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| share market |
Hi Guys,
Today we are talking about the share market, in this article, we discuss the following questions.
What is the share market?
How does it work?
And how you can invest money in it?
I have made Articles on mutual funds and their related articles, Let us find out more about
share markets. The stock market, share market, or equity market all of has the same meaning. These are markets where you can buy or sell a company's
shares.
Buying shares of a company means buying some percentage of ownership of
that company. That is, you become the holder of a percentage of that company.
If
that company makes a profit, some percentage of that profit would also be given
to you. If that company incurs a loss, a percentage of that loss would also be
borne by you.
Giving you an example of this, presume you
have to establish a start-up. You have 10,000 rupees, but that's not enough So,
you go to your friend and tell him to invest another 10,000 rupees and offer
him a 50-50 partnership.
So, whatever your company profits in the future, 50% of it
would be yours. 50% of it would be your friend's In this case, you've given 50% of the shares to your friend
in this company.
The same thing happens on a larger scale in the stock market. The only difference being, instead of going to your friend,
you go the entire world and invite them to
buy shares in your company.
The origin of share markets dates to around 400 years ago Around the 1600s, there was a Dutch East India Company, like
the British East India Company, There was a similar company in the country of the Netherlands
today, known as Dutch East India company.
The stock exchange is that place, that building where people buy
and sell shares of the companies. The market can be divided into two types. The primary market
and the secondary market.
The primary market is where the companies sell their shares. The companies decide what exactly would be their share
prices. Although there are some regulations in this too. The companies cannot maneuver too much because a lot of it
depends upon the demand.
How much price are the people willing to pay for the
company's shares. If the value of the company is 1 lakh rupees, it sells 1 lakh of its shares and offers shares at 1 re per
share. If its demand is high and a lot of people want to buy its
shares, the company would obviously be able to sell its shares for a
higher price. What the companies do nowadays is decide upon a range.
There's a minimum price and a maximum price. They decide to sell their shares within that range.
A point to be noted here is that every share of the company
has equal value. It is upon the company to decide how many of its shares it
wants to make. If the total value of the company is 1 lakh, then it may
make 1 lakh shares of 1 re each, Or it may make 2 lakh shares of 50 paise each. When companies sell their shares in the share market, it
never sells 100% of them.
The owner always retains a majority of the shares to keep
possession of his decision making power. If you sell all the shares, then all the buyers of the
shares would become owners of the company.
Since they all become owners, they all can take decisions
regarding that company.
The individual who has more than 50% of the shares would be
able to make decisions regarding the company. Therefore the founders of the company prefer to retain more
than 50% of the shares. For example, in March 2019, 57.92% of the shares of SBI (State Bank of India) are retained by Promoters.
The people who have bought shares of the company can sell it
to other people. This is called The Secondary Market. where people buy and sell shares amongst themselves and
trade in shares.
In the Primary Market, the companies set the prices of their
shares. The companies cannot control the prices of their shares in
the secondary market. The share prices fluctuate depending upon the demand and
supply of the shares.
The prices of the shares fluctuate depending upon the
demand and supply. Almost every big country has its own stock exchange. There are two popular stock exchanges in India.
One is the Bombay Stock Exchange (BSE) and the other is the National Stock Exchange (NSE).
With so many countries registered in the stock exchange, If we want to see, whether the prices of the
shares of the companies are moving up or down on an overall basis, How do we view this?
To view this, some measurements have been put in place
Sensex and Nifty. also, there are so many indexes that define the up-down of those particular sectors.
Sensex shows the average trend of the top thirty companies
of the Bombay Stock Exchange. averaging out, whether the shares of the companies are
moving up or down. The full form of Sensex, the sensitivity index.
The number itself means not a lot. The value of this number can be understood only upon
comparison with the past numbers. Because this number has been randomly decided. They decided, at the start that the values of the shares of
the thirty companies would be this. So we compile all the numbers and then say that it is 500.
So, gradually, the Sensex has been rising and it has reached
the 41000 points in the past 50 years. So this shows how far up have the share prices of these 30
companies have gone in these past 50 years.
There is another similar index NIFTY National Fifty. Nifty shows the price fluctuations of the shares of the top 50
companies listed on the National Stock Exchange.
If a company wants to sell its shares on the stock exchange,
then this is termed as "public listing". If a company is selling its shares for the first time, then
it is called (IPO) Initial Public Offering. that is, offering the shares to the public for the first
time. During the days of the East India Company, it was very
easier to get this done.
Do you know there investor regulatory body in india which is created for investor safeguard.
(SEBI) Security And Exchange Board of India
SEBI is a regulatory body that looks into issues like which
companies should be listed on the stock exchange. and whether it is being done in the proper manner or not. If you want to get listed then you would
have to fulfill the requirements of SEBI.
At least two auditors (Chartered accountants) must have had checked your company's
accounting. More than 50 shareholders should be pre-present in the
company if you want a company to be publicly listed.
How can we invest or trade in the stock markets?
We need to Open Demate Account for the trading or investment in the share market. to open an account we need these documents a bank account, a PAN (Permanent Account Number), a cancel cheque.
A retail investor just like you and me always requires a broker. A broker is a mediator for the buyer and seller to buy or sell the share in the share market.
When we invest money through brokers in the stock market, a broker charges some money as his commission called Brokerage.
A lot of stocks are bought and sold in a day, but if you want to invest in the long term this brokerage does not matter.
Investing and trading are two different things.
What is Investing?
Investing means putting in some amount of money in the stock
market and letting it stay there for a long time.
What is trading?
Trading means quickly putting in money at different prices
and withdrawing from some prices. There are a lot of people in our country who are traders and
do this job all day long.
An important question that arises is whether you should invest money in the share markets?
A lot of people compare it with gambling because a lot of risks are involved in it. In my opinion, it is correct but not true and fair because this is a kind game of knowledge.
If you are not aware of the type of the company and its
performance, the parameters of the
company and its financial record. if you don't observe its history and accounting information then, stay away from the share market.
Because you would have no idea of how the company would
perform in the future. You merely listen to people saying that the company is doing
well, and we should invest in it in the share market, so that's why you invest in it
You should never do this because it is extremely risky but it will also get you high returns. And obviously, when there are people that do this job day in
and day out, for examples the traders, who are experts in this field and
have more knowledge about the stock market.
They obviously would outperform the others because they have
an idea of how this all works.
So, in my opinion, you should invest in the
share market under your financial experts.
Thank you.