Types of Gains

Types of Gains

Basically there are two types of gains from the investment in shares of public company.

1. Dividend income
2. Capital appreciation

Dividend is an amount paid to share holder out of company profit. it is important to remember that profit earned and dividend are two different things. dividend is a portion of profit to be distributed among share holder.The normally investment in shares are made to earn profit. This is relatively save approach if you pay less attention to price fluctuation in the market.

advantages of Dividend Income

Safer than capital appreciation:-The normally investment in shares are made to for regular dividend income. This is relatively save approach if you pay less attention to price fluctuation in the market.

Peace of Mind :- This investment result in  peace of mind you normally expect a regular income. The reputable companies normally pay up-to the expectation of the market. The diversification of portfolio in a reputable companies not only minimize the risk but also ensure regular dividend payment.

Receive payment without work:- The important factor that you earn money without any work and most importantly you need not to spend time in the equity market. The only thing is require to make some research of companies before investment and then you can enter in the market with the diversified portfolio.

Capital appreciation earn due to increase in the market value of your shares.The shares of public company are traded in stock exchange like a commodity and if the price of your commodity/share goes up it means that you can earn some money in form of capital appreciation if you decided to sell your investment at that point.


Disadvantages of Capital appreciation approach

Not easy to forecast future :- some people enter into market with the short term investment . they want to maximize the wealth in days which is not technically possible. Therefore they make decision in haste about the market and therefor they usually inure the heavy loses because it is almost impossible to exactly predict the market behavior.


Time Consuming Job :- if you are interested in short term gain then you need a close eyes on the market index and in this case you are more interested in a share which is more volatile . because a stable share does not provide you an opportunity to make huge gain in short term.

Risk is very high:- The only short term benefit is not a good approach and it involves a great degree of risks . In this approach you are not considering the fundamental of a company but your focus is on the market fluctuation. it is like a sea with storm and you want to swim in the sea at that time.