What is Share Market? How to Invest in Share Market (Basics)
In the century of 21st, everyone wants to know How to Invest in Share Market and How to earn money from the Share Market? I will take you through the world of the share market in this article. But firstly, let us know what is share market actually?
Share Market- A share market, stock market, or equity market is a place where buying and selling of shares happens. In financial markets, Shares mean a percentage of ownership of the company or a financial asset from where you bought it.
For example:- You bought 100 shares of XYZ company is Rs. 500 per share, then you become a shareholder of XYZ. This allows you to sell XYZ company’s shares at anytime you want.
10 Basics Terms in Share Market
- Bear Market – The term ‘Bear Market’ is used to define a situation where market prices decline continuously. It occurs when securities fall for a sustained period of time. Generally, when prices fall by 20% or more from their most recent high. The general investors are reluctant to invest their funds in the market options during the bear phase.
- Bull market – The term ‘Bull Market’ is used to define a situation where the market prices increase continuously. It occurs when securities rise for a sustained period of time. A phase during which prices of stocks increase is called the Bull Phase. The general investors are enthusiastic to invest their funds in the market options during the bull phase. This market is opposite of the Bear Market.
- Call Option – The term ‘Call Option’ is defined as an agreement or a contract between a buyer and a seller which gives the right of purchasing to the holder whereby he can buy an underlying stock at a certain price within the expiration period of time.
- Capital Gain –The term ‘Capital Gain’ is defined as the overall accrued financial profit that an investor gets when he/she sells off the capital assets or share option at a price that is higher than the originally bought by the owner.
- Certificate of Deposit – The term ‘Certificate of Deposit’ is defines the certificate issued by the concerned bank stating that a particular amount of money has been deposited for a particular period of time. It also defines the rate of interest that has been charged. Besides this, Certificate of Deposit is a tradeable document for the depositor.
- Depreciation – The term ‘Depriciation’ defines the van accounting method used to allocate the cost of a tangible asset or physical asset over its projected life. It is used extensively in the terms of accounting and does not symbolize any outlay of funds or cash.
- Dividend – The term ‘Dividend’ is defined as the payable amount that has been formulated by a company’s Board of Directors for the purpose of distribution among the outstanding shares holders. It is made in additional shares rather than as cash. For the preference shareholders, the dividend amount is fixed, while for the equity shareholders, dividend yield varies as per the company’s profits.
- Rights – It is defined as an issuance meant for existing shareholders of a company whereby they can purchase additional shares in the company on a pro-rata basis within a specified date at a discounted price than the current market price.
- Portfolio – It is the collection of different financial investment instruments combination of shares, bonds, commodities, cash, and cash equivalents, derivatives and such other instruments. It can be owned by one individual or institution.
- Preference Shares – The term ‘Preference Shares’ is used to define shares where guarantee the holder the payable or accrued dividend stays at a fixed rate. The payment takes priority over the equity share dividends.
How to Invest in Share Market?
Investing in the share market can be tricky, especially for a beginner. If you want to invest in stocks, you should keep in mind that there are two types of share markets:
- Primary share markets
- Secondary share markets
Investing in the Primary Share Market
Investments in the primary share market by subscribing to the Initial Public Offering (IPO) ahead of time. After a company receives all the IPO applications by investors, the applications are counted and shares are allotted on the basis of demand and availability.
Investing in the Secondary Share Market
- Step 1:
Open a Demat and trading account- This is the starting point to invest in the secondary market. Both Demat and trading accounts should be linked to a pre-existing bank account for a consistent and uninterrupted transaction.
- Step 2:
Selection of shares- Log into your trading account. Choose the shares that you want to buy or sell. Ensure that you have the required amount of funds in your trading account to purchase your wishes shares.
- Step 3:
Select the price point- Decide the price at which you want to buy or sell a share. Wait for the buyer or seller to reciprocate that request.
- Step 4:
Complete the transaction- Once the transaction is complete, you receive either shares or money for the stocks that you have respectively purchased or sold.
Documents required for opening a Demat/Trading Account
For investing in the share market, you have to need the following documents:
- PAN Card
- Aadhaar Card
- Passport-sized photographs of the applicant.
- Name on a cancelled cheque from their active bank account showing IFSC Code, account number, Account holder’s name, and signature.
- Documents detailing that the applicant earns a steady income.
- A proof of address that is based on a list of documents that have been accepted by your depository participant, broker, or bank
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