In my last post, I have discussed what is a stock market? This article will show you how to make money from stock market? We have already understood the concept that if you purchase the shares of a certain company, you become an owner of that company and your ownership is limited to the number of shares you own. If the company has total 100 shares and if you own 1 share, you are the owner of 1% in the company.
A common man can think what is the necessity of purchasing shares. The answer to this question is, any person can’t do all businesses. But we may see growth opportunities in many businesses. So, what we can do, we can purchase a small part of that business. You can purchase shares of the company where you feel massive growth can come in future. Now, if the company does well and grows you also make money from stock market.
Every working person has a definite income. Out of the total income he has to make some expenses. After deducting the expenses from the income he has some investible funds. What he can do with this fund? There are two choices. Either he can invest the money in a savings bank or invest in fixed deposit where at the most he can earn 4% or 6% or 10% return. The other option is you take some risk and invest the oney in some business in which you have some idea that it can grow. There are some businesses that are bound to grow over tie. Suppose, shoes or soaps or liquor or toothpaste etc are always needed by human being. As long as a person is iving he needs these items. These businesses will run without fail. So if a person can invest in these kinds of business in good copanies he is bound to get higher returns andd can build a wealth over long term. This is how a person can make money from stock market.
Actually, you can make money from stock market in two ways. The shares that you have purchased can become costlier over the time and you can sell them in a later date to book profit. Second option is you can earn dividend income from the shares you own. Divident is a part of profit the company distributes among shareholders. See the image below to understand how to make money from stock market.
If you invest only in fixed deposits the FD interest can not even cover the inflation. In our country the rate of inflation is 5% – 7% and the bank will give you interest of 5% – 7%. Over this you have also to pay taxes. So you earn nothing in net from FD. So the only way to earn from your investible funds is to invest them into share market in good companies. Only share market can give you higher returns because here the businesses are going on. The companies will earn from the businesses and they will distribute a part of their profit to you. So if you have not yet started investing in the stock market you should do it as early as possible.
Categories: Stock Market Basics