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Ultimate guide to stock market for beginners

stock market

You will learn basics of share/stock market market at the end of this article.

 Share market is a place where buying and selling of share happens. A share is a part or unit of ownership of the company. Suppose you have bought 1 share of 100Rs of a company XYZ then you are the part or shareholder of that company. You can sell those shares whenever you want within market hours. You can also call this as investing in that company.

But a question arises now –

What will I get by buying any company shares or stocks? Why should I not keep that money safe in bank?

  • Yes, you can keep your money safe in banks also ,but what will you get?? A  return of 4-6%.
  • But do you know what can you get by investing smartly in a company? The answer is , return could be endless. So I think you got your answer for this very frequent question striking in your head. In simple possiblities are endless.

How will I earn from shares?

share market
  • When you invest in shares and the company does well, the share price will go up and then you can sell and the difference after some brokerage deductions will be your profit.
  • Sometimes price of shares rise and sometimes fall , Long-term investments nullify the fall.

Some cool stories–

  • A person bought 20,000 MRF shares in 1990s and left it , after 25 years in 2018 he told his grandson about those shares and when he checked them their value was more then 130 crores.
  • Berkshire hathaway company of Warren Buffett their share price in 1990 was 7000$ and now in 2020 it is 315,000$ which is 2.16 crore indian rupees for 1 stock, this is 4400% return.

 I am not from a finincial background, and I have’nt studied finance in my entire life, How will I succeed in Share market?

  • There is no need of any financial background or special financial studies to get success in markets.
  • Yes this supports you for your future but it is not compulsory. There are many examples of billionaire investors who don’t have a finance degree but doing great in market, like Radhakrishnan Damani he is undergraduate and don’t have a finance degree but he is a billionaire investor and owner of D-Mart.

OK so I have learnt what are shares. But why a company would like to sell its shares to public??

  • A company requires a lot of capital for its growth, expension and development etc, and due to this reason they raise funds(money) from public. The medium of this whole system of buying and selling is what we call stock exchange(Learn stock exchange). And the process by which company issues shares is called Initial Public Offering(IPO)(we will learn more about IPO by the end of the article).

Now I think I have cleared a lot of basic doubts about stock market, but this was really nothing but A,B,Cs till now. We are going to dive in detail step by step.

I get an yearly intrest when I keep my money in bank. What will I get if I invest that money in equity/stocks/shares(all are same)?

  • When you buy shares of any company and if the company does well then the company distributes the profits among the shareholders. This is called dividend.
  • The amount of dividend depends on the number of shares you own.
  • But dividend is not compulsory, it is the company which decides weather to give dividend or not.
  • But this case is not with banks, they give a compulsory interest on your deposits, but again the amount of interest  is very less compared to long term return from a good stock.

I have heard a lot of people saying “bull” and “bear” in markets. What are they??

why

-Bull and bear are the conditions of market. Bull market is when the stock keep rising (price) and the bear market is when the stock price keep falling. We can also say it as bullish market or bearish market. Like during Corona outbreak market was real bearish but after few months it became bullish and currently ( nov-dec 2020) market is in its all time high.

Where this all buying and selling happens, I mean where are these markets?? Are they near sabzi mandi(vegitabale market) or what?

-These markets are called STOCK EXCHANGE. At this place all buying and selling happens.

-There are mainly 2 stock exchanges in India National Stock Exchange(NSE) and Bombay Stock Exchange(BSE) . They are regulated by SEBI(Securities and Exchange Board of India).

So, we need to go to these stock exchanges for buying and selling?

– No , there is a middle man who negotiates between investors(public) and Stock Exchange. They are called Brokers.There are many famous brokers in India such as – Angel Broking,ICICI direct, Zerodha etc.

Okk, now to invest or trade in these exchanges, I can directly go there and invest with my bank account or is there any other account?

-No, you can’t just invest or trade directly in the stock exchanges. You have to open a DEMAT(DeMaterialised) account with a broker to invest in market.And for trading there is a trading account(click to learn about trading).

How do the brokers earn money in market?Are they paid by the government?

-Brokers are not paid by the government,they earn by the brokerage we pay while buying shares or equities etc. You can also understand it like tax, government charge on products like wise brokers charge a small percentage of brokerage on your transaction.

Types of stock market

-There are two types of stock market

  1. Primary Market
  2. Secondary Market

  • Primary market are the place where the stocks/shares are issued for the first time. Thus when the company is listed in market for the first time and issuing shares in stock exchange, this thing is undertaken by primary market .So, the IPO (initial public offering) is and all the process are controlled by primary market.
  • Secondary market is the market in which the existing stocks are bought and sold by the retail investors through the brokers. It is the secondary market which controls the price of stocks. Generally when we speak of investing in stock market we mean investing in secondary market. It is the secondary market where we can invest and trade in the stocks to get the profit from our stock market investment.

The following are the ways through which your money grows:-

  • Dividends
  • Capital Growth
  • Buyback

Dividends:

  • 1. These are the profits the company earns and it is distributed as cash among the shareholders.
  • 2. It is distributed according to the number of shares you own.

Capital Growth:

Investment in equities/ shares leads to capital appreciation. The longer is the duration of investment, the higher the returns. Investment in stocks is associated with risks as well. Your risk appetite is based on your age, dependants and need. If you are young and don’t have any dependants, you can invest more in equities to get more yield. But if you have dependants and commitments, you can allocate more portion of money to bonds and less to equity.

Buyback:

The company buys back its share from the investors by paying a higher value than the market value. It buys back shares when it has a huge cash pile or to consolidate its ownership.

I think now we have completed basics of stock market part, though there is a vast part left but to understand the basics I think this much would be quite enough.

This was the introductory part of stock market, Now slowly we will dig into much practical and useful parts of stock market.

Feel free to contact us, Paisa Easy

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