait of putting all your money in stocks but one can invest some amount of one's savings in stocks of good companies. Keep favorable returns and your risk appetite in mind.
3. Considering stock trading/investing as gambling
The is one of the common myths that exist in Indian society. The ignorant and unaware people are on a mission of not investing and spreading a rumor that stock market participators are gamblers.
But, they are unaware of the fact that stocks are made for generating funds for companies in exchange for getting a stake to the investor. And investors can generate immense returns through capital appreciation and dividends.
4. Unwilling to take risk
The stock market is risky and most Indians are unwilling to take risks. But, they should know that none of the investment is risk-free. Risk is linked when money is at stake. Even our money at banks is unsecured because of uncertain financial scams or theft at banks.
The advisors always say that an investor should diversify one's portfolio that helps them in increasing returns and minimizing the risk that is associated.
Take away
From the article above we derived the advantages associated with stock market investments and Prime reasons behind most Indians not investing in stocks.
As per our observations, we found out that lack of financial literacy, more comfortable with traditional modes, considering stock trading/investing as gambling, and unwilling to take risk are the main reasons behind the problem.
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