Share is a unit of account for financial instruments like stocks, limited partnerships and mutual funds. Certain things need to be remembered before share investment or investing money in shares. The basic concept that needs to be known is that the person who invests in shares and owns them is the shareholder and the income received from shares is the dividend.
On buying shares of a company, one comes to own a part of a company and the price paid by the shareholder is what the stock market values that company to be worth. Money that is used for investment in shares should not be the money that is used for meeting the expenses of every day life. Idle money is the money that is not needed in the near future and must be utilized for investing in shares.
The share money need not be released unless one is sure that one would incur a profit from investing in the stock market. One must also remember not to put all his money in any one kind of share.
One must invest in different kinds of shares having different liquidity levels and fundamental abilities. By doing this one can avoid heavy losses if a share or stock degrades in value. It is best not to invest more than 20% of one’s idle money in share investments.
A shareholder can benefit in two ways from the profits of a company.
A portion of the profit that a company earns is distributed as dividend. When a company issues a share, it gives a basic value to each share which is known as the face value of a share. When a share is traded in the stock market, its price varies in accordance with the supply and demand for the stock. One must invest in shares prudently in order to get more dividends. One must know the art of holding and selling shares. Investors prefer to invest in shares of those companies that have profit making potential. If profit increases, then, the value of the shares of the company increases and the person investing in shares will receive a premium over what he had paid.
When one sells a share after a year, the profit made is known as long term capital gain and no tax can be levied on it. The main source of income from such investments is capital appreciation. The share value increases with time and it can then be sold at a profit. Therefore, it can be said that share is long term investment and it profits that way.
Last Updated on : 26th June 2013