Understanding the Basics of Share Market

Investment is the best option for you to save money now and enjoy it later, while you are busy in your life you often forget to save money; relying on your bank balance is a dangerous gamble; how far will the money come after your retirement?

In the words of Warren Buffet, “Investing is laying out money now to get money back in the future”

The goal is to start small investments in various investment vehicles and patiently wait for it to build a good corpse and give you a much bigger return.

Why invest in the share market?

Investing in the share market is the best way to build wealth in a long run. Some people feel the share market is very risky and skip investing well it’s their loss because they don’t really understand how the stock market works. The share market is not risky.

From the perspective of long-term trading share market will give you very good returns and is not risky at all. Imagine 8 years ago you bought a share in Jubilant Food works i.e., Domino’s for ₹400 today that would value at ₹2800.

 Let’s come to Short term trading- there is a risk but not a huge risk of you losing everything you invest; all you need is the right strategy to invest in short-term trading and you won’t see a low.

What is share market?

A share market is a place where companies’ shares are publicly issued to raise capital and for various other purposes.

 Investors come together to buy or sell shares listed on the securities exchange board. Hence, the stock market is a meeting place for buyers and sellers.

Major stock markets in India are the Bombay Stock Exchange and National Stock Exchange.

Read More: 3 Greatest Entrepreneurs Of All Time

Difference between the stock market and the share market?

The stock market and share market are very similar but they have a slight difference.

In the share market, you can only trade with the companies issued shares that are listed in the market.

In the stock market, you have the opportunity to trade in different investment vehicles like mutual funds, bonds, shares, and derivatives.

Types of share market

1. Primary Share Market

A primary share market is a place where the company registers with the securities’ authority with the motivate of issuing a certain amount of shares with the hope of raising money. where a company decides to sell its shares for the public it is known as IPO (Initial Public Offering).

• Secondary Share Market

Once the company’s IPOs are sold in the primary market. They are off to trade in the secondary market. Investors who have bought the share can sell it off and decide to invest in other shares or people who wish to invest can buy it off from the sellers at the market value or the rate at which the seller offers through intermediaries or stockbrokers.

Instruments traded in the stock market

These are the four key financial instruments traded in the stock market:

1. Shares

Companies sell their shares in return for the money in the share market, you can buy and sell the listed shares through brokers or intermediaries. Companies use the raised amount to expand their project, improve their business activities, or for various other purposes.

As an investor, you will grow along with the company, as the company sores high so do the share value which is a good profit for you as an investor.

2. Bonds

A bond is a debt instrument used to borrow funds from various investors in the promise of a timely return of interest.

 Companies need funds to undertake projects and if they are short of money, they often distribute bonds to investors and use the raised money to take up the project and are liable to return the money before the maturity date.

3. Mutual Funds

A mutual fund is investing indirectly in financial instruments from middlemen. When it comes to the share market or investing in bonds you do it by yourself, directly, but in mutual funds, money from various sources is pooled and later invested in various financial instruments and these funds are handled by the fund managers.

In mutual funds you will have a scheme for every unit when the investment(s) are made on your behalf you will become a unit-holder and if your investment clicks you will profit and get enough money.

4. Derivatives

You can’t make the shares price standstill their nature is to fluctuate but you can control them through derivatives.

Derivatives will help to trade in the future with the fixed rate you decided today!

All you have to do is get into an agreement of trading in financial instruments at a fixed rate.

Also Read: 7 Books to read before investing