Why Settle For Less When Equity Offers Multibagger Growth?

Why should we invest in the stock market? I have a counter question as an answer to this question--if not stock market, where would you invest your money? Some would say fixed deposits while some would go with savings account. In both these methods you get utmost safety and at the same time you get average 5% returns on your capital. But is it good enough? It certainly isn't. And when you have better investment options like direct equity investment and mutual fund, the old and conventional mediums don't hold any water at all.

Many investors miss out on good returns mainly because of 2 reasons - lack of risk appetite and ignorance. The latter can be dealt with but there is no cure for the former. So let's just address those who have yet not discovered the power of equity investment and let's enlighten them about what possibilities it holds for the investors.

Advantages of Equity investment

Before we go about exploring the advantages of equity investment, let's first shed some light on the risk element of the stock market. Investment in the stock market poses a certain amount of risk which can never be discounted. However, there are various means available to minimise the risk. Research and analysis is the most robust tool to combat the market risk. We will discuss this part in detail later in this article.

Unlimited Growth - Unlike post office saving, savings account and fixed deposits, the returns in equity are not restricted to some number. Here you get uncapped growth potential. For example, if you have invested Rs.50,000 in fixed deposit for 1 year, it is clear that you will not get more than 7-8% return which is around Rs.3,700 and in case of savings account it will be even lesser at 3-5% which will come around Rs.2,000. However, had you invested the same amount in HDFC Bank stock (example) you would have got far better returns in less or same period. It clearly illustrates that equity has the potential to outdo any traditional investment medium by a thumping margin. Also, if you have invested in the right stock at the right time, there is also a possibility that you might get a multibagger growth.

Advantages of Compounding - What is compound interest? It simply means the interest you get on the interest. So it means you get income from the income. Can the same principle of compounding be applied in the stock investment? If you invest in stocks on a long term basis you get dividends (income). Now if you invest the same dividend into some other promising stocks, it will naturally bring you more income. The assumption here is that you are investing in stocks which have good dividend yield. Thus as the dividend is an income which you roll over to other stocks and get more income it is a form of compounding.

Safety In Long term Investment - Now let's address the safety concerns. As mentioned above, research and analysis is the only way through which you can minimise the market risk. However, the process of research and analysis is rather tedious. To get the sense of the business and financial standing of the company all the minor and historic details of the company have to be taken into account.

Financial statements like balance sheet, P&L statements and cash flow has to be checked. Once all these checks and balances are carried out satisfactorily, the investor can rest assured about his/her capital safety. And once the safety has been ensured, they you can enjoy a good investment experience.

If you are a working professional and can't devote time to the research and analysis and if you don't mind spending on a good advice, stock research firms are the best option for you. They take care of the tedious work and give you timely entry and exit calls.

What About The Mulitbagger Growth?

The bonus feature of equity investment is that, if you have bought the right stocks and have held it for long time, you might get to experience the the multibagger growth. However, the point to notice here is that stocks don’t turn multibagger overnight, it takes years, sometimes decades to multiply the value of the stock. Hence, all the experienced investors often say that if you hold good stocks make sure you hold them long for only through long-term investment perspective will you be able to experience the multibagger growth.

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