Investing in Indian Stocks vs Investing in Indian Startups - Which Would be More Beneficial For you?

Investors have a long-standing debate about whether to invest in the stock market or startups. Most pioneer companies launch their initial public offerings (IPOs) that often result in high returns. The sublime growth of the Indian startup culture has only extended the debate in investors' minds.

You may have seen skilled and experienced investors earn hefty profits by investing in stock markets. Such instances are pretty intriguing, aren’t they?

In fact, both stock market and startup investments have perks and can help you build a stunning investment portfolio.

Some investors like to play safe, while others don't mind bearing serious risks. It depends entirely on your mindset which investment option you would choose.

But the problem begins when you need clarity about which one of the investment options mentioned above is favourable. Amidst such a dilemma, how do you make the final call about investing in stocks or startups? Read this detailed blog to make an informed decision and take a step forward towards multiplying your investment.

Startup Investments vs Stock Market Investment: Which Is Better?

It takes work to decide between startup and stock market investments, as both options reward investors differently. However, the flourishing startup ecosystem in India is making startup investments more prevalent. Around $36 billion has been raised as funding by Indian startups in 2021, supporting the fact that Indian startup culture is rising. On the other side, stock market investments have been preferred by investors over decades. The following points will help you determine the best investment options mentioned above.

Startup Investments Make Investors Integral Parts of the Startup Teams

The volatility of the stock market can make your investment go for a toss, which you don’t have control over. Investing in Indian stocks can be rewarding, but subtle risks come associated with it.

If the stock market crashes miserably for any reason, you would have no option left. Such a mess may occur without warning. However, investing in startups provides substantial control over how the startup functions as you invest in it.

Investing in an early-stage startup will also let you mentor the founders as you become a crucial member of the core startup team. Eventually, your insightful mentorship can help the startup hit the moon seamlessly.

According to Marquee Equity, around 38% of startups fail due to inadequate capital while 19% lack flawless business models. Both concerns can be resolved with the investor's financial support and guidance.

As an investor, you not only back a startup financially but also leave inputs and suggestions related to the operation of the startup. Consequently, the chances of the startup failing reduce drastically, and your investment also yields higher returns.

Most startups make plenty of mistakes on their way to market disruption and fail to achieve their goals for a prolonged period. An investor holds the authority to point out the operational errors a startup makes to evoke the chance of failure.

Startup Investments Promote Innovation

India is home to over 77000 startups due to a welcoming ecosystem. Investors directly contribute to enhancing the fast-accelerating Indian startup ecosystem by investing in leading-edge startups with originative concepts.

Backing unconventional and problem-solving startup concepts is vital in the long run to make the world a better place. Investing in startups that aspire to target more significant social causes eventually turns into fruitful ventures that earn astounding profits.

Instead of buying shares of multinational companies, if you invest in startups that aim to solve real-world problems, they are most likely to unlock the doors to unimaginable success,

Innovation is incomplete without feedback, and investors often have crucial ideas for startup owners to help them sharpen their strategies or products. As mentioned, investors usually get to share the driver's seat with the founders of the startups they invest in. That way, you can promote innovation and participate in that.

Eventually, you can explore new things, domains, and perspectives by investing in innovative startups. You don't get that chance when you think of** investing in stock market**.

Startup Investments Can be Made At Any Stages

There's nothing like a favourable time for investing in startups in India, you can decide to invest in a startup whenever you want. No hard and fast rule is there to specify that you have to invest in early-stage startups only.

You can also invest in startups that are doing well in exchange for equity. Though funding early-stage startups helps maximize profit margins unbelievably, investing in startup unicorns are good too.

A whopping increase of 15400% in the total number of Indian startups in the past six years provides you with the option to invest in plenty of entry-level startups. Whether you invest in an early-stage startup or a unicorn, your investment is more likely to be rewarding.

On the other hand, the timing of investment is highly crucial when you are planning to invest in stocks. Stock market investments can be fiercely risky if not done timely. IAs an investor, you must conduct thorough market research to understand when to invest in stocks and when not to.

The prices of stocks rise and fall overnight, often leaving no clue for investors to strategize. An investor needs to investigate the company's background and performance before buying its shares, which is a hectic process. Even investing in the top IPOs can be fatal if the timing is inappropriate. That's why beginner investors should keep themselves away from stock markets.

Startups Investments Help Diverse Investment Portfolios

Experts suggest diversifying investments to avoid more significant risks of financial loss. Diversified investments unlock opportunities to explore new markets and innovative and enchanting domains.

Stock markets are congested most of the time, and trends in stock markets directly affect IPOs predominantly. On the other side, stock market trends and fluctuations have little to no influence on early-stage startups. So, you can ensure higher returns by investing in startups from diverse domains.

Startup Investment Fosters Ideation That Contributes To Society

Startups are fundamentally based on innovative concepts that aim to make daily lifestyles better for people. Startup investments can help propel the growth of young businesses that aim to solve societal problems and make the world a better place to live. On the contrary, investing in stocks market doesn't have to do anything about social contribution.

Startup Investment Promotes Job Creation

Investing in stocks market is all about purchasing profitable shares of reputed companies. There's no room for participating in the job creation process when investing in stocks market.

Startup investments, on the other hand, enable you to promote a higher job creation ratio. The more startups you invest in, the more jobs get created. Eventually, that supports and strengthens the economy of the country.

What Are The Threats Associated With Investing in Stocks Market?

When we say that stock market investments are too risky, we point our fingers at the potential risks associated with this investment option. Let’s find out the most crucial risks associated with stock markets.

Market Risk

When it comes to investing in stocks market, the risk posed by the market is the biggest threat to any investor. The price of a stock is regulated based on its market demand and supply.

Suppose you purchase a stock at a specific price and sell it when the price gets higher. You make l gain in that case. But if you fail to sell your stocks timely, and unfortunately the price falls, you may incur significant financial losses.

Company Risk

A particular company's stock price may go down drastically when the company underperforms. This can be a severe issue that is extremely hard to predict. Inspecting a company's background before investing in that may help manage this risk, but analytics may only work some of the time.

Taxability Risk

Frequent moderations in the government’s taxation system are nothing new. But did you know that sudden changes in the taxation system can impact the price of stocks?

It doesn’t even take a day for a company’s stock price to go down drastically due to a sudden change in the taxation system. That can happen out of nowhere, leaving you shocked. If you’re thinking of investing in Indian startups, keep this significant risk in consideration.

Inflation Risk

Inflation can hit any country's economy hard, and it can also have severe impacts on stock markets. Inflation causes an unexpected decrease in the prices of stocks. Investing in stocks during inflation is too bad of an idea, and beginner investors may make this mistake due to inexperience.

Interest Rate Risk

All companies borrow money from banks from time to time to ensure uninterrupted operations. If the government increases the interest rates on loans, there’s a probability for the prices of stocks to go down unpredictably within a short span.

These are the vital risks involved with stock market investments. It's essential to curate effective counter plans to deal with these issues while investing in stocks market.

Wrapping Up

Investment and risk go hand in hand, and you should be prepared to deal with the risks associated with any investments you make. It would be best if you refrained from diving directly into problems by investing in stock markets as an investor.

In this blog, we have demonstrated a competitive analysis between stock market investments and startup investments to help you understand which is a better choice for you. Forbes says startup investments are more rewarding than stock market investments, provided you have a strong sense of understanding a business.

Why go into the complicated process of stock market investment when the opportunity to back revolutionary startups is available? Hopefully, this blog has clarified whether to invest in Indian stocks or Indian startups. Now, put your knowledge to work and take the final call wisely!