An Introduction To The Share Market

If a man empties his purse into his head, no man can take it away from him.

An investment in knowledge always pays the best interest.

- Benjamin Franklin

INTRODUCTION

In my previous blogs, I have discussed some of the common investment strategies that a beginner investor should follow. I have also discussed some of the best effective investment platforms. Now it is time to explore all the reliable platforms and knowledge to start with.

In every country, there is a financial system that means the structure that is available in an economy to mobilize the capital [money] from various surplus sectors of the economy to allocate the same to the needy sectors.

By Diagram:

A financial system comprises a mixture of intermediaries, markets and instruments that are related to each other.

One of the Key Role Player of our financial system is RBI [Reserve Bank of India] for sure. But, a genuine investor cannot go and buy directly from RBI. Hence a middle man or market is required that facilitates all these operations. Share market is one of them.

Now, let’s explore all about Share Market.
What is the Share Market? How does it work? And how can we invest money in it?

WHAT IS SHARE MARKET? 

Stock Exchange [also called stock exchange or share market] is an organized and controlled financial market where securities are bought and sold at prices governed by the force of demand and supply supported by certain rules and regulations.

Hence, it's a place where you'll simply buy the share or partner within the business or ideas of others, who share the same interest as you. However, the majority of decision responsibility lies with the body that has more than 51% of sharing in the business or having a larger hold on the capital.

for example: 
In Facebook Mark Zuckerberg have the main decision authority as he holds a bigger share of capital.

TYPES OF SHARE MARKET

PRIMARY MARKET:

It is a place where the first-time issue of any security takes place. Here, governmental and non-governmental, corporate and non-corporate bodies come to raise capital by channeling savings of the investors into a productive venture. Hence, if you would like to shop for new or first-hand shares of any company you'll purchase it from the primary market. It's the assembly factory of securities.

SECONDARY MARKET:

The secondary market also called the aftermarket which is employed for the sale and purchase of previously issued securities. Here, the worth of security is supported by the present demand, and supply within the market. Hence, once the share is issued it can only be traded in the secondary market.

INDIAN STOCK MARKET

Almost all big countries have their Stock Market. Indian Stock Exchange happens to be one of the oldest stock markets in Asia. Currently, India has 9 officially working stock exchanges as per SEBI of which BSE and NSE are the largest ones.

TOP STOCK EXCHANGE OF INDIA

BSE- BOMBAY STOCK EXCHANGE  

Established in 1875, BSE stands for Bombay Stock Exchange Ltd. It is the oldest stock exchange in Asia. It stands the world’s 10th largest stock exchange. Currently, the number of listed companies in BSE is approx. 5,500.

NSE-NATIONAL STOCK EXCHANGE

Integrated in 1992, NSE stands for the National Stock Exchange of India Ltd. It was the first exchange in the country to provide a fully automated screen-based electronic trading system. It ranks 11th largest stock in the world. Currently, there are approx. 1,950 companies listed in NSE.

Now, as you can observe there are "N" number of companies listed on an exchange. If we ever want to observe, whether the price of a share of the companies is moving up and down. How are we going to do it? To measure this, some measurements have been put in place i.e. Sensex and Nifty which represent the whole market. Just the way a small sample space represents the whole universe, these indices indicate the same. Both indices are benchmark indices in India.

WHAT IS SENSEX?

Sensex stands for Sensitivity Index. Sensex shows the Average trends of the top 30 stocks of BSE, whether the shares of the companies are moving up or down. These 30 companies represent about 47% of the free-float market capitalization. It provides time-series data from 1979 onwards.

WHAT IS NIFTY?

NIFTY stands for the National Stock Exchange Fifty. Nifty shows the average trend of the top 50 shares listed on NSE. It covers 50 stocks from different sectors of the Indian economy. These 50 stocks represent about 46.9% of the free-float market capitalization. It provides time-series data from 1990 onwards.

HOW CAN YOU BUY SHARES?

In the traditional era, it was quite easy to buy a share. Where you can physically reach the location of bidding and purchase them right away. But now the process is little stringent to counter frauds taking place at the end of the company selling its stock or the person/corporation buying the stocks.

These are some basic requirements for trading of shares/stocks.

1. PAN Card
2. Bank Account
3. Demat Account
4. Trading Account

Some assistance providers to ease your purchase

1. Depository participant
2. Depository
3. Broker 

Must Read:

What is an Investment? Investment Basics For Beginners

Understand the process from the figure below:

Explanation-

PAN Card: Permanent Account Number is an identification number assigned to all taxpayers in India.

Bank Account: An investor needs to have a bank account with the authorized bank of the country.

Demat Account: Demat accounts stand for a dematerialized account. It helps to hold financial securities in electronic form by eliminating the physical need of holding them. Demat account is maintained by depository participant. 

Trading Account: A trading account is an account used by the investor to buy and sell assets frequently. Securities are purchased through a trading account held in the Demat account in electronic form.

Each of these aforementioned requirements is mandatory. Indian banking system provides various services one of those is the facility of having 2 in 1 account or 3 in 1 account. Nowadays, you can simply open one bank account which provides you the facility of both trading and a Demat account. Banks like ICICI, HDFC, AXIS, KOTAK, and others can offer a 3 in 1 account due to their banking interface. All this will allow you to transfer funds almost seamlessly and do all transactions smoothly. 

Stock Broker: Stockbroker refers to the professional who does all the transactions on behalf of the client. Brokers are registered firms or individual representatives of a stock exchange and investment advisor. 

Depository: A depository is a place where things are stored. In the context of securities, it is an identity responsible for the maintenance of trading in the dematerialized account. In India, these services are maintained NSDL and CSDL.

Depository participant: DP serves as a mediator between investor and depository {NSDL and CDSL is an Indian depository service provider}. DP is responsible to execute the final transfer. Also, it maintains all the electronic records and offers confirmation of the transaction.

Hence, all the above are the basic requirements and the identities involved.

However, the process to list your company's stocks on an exchange is totally different and very strict. All the procedure is monitor by the authority named SEBI [Security Exchange Board of India].

Note:
SEBI is an organization that works with an aim "to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto". 

Bottomline  

Stock Exchange is one of the best platforms to invest your money, especially in the long run. Some people invest for a very short period, might be for a day or two, while some buy shares considering it as a long term investment.

Learn the difference between Trading and Investing.

Before investing in any stock, good knowledge of the company and their past performance is really important. Therefore, it is always advisable to invest in Mutual Funds as they invest the pooled amount into some profitable projects. In the coming blog, we will learn more about other aspects of investing. 

Also Read:
Top 10 Investment Options with a higher return in India.

I hope that I am able to give you a brief idea of the Stock Exchange.

Let me know what other areas of  Finance should I write about, in the comment section. Your valuable feedback would be really appreciated.

Keep learning and spreading financial literacy..!!