Share market is where buying and selling of share happens. A share represents a unit of ownership of the company from where you bought it. For example, you bought 10 shares of Rs. 200 each of ABC company, then you become a shareholder of ABC. This allows you to sell ABC share anytime you want. Investing in shares allows you to fulfill your dreams like higher education, buying a car, building a home, etc. If you start investing at a young age and stay invested for a long time, the rate of return will be high. You can plan your investment strategy based on the time you need money.
By buying shares, you are investing money in the company. As the company grows, the price of your share too will increase. You can get profit by selling the shares in the market. There are various factors that affect the price of a share. Sometimes the price can rise and sometimes it can fall. Long-term investment will nullify the fall in price.
Why at all a company sells its shares to the public? A company requires capital or money for its expansion, development, etc., and for this reason, it raises money from the public. The process by which company issues shares is called Initial Public Offer (IPO). We will read more about IPO under Primary Market.
You would have always heard people talking about the bull market and a bear market. What are they? A bull market is one where the prices of stocks keep rising and the bear market is where the prices keep falling. Where do all this buying and selling happen? NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). These are the two major stock exchanges in India and are regulated by SEBI (Securities and Exchange Board of India). Brokers act as an intermediary between the stock exchange and the investors. So to start investing or trading, you have to open a Demat account and trading account with a broker. You can open a Demat account online easily through a simple process. After linking your bank account with these accounts, you can start your investment journey.
Share market is categorized into two namely:
1. Primary Market
2. Secondary Market
The shares bought in the primary market can be sold in the secondary market. The secondary market operates through the counter (OTC) and exchange-traded market. OTC markets are informal markets wherein two parties agree on a particular transaction to be settled in the future.
Exchange-traded markets are highly regulated. Also called an auction market wherein all transactions happen via the exchange.
Share market plays a vital role in aiding the companies to raise capital for expansion and growth. Through IPOs, companies issue shares to the public and in turn receive funds that are used for various purposes. The company gets listed on the stock exchange after IPO and this provides an opportunity to even a common man to invest in the company. The visibility of the company increases as well.
You can be a trader or investor in the share market. Traders hold stocks for a short period of time whereas investors hold stocks for a longer duration. As per your financial needs, you can choose the investment product.
The investors in the company can use this investment to fulfill their life goals. It’s one of the major platforms for investment as it provides liquidity. For instance, you can buy or sell shares anytime based on the need. That is, financial assets can be converted to cash anytime. It offers ample opportunities for wealth creation.
You know well that you can earn money by investing in shares. The following are the ways through which your money grows.
2. Capital Growth
1. These are the profits the company earns and it is distributed as cash among the shareholders.
2. It is distributed according to the number of shares you own.
Investment in equities/ shares leads to capital appreciation. The longer is the duration of investment, the higher the returns. Investment in stocks is associated with risks as well. Your risk appetite is based on your age, dependants and need. If you are young and don’t have any dependants, you can invest more in equities to get more yield. But if you have dependants and commitments, you can allocate more portion of money to bonds and less to equity.
The company buys back its share from the investors by paying a higher value than the market value. It buys back shares when it has a huge cash pile or consolidates its ownership.
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