It is a well-known fact that investing in the stock market has become one of the most popular ways to create wealth over the long-term. However, what many individuals including prospective investors don’t know is how the stock market grows your money. If you’re one among the many who are in this situation, then this article can help clear all your doubts. Continue reading to find out just how you can create wealth via the investment market.
How does the stock market grow your money?
There are two different ways through which you can generate wealth via the stock market - through the process of capital appreciation and through dividends. Here’s an overview of both of these ways.
Through capital appreciation
Capital appreciation is when the amount that you invest in the stock market grows as a result of an increase in the price of the shares that you’ve invested in. Let’s take up an example to help you better understand how the capital you invest in the stock market can appreciate.
Say that you purchase 1,000 shares of Reliance Industries Limited at Rs. 500 per share. The total invested capital comes up to Rs. 5 Lakhs. After about 10 years from the time of your initial investment, the share price of Reliance Industries Limited appreciates to Rs. 2,800 per share. As a result of this increase in the share price, your total invested capital grows to Rs. 28 Lakhs.
This phenomenon is what is known as capital appreciation. By simply staying invested in the stock market for a period of 10 years, you’ve managed to grow Rs. 5 Lakhs to Rs. 28 Lakhs, generating a profit of Rs. 23 Lakhs (Rs. 28 Lakhs - Rs. 5 Lakhs).
Through dividends
While capital appreciation is one of the primary ways through which you get to grow your money via the stock market, it isn’t the only one. In fact, the stock market also provides you with returns on your investment via dividends as well as long as you invest in companies that issue them on a regular basis.
Here’s an example of how the stock market can help you grow your money through dividends. For better understanding, we’ll take up the same example of Reliance Industries that we took up in the previous point.
As you know already, you have 1,000 shares of Reliance Industries Limited. Since the company is one of the many who issue dividends on a regular basis, you also stand to get dividends being one of its shareholders. Let’s say that the entity issues a dividend of about Rs. 3 per share every year. This would mean that you would get Rs. 3,000 (1,000 shares * Rs. 3 per share) each year. Extrapolating this over a period of 10 years, you would have gotten Rs. 30,000 as dividends.
Conclusion
As you can clearly see, the investment market is a great way to create wealth over the long-term. If you invest in the right companies, you can not only get the benefit of capital appreciation, but also stand to gain dividends from time to time as well.
If you’re interested in investing in the stock market, having a demat account is mandatory. You can visit the website of Motilal Oswal to open a demat account for free within a few minutes.
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