We all have learnt in Economics that Investment is always equal to the Savings. So, we must know the consequences of investments we made as we put all our savings to risk. Money can be invested in many areas, including property, ornaments of precious gems, banks, or stock markets. An economy goes through major ups and downs every now and then. So, it becomes essential to know a lot before investing your money. People invest their money in want of a good return, but sometimes what happens is, the market becomes unstable, and the risk on the amount increases.
It is human tendency that they look for whatever is of lower price and gives best results. Sometimes, people fall into traps and lose their money which they have saved for a long time. The money which should have paid them off while they need it, they lose it in a fraction of a second. It does not mean people should not make any kind of investment in stock markets, but they should be a little bit careful while putting their money at risk. It will avoid the loss of money in the late future.
Investment brings huge risks, but investing your money in purchasing property, jewellery or any asset is less risky rather than doing the same in the stock market. Stock market fluctuates every day and creates a large impact on everything. From a small vegetable seller to a business tycoon, all have to face the results of the stock market’s instability. The stock market includes prices of shares and debentures of companies listed in the Stock Exchange. The prices of spices, metals, and other things of everyday use are affected by the Stock Exchange. The stock market even causes the value of rupee in ratio to dollar rise and fall.
In India, there are two major stock exchanges on which the stock market is based. These are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Sensex is also one of the topics talked about the most. Sensex is completely responsible for the rise and fall in the value of rupee with respect to dollar. Stock market assures giving good returns and that too, on time, but sometimes, due to the inconsistent position of the market, the returns go below expectations. So, one should be ready for the disadvantages of investing in Stock Market. Here are some of the drawbacks of the stock market of which one should take care before investing.
- Inconsistent Prices: The prices of the shares of a particular company are not consistent even in a single day. The prices go up and down several times in a single day, and creating a fuss among the investors. The prices constantly change and give profit and loss to the shareholders.
- Huge Risks: Stock market investments are not bed of roses. It has thorns with it also. One should keep in mind that with immense returns, there are huge risks involved also. The investor should not directly take the big risks and invest smaller amounts.
- Investing Everything: Investments are our savings. So, all the savings should not be invested. Some of the amount should be kept private to help in the time of need. The saved amount comes handy in case of an emergency.
- Brokerage Commission: Sometimes, the returns are not that much good, so an investor decides to sell the shares. While doing so, s/he has to take the help of a broker, who charges money which kills the profit margin. So, one should look out for another investor to sell the shares.
- Purchasing Shares: When an investor buys shares of a particular company, s/he has to pay extra sum to the broker. To get the shares at a lower cost, one should go through the official website of the company and follow the path told by the company.
- Frauds: Stock markets are full of frauds and fraudulent activities which make people lose their money, mind, and temper. People should check carefully if a company is listed in the Stock Exchange and then invest. There are laws to prevent the innocent shareholders from the frauds.
- Insolvency: Insolvency is a state where a company runs out of money. In this case, it fires all its employees and not gives returns to its shareholders. So, one should properly check the financial status of the company before investing. This gives a proper insight into the lawful activities of the company before investing.
- Communication Gaps: Companies organize the meeting of shareholders once or twice a year. Only then the investors get to know about the company policies and other important decisions made by the organization. The investors and shareholders disagree sometimes as their money is put on risk. So, before investing, one must ensure that s/he is allowed to know the financial status of the company at any time in the year.
- Time Consuming Process: The process of investing in the stock market is quite time consuming. The investor has to look for the correct company and then explore it. It includes meeting the brokers, paying, and several other things. On the other hand, investing in other things like jewellery and banks is easier and hassle-free.
- Wrong Information: The investors sometimes are trapped and lose their money. This happens because they are not aware of the guidelines provided by the government. The Securities Exchange Board of India, (SEBI) is one such body ensuring the proper rights of shareholders.
Hence, one should be aware of the drawbacks of investing in a stock market. The given points do not state that investing money in stock market is harmful. But one should know the negative side of investing in the Stock Market as well. However, investing anywhere is full of risks. It is a roller coaster ride which goes through major ups and downs. While on the other side, the investors should also know about the policies of the government which help them avoid the frauds and get the desired results.