Investing in Stock Markets and the Demystified Returns.

"Don’t work for money,

let the money work for you"

-Warren Buffet

STOCK MARKETS AS A FINANCIAL INTERMEDIARY


For many years stock markets have played an important role in the allocation of scarce resources in an economy by facilitating the transfer of savings from savers to investors. It gives savers the option to invest in different alternatives thereby channelizing their surplus funds into the most productive uses and getting good returns on it. People have the option to either invest in them or deposit their savings within banks which are less risky but safer, it’s like a batsman can trying an aggressive shot yielding which is unsafe but yields him more runs or he can go a defensive shot which is safer but yields lesser runs.

REASONS WHY PEOPLE CHOOSE STOCK MARKETS OVER BANKS


One of the primary advantages of investing in stock markets is the larger returns in lesser time. Interest rates offered on FDs and RDs by banks are less than the per year inflation rate thereby making people lose money by investing in the same. In addition to that funds invested in the stock market are more liquid and can be taken out more easily and conveniently than funds locked up in banks.

PEOPLE TURNING TO STOCK MARKETS DURING PANDEMIC

People turned to day trading during the pandemic as many of them were earlier working in offices, but now since the work from home conundrum, they have more time to themselves and are have used this time to themselves to invest and trade. For instance, it’s said that 10 percent more housewives have started investing as compared to pre covid period. The need for many of them to invest in markets also arose as many people were getting unemployed and had major salary deductions, it was that compounded with the fear and uncertainty caused by the pandemic that made them want to risk and channelize their savings into the markets for quick gains in less time coupled with high liquidity that the banks fail to provide. It’s due to these reasons that people turned to markets during the pandemic.

GAINS EARNED BY PEOPLE DURING PANDEMIC

BSE at its absolute bottom due to Covid got as low as 22000 points and at its highest peaked north of 50000 points, all within a year. In between, it was a year of ups and downs wherein downs were created due to pessimism caused by problems and fears relating to the pandemic and subsequent optimism on the news of vaccines driving the markets up. All in all, it was important for a person to be patient and have a diversified portfolio during the year. Those who did so did earn massive gains due to the high CAGR that the markets witnessed during this time.

CONCLUSION


It’s as Warren Buffet says an important quality for an investor is not his intellect but his temperament, those who had a calm temperament and kept on to their stocks instead of just selling them fearing it’ll go lower, with a diversified portfolio would have made extraordinary gains during this period due to the massive annual growth witnessed in the overall index.

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