Stock markets are an enigma to those who stay away from it as well as to those who are into it. But what attracts people to stock markets, despite the market's risk pervasiveness, is the prospect of returns.
However a wast majority of people in India are not invested in stock markets. A study conducted in 2009 indicated that only 8 million investors out of a total of 188 million that hold financial assets have a direct or indirect participation in the stock market. This is in the backdrop of an 18 times rise in the Bombay Stock Exchange's 30-share index-the sensex-over the span of three decades as well as tax benefits that favor stock market and mutual fund investments over other fixed income investments.
The financial planning way of investing advocates an exposure to equity and equity linked investments in all stages of one's life, including post retirement-- only the allocation may vary. It focuses on first ascertaining an optimum asset allocation to equity, something that Certified Financial Planner professionals do by risk profiling an individual with respect to the chosen financial goals. The investment made directly or through the mutual funds by the way of Systematic Investment Plan (SIPs) provides various benefits, including the risk diversification. The disciplined investment approach recommended by a qualified CFP practitioner in sync with an individual's financial goals also irons out adverse aspects of behavioral finance, such as under-reaction or over-reaction to information.
Stock market indicators or stock indices basically reflect a country's corporate health with regards to earnings and the growth prospects of companies. This micro aspect is influenced by factors touching every little aspect of the economy and international events. Therefore, markets reverberate to absorb the impact of whatever affects corporate earnings-factors that range from macroeconomic, political to geo-political. This is why stock markets are called the barometer of economic health and stability of a country or region.
Sensex has given a return of 17.6 percent per annum since its inception. However,this return is not with out its proportionate element of risk. the rise has been volatile enough to to shake the confidence of even die-hard investors. the table (on the following page) gives a picture of returns calculated from various strategic points in the sensex journey.
As it has been observed, long-term returns from stock markets are significant and effectively beat inflation. short-term returns are volatile. Investing in times of euphoria has its pitfalls in huge capital losses. The sensex had lost 50 percent within a year from the then peaks reached in 1992 and 2000.
Investment discipline is, therefore underlined over adventurism or trying to trade the market against the collective wisdom of millions of investor,traders, domestic and foreign institutional investors.
The history of the sensex as well as the world's major stock indices warn us to cover adequately the risk of value correction as well as time correction when market moves sideways for painfully long periods. Japan Nikkei Index touched a high of 38915 in 1989 but has steady lost 82 percent in the two decades since. The US Dow Jones Industrial Average reached 11,000 levels in May 1999, but is just at 12,000 levels now.
Stock market investment is good from long term perspective. Such investment helps the economy, too, as the Government's burden if fueling growth is shared by the private sector. Moreover, companies tapping capital markets display better transparency and corporate governance. Long term investment in stock markets also assimilates tax benefits on the capital gain. However, in th e proposed Direct Taxes Code (DTC), an investment asset held for more than a year in which it is acquired shall be allowed a specified deduction, the balance gains being taxed at rates being applicable to the tax payers.
A disciplined approach to stock market investing calls for fixing a rate of return (say, between 15 to 20 percent), monitoring investments periodically, and suitably shifting excess returns achieved to debt investments to lock in the wealth thus created.
However a wast majority of people in India are not invested in stock markets. A study conducted in 2009 indicated that only 8 million investors out of a total of 188 million that hold financial assets have a direct or indirect participation in the stock market. This is in the backdrop of an 18 times rise in the Bombay Stock Exchange's 30-share index-the sensex-over the span of three decades as well as tax benefits that favor stock market and mutual fund investments over other fixed income investments.
The financial planning way of investing advocates an exposure to equity and equity linked investments in all stages of one's life, including post retirement-- only the allocation may vary. It focuses on first ascertaining an optimum asset allocation to equity, something that Certified Financial Planner professionals do by risk profiling an individual with respect to the chosen financial goals. The investment made directly or through the mutual funds by the way of Systematic Investment Plan (SIPs) provides various benefits, including the risk diversification. The disciplined investment approach recommended by a qualified CFP practitioner in sync with an individual's financial goals also irons out adverse aspects of behavioral finance, such as under-reaction or over-reaction to information.
Stock market indicators or stock indices basically reflect a country's corporate health with regards to earnings and the growth prospects of companies. This micro aspect is influenced by factors touching every little aspect of the economy and international events. Therefore, markets reverberate to absorb the impact of whatever affects corporate earnings-factors that range from macroeconomic, political to geo-political. This is why stock markets are called the barometer of economic health and stability of a country or region.
Sensex has given a return of 17.6 percent per annum since its inception. However,this return is not with out its proportionate element of risk. the rise has been volatile enough to to shake the confidence of even die-hard investors. the table (on the following page) gives a picture of returns calculated from various strategic points in the sensex journey.
As it has been observed, long-term returns from stock markets are significant and effectively beat inflation. short-term returns are volatile. Investing in times of euphoria has its pitfalls in huge capital losses. The sensex had lost 50 percent within a year from the then peaks reached in 1992 and 2000.
Investment discipline is, therefore underlined over adventurism or trying to trade the market against the collective wisdom of millions of investor,traders, domestic and foreign institutional investors.
The history of the sensex as well as the world's major stock indices warn us to cover adequately the risk of value correction as well as time correction when market moves sideways for painfully long periods. Japan Nikkei Index touched a high of 38915 in 1989 but has steady lost 82 percent in the two decades since. The US Dow Jones Industrial Average reached 11,000 levels in May 1999, but is just at 12,000 levels now.
Stock market investment is good from long term perspective. Such investment helps the economy, too, as the Government's burden if fueling growth is shared by the private sector. Moreover, companies tapping capital markets display better transparency and corporate governance. Long term investment in stock markets also assimilates tax benefits on the capital gain. However, in th e proposed Direct Taxes Code (DTC), an investment asset held for more than a year in which it is acquired shall be allowed a specified deduction, the balance gains being taxed at rates being applicable to the tax payers.
A disciplined approach to stock market investing calls for fixing a rate of return (say, between 15 to 20 percent), monitoring investments periodically, and suitably shifting excess returns achieved to debt investments to lock in the wealth thus created.
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