However, fascinated you are with the world of share market, there is still a mile gap between you and it if you don’t understand what is it and how does it world. Understanding the share market requires you to learn to share market basics. We all have definite financial goals in life and have time limits by which we have to attain these goals. Maybe it is buying a car, building a home, or studying abroad. To achieve them, you need to have proper financial planning. An individual can invest in the share market for the short term or long term as per your financial goals. Here are some Share market basics that will help you understand what is required for actually investing in the stock market.
How to invest in the share market?
- Demat Trading Account: Firstly, you need to open a Demat account and a trading account with the broker and link your bank account with that. You can simply open a Demat account online and you can start investing in the Indian share market almost instantly. You must be familiar with stock exchanges and their functions. A stock exchange is where you buy and sell a stock. The stock exchange is regulated by trust autonomous body of India SEBI.
- two most important Stock exchanges are NSE and BSE.
What stock to buy and how to decide?
An individual can start by identifying their financial goals. The Indian share market is the one-stop solution to all your needs. If you are concerned about regular income generation and preservation of capital, you can opt for debt instruments like bonds. You can decide if you want capital appreciation and want to take the risk, the equity market is always open for you. Before all that, you must always invest in shares after you do a complete study of the company, its finances, prospects and much more.
This is how you can proceed:
- Define your life goals.
- Learn about your financial assets.
- Choose the asset that serves best as per your needs.
- Invest regularly and diversify your investment.
- Fulfill your goals.
Stocks Types to Invest in Share Market:
On buying a share, you can be a common shareholder or preferred shareholder based on your ownership of stock. The difference between them is, as a common shareholder you are permitted to vote in shareholder meetings and you are eligible dividends. If the company where you invest goes bankrupt you will receive the share of proceeds of liquidation only after all the other creditors and shareholders have been paid.
But if you are a preferred shareholder, you may not have the voting rights, but you will get dividends before the common shareholders.
Also, as per the market capitalization, you can invest in large-cap, mid-cap or in small-cap stocks. Remember, Market Capitalization is equal to share price multiplied by the number of shares outstanding. These outstanding shares are nothing but shares that can be bought and sold in the public market.
Large Cap Stocks: The companies that are well established and have a good reputation in the market.
Mid Cap Stocks: The companies that have the potential to grow big and are relatively riskier compared to large-cap companies.
Small-Cap Stocks: Companies such as start-ups fall under this category; they are far riskier to invest in as compared to the above two.
Key Financial Instruments Traded in Stock Market:
Shares or Equity: Equity or Stocks give you any ownership in the company you invest in. You can also choose to hire a broker to buy or sell shares for expert advice and smoother stock management.
Mutual Funds: The money is pooled from many investors and then invested in other financial instruments. In this condition, the investors are referred to as unit holders.
Bonds: They are the fixed income investment sources they are known as debt instruments by which a company or government can borrow money from investors at an agreed interest rate for a specific tenure.
Derivatives: A derivative is a financial contract whose value is delivered from an underlying asset. It can be used to mitigate the risk and include forwards, options, swaps, and futures.