What is Share Market? Share Market Types

What is Share Market

New to the stock market? I will take you through the world of stock market in this article. First of all, let us know what is the stock market? A stock market is where a stock is bought and sold. The share represents a unit of ownership of the company from which you purchased it. For example, you paid Rs. Has bought 10 shares of. 200 each of ABC company, then you become a shareholder of ABC. This allows you to sell ABC shares anytime. By investing in shares, you can fulfill your dreams like higher education, buying a car, building a house, etc. If you start investing at a young age and stay invested for a long time, the rate of return will be higher. Depending on the time you will need the money, you can plan your investment strategy.

By buying shares, you are investing money in the company. As the company grows, your share price will also increase. You can get profit by selling shares in the market. There are various factors that affect the price of a share. Sometimes the price may rise and sometimes it may fall. Long-term investment will reduce the price drop.

Why does a company sell it to the public? A company needs capital or money for its expansion, development etc. and for this reason it raises money from the public. The process by which a company issues shares is called Initial Public Offer (IPO). We will read more about IPOs under primary market.

You will always hear people talking about the bull market and the bear market. What are they? The bull market is where the stock prices keep rising and the bear market is where the prices keep falling. Where do all these buy and sell? NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). These are the two major stock exchanges in India and regulated by SEBI (Securities and Exchange Board of India). Brokers act as an intermediary between the stock exchange and investors. So to start investing or trading, you have to open a demat account and trading account with a broker. You can easily open an online demat account through a simple process. After connecting your bank account to these accounts, you can start your investment journey.

Two types of share market:

The stock market is classified into two:

1. Primary Market

2. Secondary Market

Primary Market:

A company or government raises funds by issuing shares in the primary market through the process of an IPO.

The issue may be through public or private placements.

The issue is public when shares are allocated to more than 200 individuals; The issue is private when allocations are made to less than 200 individuals.

The price of a share can be based on a fixed price or a book building issue; The fixed price is fixed by the issuer and mentioned in the offer document; Book building is where the value of an issue is ascertained based on the demand of the investors.

Secondary market:

Shares purchased in the primary market can be sold in the secondary market. The secondary market operates through counters (OTC) and exchange traded markets. OTC markets are informal markets, in which two parties agree on special transactions to be decided in the future.

Exchange traded markets are highly regulated. Also called as auction market in which all transactions are through exchange.

Why is Share Market important?

The stock market plays an important role in supporting companies to raise capital for expansion and growth. Through IPOs, companies issue shares to the public and in return receive funds that are used for various purposes. The company gets listed on the stock exchange after the IPO and this gives the common man an opportunity to invest in the company. Also, the company's visibility increases.

You can be a trader or investor in the stock market. Traders hold stocks for short periods of time while investors hold stocks for long periods. According to your financial needs, you can choose the investment product.

Investors of the company can use this investment to meet their life goals. It is one of the major platforms for investment as it provides liquidity. For example, you can buy or sell shares at any time on need basis. That is, financial assets can be converted into cash at any time. It provides ample opportunities for wealth creation.

You are well aware that you can make money by investing in shares. Following are the ways through which your money increases.

1. Dividend

2. Capital Growth

3. Buyback

Dividend:

1. These are the profits that the company earns and it is distributed among the shareholders in the form of cash.

2. It is distributed according to the number of shares you have shared.

Capital increase:

Investment in equity / shares leads to appreciation of capital. The longer the period of investment, the higher the return. Investment in stocks is also associated with risk. Your risk appetite is based on your age, dependents and needs. If you are young and do not have any dependents, you can invest more in equity to get higher yield. But if you have dependents and commitments, you can allocate the greater part of the money to bonds and less equity.

Buy back:

The company buys back its share from investors at a price higher than the market price. When there is heavy cash in the shares or it buys shares to strengthen its ownership.