The lure of creating big money in short time has always attracted people into investing money in stock markets. However, there is no sure-shot formula for success in stock markets. It requires a lot of patience, discipline and knowledge of market.
Before you actually start investing and trading in stock market, it is good to understand some frequently used terms:
STOCK MARKETS: A stock market, equity market or share market is the aggregation of buyers and sellers of stocks/shares for trading of company shares, stock or derivatives. This includes securities listed on a stock exchange as well as those only traded privately. Market is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc. For example: shares of private companies which are sold to investors through equity crowd funding platforms. Stock exchanges list shares of common equity as well as other security types such as corporate bonds and convertible bonds.
STOCK EXCHANGE: A stock exchange, share market is an exchange which provides facilities for stock brokers and traders, to trade company stocks and other securities. In India, The Bombay Stock Exchange Limited, or BSE has a nationwide reach with a presence in 417 cities and towns of India. Its index or market indicator is known as the Sensex. The National Stock Exchange of India, or S&P CNX Nifty, or simply Nifty, is the leading index for large companies in India.
SHARES: A share, also known as equity or stock, is one of a finite number that represents fractional ownership of the corporation in proportion to the total number of shares. In liquidation, the stock represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Equity is a share in the ownership of a company. It represents a claim on the company's assets and earnings.
PAN CARD: Permanent Account Number (PAN) is a unique, 10-character alpha-numeric identifier, issued to all judicial entities identifiable under the Indian Income Tax Act, 1961. It is mandatory for a majority of financial transactions such as opening a bank account, receiving taxable salary or professional fees, investing in shares market or mutual funds, sale or purchase of assets above specified limits etc.
BROKER: Individuals can't directly go the stock exchange and buy or sell stocks/shares. The people who are authorized to buy and sell in the markets are called brokers. A broker can be an individual or company or even an online agency, registered and licensed by Securities and Exchanges Board of India (SEBI), who regulates the share markets. To be able to invest in share market, you need to find a broker first. Make sure the broker you choose has proper license to trade and deal in securities in the markets. However, one can now do online trading without any help of broker.
DEMAT AND TRADING ACCOUNT: A Demat account will hold the stocks or shares in your name and the same will reflect in your stock portfolio as you can't hold or store shares in physical form. For buying and selling shares in the stock market you will require a Trading account. It's like an intermediary who facilitates the buying and selling... How to invest in shares market in India?
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By your query, I am assuming that you are asking the question with regards to the actual investment and NOT on how to open demat account and start trading/investing. With that in mind, I have written this reply. Incase you are asking with regards to opening an account and trading, then there are many ways to open demat account - either through your bank or through third party sources.
There are a few things you need to know about stock market investing before you start the actual investing. Knowing and having a decent understanding of these rules will help you in the long run.
For stocks read:
For mutual funds read:
Also, There is no book/eBook that you can buy which will give you information on everything related to investing in India. The reason is that given the current scenario of markets, economy, taxation, Inflation etc, where there is so much volatility, periodic changes in regulation etc - NO book can be printed to update so fast.
For example: let us say you bought a book and learnt about investing and now you are prepared to invest. Let us say, next month the Finance Minister brings out some new regulation and there are changes in taxation - personal and corporate, removal of tax savings schemes etc, how will you react to that? Will you wait for the next book to be printed or will you check online immediately for its impact on your net take home income?
In today's age of high speed communication, books or eBooks cannot be published at such a speed to incorporate the changes in the global and domestic markets. For eg: New regulations called FATCA (Foreign Account Tax Compliance Act) were introduced by Indian Govt around Sep 2015, which needed declarations from all Indian individuals and institutions before Dec 31, 2015, Otherwise they would not be permitted to invest from Jan 1, 2016. Now does this get captured in eBook? Also, how fast do you want to learn and invest is also an important point to note?
Hence, there should be a balance between book usage and online usage.
- Books are good for learning about old economies, sectors affecting domestic growth, GDP, financial ratios, understanding balance sheet etc.
- Online usage for live markets, daily changes in financial transactions, financial and economic news affecting investments in very short term etc...
This is my opinion (after being invested in markets for 10 years, I still do read books), hope my answer was able to bring you some clarity. You can always ask any queries on many forums - Quora, Money Control, mutualfunds india, value research online, aditya birla money...
Some of the books which provide decent information are given below. These should get you started:
- Fundamentals of Financial Management by Prasanna Chandra
- Everything You Wanted to Know About Stock Market Investing
- Capital Markets in India by Rajesh Chakrabarti or Capital Markets in India by Ashish Pandey
- Futures and options by Vohra and Bagri
Also, suggest you to read the Economic Wealth Newspaper that comes out every Monday only for Rs. 7/-. It covers everything of investing and it is a great way to keep track of all the happening news, stories, investments, queries etc.
As always, you can ask questions on specific topics and i will be happy to respond with basic info as well as reading material.
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A common investor can take equity exposure through direct investments into equity or through Equity Mutual Funds.
There are couple of fundamental differences between the two.
When you invest in Mutual Funds, you give the power to a a Fund Manager, who is an expert, to manage your investments for you. Once invested, the Fund manager would buy and sell stocks on his own volition to deliver the best returns for his investors. MF managers are experts who have years of experience and expertise available with them. You are also backed by analysts and technology which helps them in their decision making on what to buy or sell in the markets. Mutual Fund managers charge a fees to manage your investments.
Investing in stocks is something that you would need to do on your own. here you would need to rely on your own judgement on what to do in the markets. Here you would only need to pay brokerage for your transactions.
its a no brainer that beginners and even people who are not financial experts must invest through mutual funds rather than trying investments on their own. Countless people have lost tremendous amounts of money in just trying to save on the Fund Management Charges or trying to be smarter than the Fund Managers. Its typically what they call a “penny wise pound foolish approach”.
If you are beginner, then you must also take the support of a Investment Adviser / Wealth manager who can assist you on finding the right investment strategies for you.
Many good online platforms are now available for investing in Mutual Funds. Look for unbiased advisers an wealth managers who have consciously chosen to only advise and execute investments through Mutual Funds. Platforms like ours do not charge any advisory, Transaction or Platform usage fees.
Mutual Funds come in all shapes and sizes. You have options for Conservative, Moderate or Aggressive Investors. You have different options for short term (less than a year), medium term (1–3 years) and long term investments (3+ years). You can even park your money safely for 1 week and get almost double the returns from your investments. You can start with with Monthly or Lump Sum (one time) investments as low as Rs 500 and get access to the best Fund managers in the country. Many of the Mutual Funds also come with ZERO exit loads or Exit loads for 1–3 months. Mutual Funds have tremendous liquidity. You get your money back in your account in 1–3 days post redemption.
Considering all these points, MFs are indeed the best option available to the investors.
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10 Commandments which will help you compete and win the Indian Trading League and more importantly - WIN in the markets!
The Indian Trading League team has an endeavour to empower every investor and trader in the country to do better in the markets. We have a philosophy to motivate people to invest and trade methodically and not recklessly. With this in mind, we are outlining some guidelines that investors and traders across the country should follow since after all, it is your hard earned money and it should be channelled wisely. Some of the thoughts mentioned herein have been uttered by the greatest investors and traders in the world.
1. Make a Plan and Follow it religiously
The markets are a brain game (Like Chess or like chasing a cricket match in the second innings) and to win this game, you will need to create a plan. You will need to think before you make a move, measure every move since it will have implications on your next moves and also have a strategy in mind to adapt in case things don’t go according to plan. The most important thing will be to follow the plan religiously and not deviate from the same. What should your plan have
- Objective:- A well - defined objective of return expectations. Just like each cricket chase has a defined target, you will need to define a reasonable expectation of return from your capital. How much capital to be introduced? Rs 25000/- is just an indicative minimum, but depending on one’s strategy one should figure out what is appropriate capital requirement based on one’s style of investing or trading.
- Process:-
- Design a strategy to pick stocks/contracts to trade/invest in
- To win a game, you will need to decide the right mix of players – batsmen, bowlers and all-rounders. Same way, you’ll need to work out a list of stocks, indices, options, etc that work for you in order to achieve your return objectives.
- A clear well defined risk management strategy
- You will need to define a clear risk management strategy. If a bowler is having bad day on the field and is being whacked for runs, he needs to be taken off. Same way, formulate a strategy, how much diversified the portfolio should be and to cut losers and hold on to winners.
- A entry and exit strategy Well defined rules when to enter either fundamental factors like results, sales growth etc or technical factors like breakout etc along with clear exit strategy for eg outcome of financial results or price below a moving average etc.
2. Create a Risk Management System and Preserve your capital
a. Risk Rules: Defining how much to risk or how much to lose on a single trade is the first step towards risk management. Based on the available trading or investing capital oneshould decide prudent limits one is comfortable losing, this is all the more important because if one knows realistically the loss taking capacity, then trades will be done without FEAR of losing, and when fear is not disturbing, one can take decision from the mind without any emotions attached. Fear of LOSS is the biggest hurdle in trading and investing and the only way to overcome is pre defining the risk rules in the form of loss limits.
b. Size of the Trade: Too often people, either, bet everything on one trade and go broke or bet too little to make any meaning full profits to remain in the business. Both will drive them off the markets. In the first case there will be too much emotional attachment or the greed, but when the trade goes against, it will be hard to press exit button and they go broke because the position was huge. For Trading the right size of trade is such that which limits the losses to 1% or max 2% of the trading capital. On a trading capital of say Rs 1 lac, one can afford to lose max Rs 2000, therefore say for example ACC is trading at1500 and stop loss is identified at 1400, therefore max loss per share would be 100. But2000 is the max loss defined, as per strategy, therefore 2000/100 = 20 share can be purchased at 1500 entailing a total investment of Rs. 30,000 (1500*20) with max risk at Rs. 2000 on this trade. Similarly for investments one should not invest more than 10% of capital in any single stock. For capital of Rs. 1 Lac, max Rs. 10,000 can be invested in a single stock, thereby creating a portfolio of 10 stocks. The above rules are not mathematical rules of exactness, but suggestive and are followed elsewhere as best practices in the industry.
c. Exit Strategy: In a war, what will happen if one doesn’t know when and how to come out of it? In trading one must have an exit strategy, i.e. when to get out and book profits or losses. Indecision will not help. Some have pre defined profit target of three times risk for example if risk per trade is assumed at Rs. 2000 then profit will be booked when Rs.6000 profits is achieved. Others have exit strategy when prices fall 10% from the peak,then and only then, a long position will be squared off. Similarly there are different ways of exiting the trade, it is essential to have the exit strategy in place before entering the battlefield called the stock market.
d. Stop Loss Strategy: 90% of the battle is controlling the losses no matter what strategy one adopts. Portfolio returns often look bad because of a few trades gone wrong where the exit stop loss wasn’t defined or triggered. In trading this is even more important because leverage is used. One generally keeps a stop exit when price adversely moves beyond say 2 times Average true range (ATR) or crosses key support or resistance areas.For investing some prefer to keep stop at 8% of their purchase price. Whatever may be the strategy it is a must to exit a losing trade. Every time no one is right all the time.
3. Keep Trading (Price) and Investing (Value) separate:
Trading or Investment, both require different set of skills, mental attitude, and divergent rules. In order to be best in the class, one can therefore either be a Trader or an Investor. The important decision making points wherein strategy differs are Stop Loss or hold on, long term or short term, analyzing price or analyzing value, to follow the market or to predict are some of the contrasting and opposite action points which needs to be applied to either investing or trading to the exclusion of each other.
4. Money can be made on both sides – Up and DOWN! :
- Markets are not one way up, after bull market, bear market is going to follow, so one should not be biased towards only long trades, selling short should also be done with the same ease. By refusing to sell short one forgoes huge opportunity to make money when the markets are in bear zone. Always remember, money can be made in 2 waysa. Buying Low and Selling High!b. Selling High and Buying Low!
5. Discipline - The silent secret:
The hardest thing in the financial markets is the ability to consistently execute the plan with the iron fist discipline, but which rarely happens and that is why results are so poor. It is said majority of the people do not make money, because people lack discipline. It’s just like control over self all the time which is really hard, similarly remaining disciplined all the time is the most important ingredient for success. Whoever does it has the riches.
6. Manage your Emotions and Expectations:
Trading and Investing are essentially interlinked with human emotions. It the human being that makes the decision but the emotions act as a gatekeeper which filters out decisions. It is sometimes said the battle is not out there on the street, but it is inside one’s own mind. So to be successful trader or investor one needs to understand one’s own temperament, whether he/his is patient or impatient, fearful or fearless, slow decision maker or fast decision maker, emotional or unemotional etc, identifying one’s psychological makeup and then selecting the style which suits, would lead one to a sustained success in trading and investing.
7. Don’t listen too much to forecasters or advisers! They only fill your ears, not your wallets:
Any money making skills has to be self acquired , no one can forever depend on others, that they will make money for them. Similarly by depending on forecasters one constantly postpones efforts to self learn the art of making money through hard work and self study. There is no substitute for self acquired knowledge and experience. You will have to write your own exam in the markets. No amount of copying, cheating will help you ace the exam!
8. Like in all other forms of trading, keep your costs low!
The economics of profit is simple, reduce costs, profits will automatically increase, other things remaining same. The flat fees of Rs. 20/- per executed order shall entail almost 90% of savings in the brokerage costs. Whether Rs. 10000 or 1Cr trade, it’s the same flat Rs. 20/-. This may seem irrational but it is possible because of advent of technology, businesses are now becoming digital driving down their cost of operations dramatically. The flat fee brokers like SAMCO Securities are just passing on the benefits of cost reduction at their end which every trader and investor must avail off in order to reduce costs and increase profits dramatically.
9. Go with the trend:
It is far more difficult to swim against the flow of the river, but very easy to flow with it. Similarly once the phase of the market is identified bull or bear, then one should trade or invest in that direction. Also, it is not necessary to trade compulsively all the time. More trading doesn't mean more return. In fact, there goes a saying by Mr. Warren Buffett, "As investor motion increases, return decreases". Sometimes if there is no clear trend in the markets, it might be better to be a spectator than be a compulsory speculator.
10. Keep it Simple:
Like many things in life, simple and uncomplicated things are more effective, similarly in trading or investing, the strategy should be simple and easily understood. The rules of entry exit, the risk management policies, discipline to stick to the plan and the ability to control emotions are the key to success. There is no other rocket science to success in the markets.
We'd like to close with a Peter Lynch Quote - "Everyone has the brain power to follow the stock markets. If you made it through 5th Standard Math, You can do it."
We believe all our participants will cross new frontiers and reach new highs in their ability to make money in the markets. They will drive excellence to new levels and in turn become smart traders and investors and make themselves capable to capture the most covet name tag to be the “Smartest Investor and Trader” and win Rs 1 Cr and many more cash prices. Team Indian Trading league wishes them all the best in their endeavours.
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Traditionally, gold and shares are the most sought after investment arena for Indian investors. However, if you are someone looking to invest in shares in India, and are just starting off, the first question in your mind would be
“How can a beginner invest in shares in India?”
Well here is a guide to get started in Share market investment in India.
Jut stand in a crowd and utter the words “aaj market kaisa hai?” (how is the market today?), and there will be opinions pouring in from all directions. The best part is that even people who have never ever invested in shares will have strong opinions and even tips at times for how to invest in share markets. So if you are someone who simply does not want to stand and give tips without doing anything and wants to actually invest in share markets in India, then here is how to get started with share market investment in India:
How-to-Invest-in-Shares-beginners-guide
How to invest in Shares in India – Beginner’s Guide:
So let us have a look at what a beginner must do to get started with their stock market investments. Here is a 6 step guide to help you out.
1. Get a PAN Card:
PAN or Permanent Account Number is a primary requirement for entering any financial transactions in our country. It is unique 10 digit Alpha-Numeric number assigned to an individual by the Tax Authorities for assessing their tax liabilities. PAN is however required for opening a bank account, investing in mutual funds, filling Income Tax returns etc. Also the first thing you will need to be able to invest in shares in India is a PAN card, so get it first.
2. Get a Broker:
You and I cannot directly go the stock exchange and buy or sell stocks/shares like we would buy or sell any other thing. People are authorized to buy and sell on the markets and they are called brokers. Brokers can be individuals or companies and even online agencies that are registered and licensed by SEBI or Securities and Exchanges Board of India, who regulates the share markets. Get a broker, they can be individuals you know and are reliable, or you can approach various companies that are licensed to trade and deal in securities in the markets.
If you are comfortable with internet and online stuff, you can even have online broking through companies like ICICI Direct, Sharekhan, Kotak Securities, IndiaBulls etc.
(The names given here are just given as examples of well-known companies offering online broker services, they are neither recommendations nor a testimonial to their performance, and please do a research before selecting your broking firm.)
3. Get a Demat and Trading Account:
Once you have a broker, whether in form of a person, company or online, you will now need a Demat and Trading account. Demat account will hold the stocks or shares in your name and the same will reflect in your stock portfolio. You cannot hold shares in physical form or store them physically. They have to in Dematerialized state or Demat state. A Demat account does that for you. It will store the shares you buy from the markets through your brokers in your account in your name. The selling will also be from here and it will reflect in your Demat statements that you receive from time to time. You will never have a physical share certificate in your hands; it will be reflected in your Demat Account Statement.
The buying and selling of shares you wish to have or want to sell will however require a Trading account. Trading account will be like an intermediary who facilitates the buying and selling. Usually your broker takes care of all this. Whether you approach an individual broker, a broking firm or online agencies, the Demat and Trading accounts will be opened simultaneously as it is one without the other is useless for investing in shares in India.
4. Depository Participant:
There is also a Depositary Participant that you need to be aware of. There are two depositories in India: NSDL and CDSL which stands for National Securities Depository Limited and Central Depository Services Limited. These two have their agents in the form of Depository Participants who will provide an account to store the shares you hold. It is not the same as Demat and Trading account as in Demat it shows the number shares you hold and the Trading reflects the buying and selling that has taken place in your account. Depository Participants will hold those shares you bought and release the shares you sold. However, it is usually taken care of by the broker who will also guide you through the Demat, Trading account opening process as well as register with a Depository. But you need to be aware of it none-the-less.
How to invest in Shares in India
5. UIN if you want to invest BIG:
UIN or Unique Identification Number is required in case you trade for Rs. 1,00,000 or more at a single time. If you plan to go BIG in share markets, UIN is needed. Otherwise, for regular investors it is not required.
6. Buying and Selling:
For buying or selling shares, you need to inform your broker about which share in what quantity you wish to buy at which price. For example if you wish to buy 10 shares of Reliance Industries Ltd when it reaches a price of Rs. 885, you have to inform the same to you broker; Share: Reliance Industries Ltd. Quantity: 10, Price: 885. In case of online broker too, they usually have customer care numbers where you can place your order if you do not have access to the internet at that point. When the share reaches that price, transaction will be made on your behalf. Same is done in case of selling, for example Sell: Reliance Industries Ltd, Quantity: 3, Price: 895. The sell order will be processed when the share reaches that price. However the buy and sell orders remain valid only up to a certain time, usually the same day or the next. Your broker will inform you of the same. If during that time frame the buy or sell price is not reached, the order is cancelled and you need to place a new order.
The buying and selling takes place in two exchanges: BSE and NSE namely Bombay Stock Exchange and National Stock Exchange. These are the only two exchanges in India where buying and selling of shares and commodities take place. You need to mention the exchange to your broker too, as there is usually a slight difference in price of shares at the two exchanges. However your broker can guide you here in case you do not understand where to trade. (The names given here are just given as examples, they are neither recommendations nor a testimonial to their performance, and please do a research before buying or selling shares.)
Don’t get carried away and avoid these mistakes:
Now that you know how to get started with your investment in shares, do not get carried away as stock markets can be tricky and it won’t take time for you to lose money if you make a slight mistake in judgement or follow stuff blindly. Please refer our post on the 11 mistakes to avoid when investing in shares here. It may help you to avoid some common blunders share market investors makes while making stock market investments in India.
I keep updating this post and write new ones. So do watch out. Also, do note that most of the tips shared here are evergreen and will help you out in most cases. Still I advice once again, never get carried away with any “tips”, “leads” or “sure-shot money doubling” talks. Use your best judgement.
Happy Investing!!!... Read More
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WHY DO WE INVEST?
To make sure we have enough funds to be prepared for the future. Simply earning and saving is not enough. Inflation – the price-rise beast – eats into the value of your money. To make up for the loss through inflation, we invest and earn extra. This is the investment fundament. The stock market is one such investment avenue. It has a history that goes way back to the 1800s.
Evolution & History of Indian Share Market By Kotak Securities®
Earlier, stockbrokers would converge around Banyan trees to conduct trades of stocks. As the number of brokers increased and the streets overflowed, they simply had no choice but to relocate from one place to another. Finally in 1854, they relocated to Dalal Street, the place where the oldest stock exchange in Asia – the Bombay Stock Exchange (BSE) – is now located. It is also India’s first stock exchange and has since then played an important role in the Indian stock markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian economy and finance is measured.
In 1993, the National Stock Exchange or NSE was formed. Within a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment.
This shows that stock markets in India have a strong history. Yet, at the face of it, especially when you consider investing in the stock market, it often seems like a maze. But once you start, you will realize that the investment fundamentals are not too complicated.
So Let’s Start With Share Market Basics.
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.
The key factor is the stock exchange – the basic platform that provides the facilities used to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.
Types of Share Market By Kotak Securities®
THERE ARE TWO KINDS OF SHARE MARKETS – PRIMARY AND SECOND MARKETS.
Primary Market:
This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange.
A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial Public Offering (IPO). The company thus becomes public.
Secondary Market:
Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon.
Normally, investors conduct such transactions using an intermediary such as a broker, who facilitates the process.
HOW TO BUY SHARES?
First, you need to open a trading account and a demat account. This trading and demat account will be linked to your savings account to facilitate smooth transfer of money and shares.
We offer various trading tools to buy and sell shares that caters to our diversified set of traders and investors :
Online trading: Want to take charge of your stock investing decisions? Our robust online trading system will help buy shares online with sheer ease and convenience. To buy shares, log in to your trading account using your User ID, Password and Security Key/Access code.
KEAT PRO X: A jet speed online trading software to buy and sell shares online and real time
Kotak Stock Trader: Just tap and buy stocks on the go using our mobile trading app on your smartphone.
Dealer assisted trading: Looking for some guidance to buy a stock? This is an assisted trading service which will help you make an informed investment decision.
Call and Trade: Don’t have access to your laptop or computer. You can call us and buy shares over the phone.
Fastlane: A light and fast Java based trading platform that makes share trading easy even on slow and age old computers
Xtralite: An extra light and a superfast trading website that’s works best even if you have a slow internet connection.
WHAT ARE THE FINANCIAL INSTRUMENTS TRADED IN A STOCK MARKET?
Now that we have understood what a stock market is, let us understand the four key financial instruments that are traded:
Financial Instruments Traded in Share Market By Kotak Securities®
Bonds:
Companies need money to undertake projects. They then pay back using the money earned through the project. One way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely payments of interest, it is called a bond.
For example, imagine you want to start a project that will start earning money in two years. To undertake the project, you will need an initial amount to get started. So, you acquire the requisite funds from a friend and write down a receipt of this loan saying 'I owe you Rs 1 lakh and will repay you the principal loan amount by five years, and will pay a 5% interest every year until then'. When your friend holds this receipt, it means he has just bought a bond by lending money to your company. You promise to make the 5% interest payment at the end of every year, and pay the principal amount of Rs 1 lakh at the end of the fifth year.
Thus, a bond is a means of investing money by lending to others. This is why it is called a debt instrument. When you invest in bonds, it will show the face value – the amount of money being borrowed, the coupon rate or yield – the interest rate that the borrower has to pay, the coupon or interest payments, and the deadline for paying the money back called as the maturity date.
Secondary Market:
The share market is another place for raising money. In exchange for the money, companies issue shares. Owning a share is akin to holding a portion of the company. These shares are then traded in the share market. Consider the previous example; your project is successful and so, you want to expand it.
Now, you sell half of your company to your brother for Rs 50,000. You put this transaction in writing – ‘my new company will issue 100 shares of stock. My brother will buy 50 shares for Rs 50,000.' Thus, your brother has just bought 50% of the shares of stock of your company. He is now a shareholder. Suppose your brother immediately needs Rs 50,000. He can sell the share in the secondary market and get the money. This may be more or less than Rs 50,000. For this reason, it is considered a riskier instrument.
Shares are thus, a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value.
Mutual Funds:
These are investment vehicles that allow you to indirectly invest in stocks or bonds. It pools money from a collection of investors, and then invests that sum in financial instruments. This is handled by a professional fund manager.
Every mutual fund scheme issues units, which have a certain value just like a share. When you invest, you thus become a unit-holder. When the instruments that the MF scheme invests in make money, as a unit-holder, you get money.
This is either through a rise in the value of the units or through the distribution of dividends – money to all unit-holders.
Derivatives:
The value of financial instruments like shares keeps fluctuating. So, it is difficult to fix a particular price. Derivatives instruments come handy here.
These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price.
WHAT DOES THE SEBI DO?
Stock markets are risky. Hence, they need to be regulated to protect investors. The Security and Exchange Board of India (SEBI) is mandated to oversee the secondary and primary markets in India since 1988 when the Government of India established it as the regulatory body of stock markets. Within a short period of time, SEBI became an autonomous body through the SEBI Act of 1992.
SEBI has the responsibility of both development and regulation of the market. It regularly comes out with comprehensive regulatory measures aimed at ensuring that end investors benefit from safe and transparent dealings in securities.
Its basic objectives are:
Protecting the interests of investors in stocks
Promoting the development of the stock market
Regulating the stock market
Participants in the Share Market By Kotak Securities
WHAT NEXT?
Now that you have understood what a share market is and other stock market fundamentals, you need to understand how it works and how you can invest in the share market. Click here to find out..... Share Market By Kotak Securities
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