Personal Finance

Share Market Basics5 min read

February 14, 2021 4 min read

Share Market Basics5 min read

Reading Time: 4 minutes

We all know how essential it is to invest money in the right avenues to grow wealth. Stock market investment is one such lucrative option that has rewarded investors with good returns over the years. However, before you plan to invest in stocks, it is important to understand its workings. Let’s have a brief look at the basics and learn how the stock market works in India. Read on!

What is Share Market?

A share market is a place which provides various opportunities for individuals to grow their wealth and build savings. It is a place where people buy and sell shares of publicly listed companies. Share market offers a platform to facilitate seamless exchange of shares and the buying and selling of shares take place through this electronic medium.

For example, if a person wants to sell shares of SBI bank, the share market will help to meet the seller who is willing to buy SBI bank shares. However, it is important to note that a person can trade in the share market only through a registered intermediary known as a stockbroker.

By issuing shares to investors, the companies in question aim to get capital for its business needs and when investors purchase these shares, they become part-owners of the company and may often receive dividends.

How does the Share Market work?

To understand how share markets work, the first thing which you should know is that there are two types of share markets –

Primary Share Market

A primary share market, also known as the new issue market, is a place wherein companies issue new securities to raise funds. The company which issues its shares is called the issuer and the entire process of issuing shares to the public is known as the public issue or initial public offer (IPO). Investors can easily apply for these newly issued shares through their trading account or bank account.

Secondary Share Market

Once a company’s new securities have been sold in the primary market, they are then traded in the secondary market. It is also known as the after issue market. Here, the prices of the listed shares change based on the fluctuations in demand and supply as it is a market where buyers and sellers engage directly in the trade.

What are Stock Exchanges?

The stock exchanges provide the necessary platform for trading in the secondary market. It is a place where investors and traders come together to buy and sell stocks. In India, there are two primary stock exchanges on which companies are listed:

BSE – Established in 1875, BSE is an Indian stock exchange with a market capitalization of over US$2.2 trillion. It is Asia’s oldest and the world’s 10th largest stock exchange. The benchmark index of BSE is Sensex – an index of 30 well established and most actively traded stocks on the exchange.

NSE – Established in 1992, NSE was set up with an agenda to make the trade transparent via electronic mediums. It is the leading stock exchange in India. The benchmark index of NSE is Nifty50 – an index of the 50 largest companies in India as per market capitalisation

Share Market Regulator

In India, the Securities and Exchange Board of India (SEBI) regulates and monitors the share market. The primary objective of SEBI is to protect the interest of retail investors, promote the development of stock exchanges, and regulate the activities of financial intermediaries and investors in the market. It is also entrusted with the role of conducting inspections and formulating rules for the stock market.

Stockbrokers

It is imperative for you to understand that an investor cannot directly trade in stock exchanges. To buy or sell a stock through exchanges, they need an intermediary who will help them with the transaction. This middleman can be an independent person or a firm who is authorised to buy and sell stocks and other securities on the investor’s behalf. Such a person or a firm is known as a stockbroker. Stockbrokers levy a charge in the form of commission or a fee for providing this service.

How To Invest in the Share Market?

To invest in shares, you need to open a Demat account to dematerialize your shares. You will also need a trading account to carry out the buying and selling of shares. In simple terms, a trading account is where you execute your buy and sell trades and the Demat account is where your shares are held in custody.
For example – When you buy the shares of any company, you use the trading account to do so. The money is debited from your respective bank account and the shares are reflected in your Demat account where they are also credited.

Likewise, when you sell your shares through your trading account, the same gets debited from your Demat account and are then sold in the market. The proceeds of this sale are credited back to your bank account.

What are the Share Market Timings?

In the Indian share market, trade can only be undertaken during a specific time interval. The share market timing is 9:15 am to 3:30 pm from Monday to Friday (apart from national holidays) and it is the same for the two major stock exchanges of India – the NSE and the BSE.

Conclusion

Though risky, the stock market can give you attractive returns on investments and also aid in wealth creation. You will have to choose the broker you would like to open the trading account with. Also, before making investment decisions understand the dynamics of the market and then invest your hard-earned money.