There has been a rising trend with investing in the capital market. Many new investors have stepped into the capital market space as it provides relatively more gains when compared to investing in other financial instruments such as fixed deposits, provident funds, and others. This article explains all about capital markets and the benefits you get if you invest in capital markets India.
What Are Capital Markets?
A capital market is a place where funding instruments such as debt instruments, bonds, shares, ETFs, debentures, etc. can be traded. Through this source, firms, individuals, and the government can raise capital.
Capital market is not the same as the money market. When it comes to capital markets, securities exchanged are typically long-term investments that have a certain lock-in period. With money markets, short-term investments are usually traded such as bills of exchange, promissory notes, certificate of deposits, etc. Capital markets help mobilize savings thereby bridging the gap between the supply and demand of capital.
How Does a Capital Market Work?
A capital market consists of several elements such as retail investors, financial institutions, business corporations, commercial banks, insurance companies, retirement funds, and other fund suppliers in the market. Typically, investors offer capital and invest them in shares in return for capital gains. Some investments also offer perks such as interest payouts, dividends, and ownership rights. A capital market assists an economy by offering a platform where funds can be accumulated or raised to fund different aspects such as business operations, wealth enhancement, or development activities.
Circular flow of money is the main functioning aspect of the working of a capital market. For instance, if a certain firm needs capital for business operations, they would typically borrow money from individuals or households. However, in a capital market, the money from each individual would be invested in the shares of the firm thereby allowing the firm to raise the required money. In return, the investors can gain profits for the invested amount.
7 Benefits of Investing in Capital Markets in India
There are numerous benefits you can leverage when you invest in capital markets India. While capital gains are the most common benefit that has made the capital market a popular investment choice, there are several other perks. Let us have a look at them.
One of the key benefits of the capital market is that it offers versatility. You can choose from a variety of financial instruments such as shares, mutual funds, bonds, derivatives, etc., to invest depending on your research and available finances. This flexibility also mitigates risks in investments by allowing investors to diversify their portfolio.
2. Ease of Use
Buying a share is no longer a hassle. With technological development, assets in the capital market such as bonds, debt, shares, and others can be bought and sold online. Investors can execute all of their trades on a trading platform at their own convenience. These online share trading facilities have enhanced the experience of many investors thereby making the entire investment experience simple and easy.
3. Higher Gains
Investing directly in the market allows the scope for higher returns when compared to investing in other instruments such as fixed deposits and provident funds. By using certain strategies and analysis, you can maximize your gains in the capital market. With due research, you will be able to identify patterns and trends in stocks thereby increasing the chances of making profits.
4. Regulatory Framework
Securities & Exchange Board of India (SEBI) regulates the capital market and its developments and is responsible to protect the rights of the investors. It makes sure that the entire process of trading and investing happens in a transparent manner without any mishaps. This allows investors to invest in different financial products while being well-protected by a regulatory framework.
5. Dividend Benefits
Many companies pay dividends to their investors. These are additional payments that are offered to the shareholders of the company. Even if the asset in the capital market has lost its value, these dividend payments would be credited to you. This income can help you fund your retirement or even reinvest in other assets to further grow your investment portfolio.
6. Higher Liquidity
The capital market is popularly known for its high liquidity. Assets in the capital market can be easily converted to cash. These assets have many buyers at a given time. With other assets such as property, it is difficult to immediately convert them into cash. It can take up to a few months to cash in on your real estate investment.
7. Perk of Booming Economy
When the economy grows, the overall index of the stock markets increases in valuation. The stock market reacts to different factors of the economy such as inflation, GDP, corporate earnings, etc. In a booming economy, the returns provided are bound to be higher.
In a Nutshell
Investing in the capital market can be lucrative if you invest the right way. It is essential to research the aspects of a capital market in advance and develop a suitable investment strategy to make the most out of the market. Moreover, you need to start your investment journey on an investment platform. If you do not currently invest on any platform, check out the Dhanush app by Ashika Group as it provides a swift, reliable, and consistent way to invest.