The equity shares of a company are referred to as common stock by financial and stock market experts. Investing in the common stock of a company gives you a great way to create wealth in the long term through capital appreciation and dividend payments.
If you’re a beginner who is keen to invest in the stock market, then this article is for you. There are multiple different ways through which you can invest in the common stock of companies. Let’s take a look at each of these methods in detail.
Every company that wishes to list its shares in the stock exchange has to go through a process known as the Initial Public Offering (IPO). Through the IPO, a company can sell its shares to the public in exchange for funds. The funds raised in this manner are usually used to further the business. An IPO is not only advantageous for the company, but also for the investors as well. For instance, by investing in an IPO, you get to participate in the wealth creation process early on.
On the other hand, many investors prefer to invest in good, well-established companies in the stock market instead of up and coming ones. If you’re someone who thinks like that, fortunately there’s a way out. You can invest in the common stock of your choice through a stock exchange such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE).
Investing through a stock exchange is highly advantageous since you can pick and choose the company that you wish to invest in, as opposed to other forms of stock market investments. However, if you’re planning on going this route, keep in mind that you can only invest in common stocks that are listed in a stock exchange.
A mutual fund is an investment vehicle, where capital from multiple investors are pooled together and invested in different stocks. One of the major advantages of investing in the stock market through a mutual fund is the diversification that it offers. Since you get to invest in stocks of multiple companies, your overall investment risk comes down. Also, when you continue to invest in a mutual fund for a long period of time, your overall cost comes down through rupee cost averaging.
A dividend reinvestment plan is a feature that many mutual funds offer. Now, when you invest in multiple companies through a mutual fund, you stand to get dividends. These dividends are usually paid out to you in cash. However, you can also choose to reinvest them back into the fund as well. When you opt for a dividend reinvestment plan, the dividends that you get are used to purchase more units of the mutual fund, potentially accelerating the returns that you’re likely to get from your investment.
Well, there you have it. These are four ways through which you can invest in the stock market. Now, whether you’re planning to invest in an upcoming IPO or in a mutual fund, you would need to first have a demat account in your name. You can visit Motilal Oswal to open a demat account and a trading account within minutes through an easy online application process. So, what’re you waiting for? Go ahead and get your investment journey started right away!
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