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Understanding Share Market: Types, Beginner's Guide on Investment, Risks & Returns
Nov 10, 2021
Share Market is often considered as and compared to “gambling” by a large number of people. Perhaps, due to lack of knowledge and experience regarding the subject and unfateful tales of some people, which raises many questions. What is the share market? Is share market risky or rewarding? How to start trading or investing in the share market? Etc. The following article answers all your questions. By the end of the article, you will surely know if the share market is right for you or not.
Now, to understand the share market, one needs to understand the basics first.
What Is A Share?
A share is a portion or a percentage of a company’s ownership. A person who purchases a share of a company is a shareholder. If you own a share of a company, you are practically the owner of the company. Although, the decision making power is with the person who owns more than 50% of company’s shares. If the company gains profit in the future, you gain profit. Likewise, if a company faces loss, so you will have to.
What Is Share Market?
Share market or stock market is a medium or platform where people can trade and invest in shares. Today, almost every country has its stock exchange. The economy of many countries is substantially dependent on it.
In India, there are two major Stock exchanges, the BSE Limited (BSE) and the National Stock Exchange of India Ltd. (NSE), regulated by the Securities and Exchange Board of India(SEBI). People can trade or invest in shares during trading hours. The trading Hours of the share market is 9:15 AM to 3:30 PM (Mon-Fri).
Let us understand the types of Share Market.
1. Primary Market
Primary Market is a market where companies can issue new securities like shares, bonds, etc, to raise funds to support their operations and eventually develop etc. Therefore, the primary market is also known as the new issue market. If the company is raising funds for the first time, it is called Initial Public Offering(IPO). If the existing investors/ promoters are divesting their stake it is called Offer for sale.
2. Secondary Market
A secondary market is a market where investors can buy and sell shares of the already issued securities among each other. The transactions of shares happen between investors, and the bidding price depends on the demand and supply of the security.
Key Differences between the Primary Market and Secondary Market
Primary Market v/s Secondary Market New Securities Securities Issued Securities Determined by Management of the Company Prices of Security Determined by the demand and supply of the Securities Direct Purchasing Method Indirect Single No. of Transactions Multiple
How to Start Trading or Investing?
Investing is a process to let your money make money for you. Today, one can set up a trading account and start buying or selling shares right away in a matter of moments. Although, it requires valid documentation and many verification steps before a person can start trading or investing. Here's a beginner's guide for you to get started with your first investment!
Step 1: List of Documents
- 1. PAN card
- 2. Aadhaar card
- 3. A cancelled cheque of your active bank account (Name of the holder should be visible)
- 4. Passport size photograph
- 5. Proof of residence (POR)
- 6. Mobile Number
- 7. Email ID
Step 2: Opening a Demat Account
A Demat Account holds shares of the account holder under their name. A user can view and manage shares in their demat account. Nowadays, opening a demat account is easy. One can easily sign-up and start trading in no time.
Step 3: Opening a Trading Account
Trading account is a tool via which one can buy and sell securities. One can research, analyze and trade securities easily with a trading account.
Tip: For beginner investors, it is wise to sign up with a Depository Participant that also offers trading on the BSE Limited (BSE) and National Stock Exchange of India Ltd.(NSE).
Step 4: Linking to a Bank Account
Now, if you have decided to start trading, you might want to link it with your bank account so that you can carry out hassle-free transactions now and then. Most of the brokers have mandated trading account to link with bank account. Furthermore, many brokers offer a three in one account facility through which a person can trade directly via their bank account and manage securities simultaneously.
Step 5: Making the First Investment
1. Understanding the Primary Market: Investment in the primary market can be made through Initial Public Offering(IPO). A certain number of shares could be allotted to you based on the market response to the IPO of the respective company. Your demat shares once allotted can be viewed in your demat account.
The process to apply for an IPO via net banking is called Application Supported by Blocked Account (ASBA). In ASBA, the IPO application amount will not be deducted but blocked in your bank account. When your application gets an allotment, the amount will be deducted from your account, and your demat account will be credited with shares. Now, you are an investor and can start trading.
2. Understanding the Secondary Market: Before getting started, get your Demat Account linked with your Trading account. Once done, log in to your trading account and select the shares you want to trade. Make sure that you have sufficient funds/securities to make a transaction. Once decided, place the order of your shares and wait for the seller/buyer to respond. Close the order by completing the transaction.
Risk & Returns of Share Market
Investing in the equity market has a greater risk compared to cash or debt securities. However, equity can offer greater returns as well. Let’s understand the risks of investing to make decisions easier.
Uncertainty: Stock Markets are volatile in nature. At times, stock prices shoot up and, other times, dropdown. To avoid this, one can diversify his funds by investing in different-sized companies across the market. This way the risk diversifies as well. It is improbable that all the investments perform poor at once.
Liquidity: Liquidity refers to how quickly one can buy and sell an investment. There will be times when not many buyers would want to buy your owned stock, which is a risk as you won’t be able to sell it whenever you need it.
In Investment, the risk is directly proportional to return. Higher the risk, higher will be the returns. Likewise, lesser the risk, lesser will be the returns. For instance, Fixed Deposit has high security but has an interest rate of around 4%. Similarly, share and stock market are very uncertain but can provide higher potential returns.
Now that we have discussed and understood the meaning, types, steps to invest, pros and cons of the Share Market, we hope you feel more confident than when you read the title. Nevertheless, before investing, always thoroughly research the securities, understand the ups and downs of the market, analyze your financial ability and invest accordingly to ensure maximum safety.
FAQs
Q. What to look for when investing in the stock market?
A. Research and study the stocks. Invest in the stocks of the companies whose last quarter and annual growth is 25% or more.
Q. Are stock market apps safe?
A.Yes. Trading apps are carefully developed to ensure the privacy, safety of your transactions and funds.
Q. Where is the stock market in India?
A. The National Stock exchange of India is the prime Stock Exchange of the country. It is located at BKC Mumbai, Maharashtra.
Q. When does the stock market open in India?
A. On regular days, the stock market opens from 9:15 AM to 3:30 PM (Mon-Fri).
Axis Direct is a brand under which Axis Securities Limited offers its retail broking and investment services. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing."This information is only for consumption by the client and such material should not be redistributed.
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