What is share market? How can you invest on it? in 2024

What is share market? How can you invest on it?

Stock market, Share market or equity market all three mean the same. These are the markets , where you can buy or sell a company’s shares. Buying shares of a company means buying some percentage of ownership of that company. That means, you become the share holder of a percentage of that company. If that company makes profit, some of profit would also given to you. If company faces loss, a percentage of loss you also have to face.

Telling you an small example that, assume you have to establish a startup, You have 20,000 rupees, but that’s not enough for it, So, you have to go your friend and tell him to invest another 20,000, and offered him a 50-50 partnership. That way, whatever your company peofits in the future, 50% of the profit will go to your friend. In this case, you have given 50% of the shares to your friend in this company. In case of share market, the same thing happens on the larger scale in the stock market. Companies goes to world’s market and invite all to buy their shares.

Lets talk about History and purpose of shares:

The origin of share market dates to aroun 400 years ago. Around the 1600s, there was a Dutch East India company, like the british East India company, There was a similar company in the country of netherlands today, known as Dutch East india company. In those times, people used to indulge in a lot of exploration using ships. The entire world map had not yet been discovered, so, the companies used to send their ships to discover new lands and trade with far away places.

The journey used to be of over thousands of kilometers abroad a ship. For that, they needed a huge amount of money also. These money couldnot be arranged by one people or company, So, they publicly invited people to invest money in their ships. When these ships would travel long distance to go to other lands and come back with treasures from there, share owners were promised a share of these treasures or money eventually.

But it was not so easy,because during those time most of the ships failed to come back. Ships got lost or looted or broke down. So investors realized about the risky probability of that enterprise.So, instead of investing in a single ship, they preferred to invest in a 5 to 6 of them.It will increase the probability of getting back the money. Then, one ship used to approach multiple investors for money. So, it was already created a kind of share market.

There were open biddings of the ships on their docks. Docks are the place where the ships come out from. With the time going, this system became successful because the money crunch faced by the companies was supplemented by the common people.And the common people got a chance to earn more money. Today, nowadays, in almost each country has its own stock exchange and every country has become greatly dependent upon the stock market.

Now talk about Stock exchange:

Stock exchange is that place,that building where people buy and sell shares of the companies. The market can be divided into two types- The primary market and the secondary market. Primary market is where the companies sell their shares, it depends on companies to decide, what exactly would be their share prices, although there are some regulations in this too. The companies cannot manoeuvre too much because a lot of it, depends upon the demand. How much price people are ready to pay for share.

If a company’s valuation is 1 lakh rupees, it sells 1 lakh of its shares and offers share at 1 rupee per share. If its demand is high and a lot of people want to buy its shares,obviously the company would be able to sell its shares for a higher price. What the companies do nowadays is decide upon a range. There is a minimum price and a max price for share, that range set by company to sell their shares within that range company will sell the share.

How many shares can a company have ?

A point to be noted here is that every share of the company has equal value. It is now on company that to decide how many shares they want to release. Company’s value is 1 lakh ,then company can release 1 lakh share, by making the per share value 1 rupee. Or they can make 2 lakh share by make pricing per share 50 paisa. When companies sell their shares in the share market, it never sells 100% of them, the owner always retains majority of shares to keep possession of his decision making power. If any company sell all share, then all the buyers of shares would become owner of the company.

The individual who has more than 50% of the shares would be able to make decisions regarding the company. Therefore, the founders of company, prefer to retain more than 50% of the shares. For a simple example, 60% of the shares of facebook are retained by Mark Zuckerberg.The people who have bought shares of the company can sell it to the other people, this is called the Secondary Market.

Where people buy and sell shares amongst themselves and trade in shares. In the primary market, the companies set the prices of the their shares. and in secondary market, companies cannot control the prices of their shares in the secondary market. The share price fluctuate depending on the demands, and supply of the shares.

Now come to our country, india’s stock exchange:

Almost every big company has its own stock exchange. India has two big stock exchange. One is Bombay stock exchange, where has around 5400 registered companies and another is National stock Exchange that has 1700 registered companies.With so many countries registered in the stock exchange, if we want to observe, overall, whether the prices of the shares of the companies are moving up or down, How do we view this?
To measure this, some measurements have been put in place-sensex and Nifty.

Now What is Sensex?

Sensex shows the average trend of the top thirty companies of the Bombay Stock exchange, whether the share of the companies are moving up or down. The full form of Sensex, Stock Exchange Sensitive Index. The number of Sensex, that it has reached 40,000 marks. The number itself means not a lot. The value of this number can be understood only upon comparison with the past numbers, because this number has been randomly decided, at first at the starting they decided, the values of the shares of the thirty companies would be this.

So they compile all the numbers and say that it is 500 assume. So, gradually , the sensex has been rising and it has reached the 40,000 mark in the past 50 years, which shows that how far up have the share prices of these 30 companies gone in these past 50 years. There is another similar index Nifty ( National + Fifty) . Nifty shows the price fluctuations of the shares of top 50 companies listed on the National Stock Exchange.

How to sell your Company’s Shares?

If a company wants to sell its shares on the stock exchange, them this is termed as “Public Listing”. If a company is selling its shares for the first time,then it is called IPO-Initial Public Offering, which will offer the shares to the public for the first time. During the days of the East India Company, it was very easier to get this done, anyone can sell the shares of their company to the public.

But today, this procedure is long and complicated, and so it should be, because, think about it, how easy it is to scam the people that how could get listed on the stock exchange with a fake company, and exaggerate the value and achievements of its company. They could lie to the people and the people would foolishly invest in his company.

 

Then company could abscond with the money, so it has become extremely easy to scam somebody. India’s history witnesses a lot of scams, one of them is Harshad Mehta Scam. They were all doing the same thing, but fooling people.
So, as and when these scamshappened, the stock exchanges realized that they need to make their procedures stronger and scam proof, for this the resolutions and rules were made stronger due to which there are very complicated rules today.

SEBI- Securities and Exchange Board of india is a regularity body that looks into issues like which companies should be listed on the stock exchange and is it being done in the proper manner or not. If you want to do this ,then you would have to fulfill the norms of SEBI. Their norms are very strict , for example, there need to be a lot of checks and balances on the occounting of your company. At least two auditors must have to check your company’s accounting.

Their entire process maybe take around 3 years. More than 50 shareholders should be pre present in the company if you want a company to be publicaly listed.
When you go to sell their shares but there’s no demand for it amoungest people. Then SEBI can remove your company from the stock market list.

How can you Buy Shares?
Now, how can you invest money in the stock markets?
During the times of the East India Company , one could go to the docks where the ships departed from and indulges and buy and sell stocks. Before the dawn of the internet , one had to go phisically to buy share.

After coming the internet, you need only 3 things:
Bank account, trading account, Demat account. Bank account ,because you need money to trade, a trading account to trade, a demat account to store that you buy in a digital form. Nowadays, it is a trend that, most of the banks have started offering a 3 in 1 account, with all three accounts encompassed within your bank account.

Common people like us would be called retail investors, that is , common people who want to invest in the stock market. Retail investor always requires a broker, broker is someone who brings together the buyer and seller, For people, our broker could be our bank or any third party app. When we invest, money through brokers in the stock market, a broker retains some money as money as his commission. This is called “brokerage Rate”.

For bank this brokerage rate is around 1%. But 1% is also a high amount. You can now get many apps , who charge only 0.05% or 0.1% commission.

Investing Vs Trading:
So, investing and trading are two different things. Investing means putting in some amount of money in stock and letting it stay there for some time. Trading means quickly putting in money at different places and withdrawing from some places, all happens very quickly manner.
There are a lot of people , who take this trading as a profession.

Is Share Market = Gambling?
An important question that arises is whenther you should invest money in the share markets. Should you invest in Share Market? In combine opinion of people , it is correct to say so because this is indeed some sort of gambling. If you are not aware of the type of the company and its performance, the parameters of the company and its financial records, if you don’t observe its history and accounting information,then, in a way , this is a kind of gambling.

Because you would have no idea of how the company would perform in the future, only hearing people, if you invest in any company. Then it can be very risky for you. And my opinion is , you should start trading with a small amount at starting phase. You can go with mutual funds, you should not directly invest in any company, here in mutual funds, you will not have to select any share directly, here expert will suggest you the best share to buy.

Hope you guys enjoyed the blog.

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