Investing in stock market is one of the methods to park the money for better returns. There is risk and reward in stock market. The risk of reduction in stock prices due to many factors. Fundamentally stock prices are depending on the earnings and growth prospects of the company. But the earnings and growth factors alone would not always single factor for the movement in stock prices of the company. There are many external factors like political factors, legal considerations affecting the company, sentiment of the investors in stock market and so on will also play major roles in movements of stock prices. However, in the long run say for five to ten-year time we can say the fundamental factor of earning and growth prospect of the company will alone become determining factor for the movement in stock prices.
There are many rewards or benefits on the investments in stock markets. The dividend, bonus shares, right issue entitlements and appreciation in the stock prices are the rewards or benefits from the investments in stock markets.
The approach to investment in stock market should ensure that both risk and reward factors are managed to the benefits of the investors. There are many approaches to manage the risk and reward by creating good portfolio of investments in stock market. The good approach is to diversify the investments in company which are operating in different industrial segments. For example, banking, food, software, real estate, retail, defence, and son. The investors need to put money on the basis of earnings and growth prospects of the company in different industrial segments. The investment in stock market need to be hold it for longer period say for five to ten years. This will reduce or eliminate the risk in investments in stock market and enable good return.
Accordingly, investment in stock market will yield good return only when the investments are diversified and hold it for longer period. The investors need to do proper research in selecting the company to ascertain earnings and growth prospects. The investors are also advised to consult the investments consultants in this process. But the advice of consultants need to be self-scrutinised and understood before taking the decision on investments in stock market.