Investing money in the right avenues is crucial for the growth of personal wealth. Considering that there are several options for investment, it is important to weigh the options that enable high returns in long-term. One such option, that holds the potential of delivering high returns is stock market, where investors can invest their money to earn high returns.
In this article, read about what is stock market, why one should invest in it, and how to invest in Indian stock market. Let’s find out the ifs and buts of this financial instrument of investment as mentioned under:-
Stock Market - Parties Involved
Stock market is a virtual platform where an individual can trade in shares, bonds, and derivatives and the trading is done through stock exchanges. A platform where buyers and sellers meet to trade the shares is basically known as a 'stock exchange'. In the Indian stock market there are several parties involved who monitor the movement of buyers and sellers when they trade online:-
- Securities and Exchange Board of India (SEBI): SEBI is the apex body, regulator and the watchdog of Indian stock markets. It is responsible for laying down the broad rules and regulatory framework that enables buying and selling of stocks.
- Stock exchanges: It is a platform where the stocks are traded by the investors. Stocks can be traded in the form of financial instruments such as shares, bonds, and derivatives. There are two primary stock exchanges in Indian namely NSE and BSE on which shares are traded and their prices are listed.
Bombay Stock Exchange (BSE) – Sensex is the index
National Stock Exchange (NSE) – Nifty is the Index
- Stockbrokers/brokerages: A broker is an intermediary who assist the investors in buying and selling of shares and in-return charges fee or commission for the same.
- Investors and traders: Individual or firms, who have invested their money or have purchased stocks become the shareholders/owners of the company and are known as ‘investors/traders’.
Stock Market Mechanism
Stock market comprise of primary market and secondary market. Here is all about the market and how it affects the decision to invest in it:-
- Primary Markets - In the stock market, when a new firm issues stocks for the first time, to raise money from the public, they release an Initial Public Offering or IPO. The IPO is meant to raise/collect money from the public to meet the growing requirement of the business. When you decide to invest in such stocks, you become the shareholders and such shares fall under the purview of Primary Market. In this case the investors bids for the shares and buy them at the issue price announced by the company.
However, it is recommended that the investor should read company’s financial information such as annual reports, balance sheets, income statements, and the red hiring prospectus issued by the company at the time of fresh issue .
- Secondary Market - It is the place where shares that have already been floated in the primary market are traded. In other words, the shares issued during the IPO are freely bought and sold by the buyers and sellers with the broker as in intermediary.
Why to Invest in Stock Market?
Investing in stock market has to be a thoughtful and sound decision of an individual as the risk involved is high in this avenue. However, good reasons to invest in the stock market being:-
- Higher returns to your investment in comparison to Bank FDs
- Enabling financial discipline that encourages saving in order to invest
- Enhancing your Portfolio of Investment by diversifying the risk
How to Invest in the Stock Market?
Investing is stock market is easy if you follow the tips mentioned as under:-
- Visit an authorised brokers who are legally allowed to trade on the stock exchanges (NSE and BSE) as they have a robust trading platform for both online and offline trading.
- Open a DMAT account with the authorised broker. Your DMAT account will hold the financial securities (shares, mutual funds) in your name.
- Get your DMAT account linked with your bank account, through this you will carry out financial transactions.
- Get your Know Your Customer (KYC) documentation and verification done as this is mandatory for trading in Stock Market to avoid the risk of frauds. KYC verification can be done virtually also.
- Start Trading once your DMAT account is active.
- You can choose whether you want to do trading through offline mode (on phone via broker) or online (through computerized/virtual platform).
*Disclaimer - The information provided above is only for information purposes to spread financial knowledge and enhance literacy among our readers. It shouldn’t be taken as financial advice by anyone.