WHAT IS SHARE MARKET?

 

Why Should One Invest?

Investment is important to accomplish one’s financial goals and protect from unforeseen expenses that may arise. It is the process wherein saved income of an individual or group of individuals is put into use in a manner ensuring generation of further income.

It is always advisable to classify your investments based on time-period (short/medium/long). One should invest early, regularly and preferably for a longer period of time.

WHAT IS SHARE MARKET?

A share market is where shares are either issued or traded in.

A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares.

By buying share, 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.

You would have always heard people talking about bull market and bear market. What are they? Bull market is one where the prices of stocks keep rising and the bear market is where the prices keep falling. Where all these buying and selling happens? 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.

Two kinds of Share Market:

Share market is categorized into two namely:

• 1. Primary Market
• 2. Secondary Market

Primary Market:

• A company or government raises money by issuing shares in the primary market by the process of IPO.
• The issue can be either through public or private placement.
• Issue is public when the allotment of shares is made to more than 200 persons; Issue is private when the allotment is made to less than 200 persons.
• Price of a share can be based on Fixed price or Book building issue; Fixed price is decided by the issuer and mentioned in offer document; Book building is where the price of an issue is found out based on the demand from the investors.

Secondary Market:

The shares bought in the primary market can be sold in the secondary market. Secondary market operates through over the counter (OTC) and exchange traded market. OTC markets are informal markets wherein two parties agree on a particular transaction to be settled in future.

Why is Share Market important?

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 share 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.

• 1. Dividends
• 2. Capital Growth
• 3. Buyback