- Stock Market
- April 5, 2023
- 5 Min Read
Basics of Stock Market: What You Need to Know Before Investing
The stock market is one of the most popular investment avenues for people looking to build their wealth over time. However, it can be daunting for beginners to get started with investing in the stock market. In this article, we will cover the basics of the stock market, including what it is, why you should invest in it, and the things you need to know before you invest.
What is the Share Market?
The stock market is a marketplace where publicly traded companies' stocks are bought and sold by investors. When a company wants to raise capital, it can issue stocks to the public, which essentially means that it is selling a small piece of its ownership to investors. Investors can then buy and sell these stocks through a stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) in India.
Why Invest in the Share Market?
There are several reasons why you should consider investing in the stock market. Firstly, the stock market has historically delivered higher returns compared to other asset classes, such as bonds or fixed deposits. Secondly, investing in the stock market provides you with the opportunity to own a part of some of the world's biggest and most profitable companies. Thirdly, investing in the stock market can help you build long-term wealth, which can be used to fund your future financial goals, such as retirement or buying a house.
Basics of Share Market:
Before you invest in the stock market, there are some basic concepts that you need to understand:
- Stocks: Stocks represent ownership in a company. When you buy a stock, you become a part-owner of the company and are entitled to a share of its profits.
- Stock Exchange: A stock exchange is a platform where stocks are bought and sold. In India, the major stock exchanges are the NSE and BSE.
- IPO (Initial Public Offering): When a company decides to go public and issue stocks to the general public for the first time, it does so through an IPO. This is a way for the company to raise capital and for investors to buy shares in the company.
- Bull & Bear Market: The stock market goes through cycles of ups and downs, which are known as bull and bear markets. In a bull market, stock prices are rising, and there is optimism in the market. In a bear market, stock prices are falling, and there is pessimism in the market.
- Sensex & Nifty 50: Sensex and Nifty 50 are two major stock market indices in India. Sensex is the benchmark index of the Bombay Stock Exchange (BSE), while Nifty 50 is the benchmark index of the National Stock Exchange (NSE). These indices track the performance of the top companies listed on the respective exchanges.
- SEBI (Securities and Exchange Board of India): SEBI (Securities and Exchange Board of India):SEBI is the regulatory body that oversees the functioning of the securities market in India. Its primary role is to protect the interests of investors and ensure fair practices in the market.
- Primary & Secondary Market: The primary market is where new securities are issued to the public for the first time through an IPO. The secondary market, on the other hand, is where already issued securities are traded among investors. The stock exchanges, such as NSE and BSE, are examples of secondary markets.
- Market Capitalization: Market capitalization is the total value of a company's outstanding shares. It is calculated by multiplying the number of shares outstanding by the current market price of the stock.
- Dividends: Dividends are a portion of the company's profits that are distributed to shareholders. Not all companies pay dividends, and the amount of dividend paid can vary from year to year.
- Risks: Investing in the stock market involves risks, including the possibility of losing your entire investment. It is important to do your research and invest in companies that have a solid track record of performance.
Things You Need Before You Invest in Stock Market:
Before you start investing in the stock market, there are a few things that you need:
- A PAN Card: A PAN (Permanent Account Number) card is a unique 10-digit alphanumeric code that is issued by the Income Tax Department. It is mandatory to have a PAN card to invest in the stock market.
- A Demat Account: A Demat account is an account that holds your shares in electronic form. You need to open a Demat account with a depository participant (DP) to buy and sell shares in the stock market.
- A Trading Account: A trading account is used to place buy and sell orders in the stock market. You need to open a trading account with a stockbroker to trade in the stock market. A Demat account is an account that holds your shares in electronic form. You need to open a Demat account with a depository participant (DP) to buy and sell shares in the stock market.
- Adequate Knowledge: It is important to have adequate knowledge of the stock market before you start investing. You can attend seminars, read books, or take online courses to learn about the basics of investing.
Conclusion:
Investing in the stock market can be a great way to build long-term wealth and achieve your financial goals. However, it is important to understand the basics of the stock market before you start investing. This includes understanding what the stock market is, why you should invest in it, and the things you need before you invest. It is also important to understand basic concepts such as stocks, stock exchanges, market capitalization, dividends, and risks associated with investing.
When you invest in the stock market, it is crucial to do your research and invest in companies that have a solid track record of performance. It is also important to diversify your portfolio by investing in a mix of stocks from different sectors and industries. This can help mitigate risks and improve your chances of generating higher returns over the long term. In conclusion, the stock market can be a great investment option for those looking to build wealth over time. However, it is important to understand the basics of the stock market before you invest. This includes understanding what the stock market is, why you should invest in it, and the things you need before you invest.