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You earn, you spend, and you save. How secure you will be in future is determined by the quantum of savings. But one negative needs to be factored in—inflation, for it can eat into your savings. To cover the loss resulting from inflation, you may need to increase your sources of income. Investing and trading in the share market, whether through delivery or intraday trading, could be an option. When done diligently, online share trading can fetch big returns.
Stock exchanges in India
The Bombay Stock Exchange (BSE), the oldest stock exchange in Asia, was formed on Dalal Street in 1854. Even today, the BSE Sensex is one of the most important yardsticks for measuring the health of the Indian economy. The National Stock Exchange (NSE) was set up in 1993. Both exchanges operate in an automated trading environment.
Understanding share markets
The place where shares are traded is a share market. This means only shares can be bought and sold here. A place where financial instruments like bonds, mutual funds, and derivatives are also traded is a stock market. The stock exchange is a common platform that allows the trade of shares and other securities. A stock has to be listed with the exchange for it to be traded. But one must also look at the two types of markets for traders:
- Primary market
This is where a company gets registered to raise capital by issuing its shares. This is known as listing in a stock exchange. The first sales of the company’s shares represent an initial public offering (IPO). After this, the company becomes a public limited company.
- Secondary market
New securities are sold for the first time in the primary market. After that, the securities are bought and sold in the secondary market. Secondary market transactions are called trades.
The stock markets deal in huge values and thus need to be controlled. The Securities and Exchange Board of India (SEBI) keeps a check on the functioning of the primary and secondary markets in India.
The principal aims of SEBI are to regulate and develop the stock market as well as protect investors’ interests.
Entering the share market
You need to follow these steps to invest in the share market:
- Open a trading account and a demat account with a share broker.
- Link them with your savings account.
- Execute trades through the securities application of the broker.
When you buy shares, the money leaves your trading account. The shares you buy can be seen in your demat account. When you sell shares, the shareholdings leave your demat account and the money is transferred to your trading account.
Stock market instruments
Bonds are instruments raised by a company to finance its business. Here, money is borrowed from investors in exchange for interest. A bond is called a debt instrument, as it allows investing money by lending to others. A bond displays the principal, interest rate, interest payment amounts, and the deadline for paying back the money (maturity date).
Shares are like holding a portion of the company. The shares can be bought and sold in the primary or secondary markets. Share prices are directly proportionate to the fortunes of the organisation.
- Mutual funds
If you want to avoid investing in shares or bonds directly, but still want to invest, you could put your money in mutual funds. This is the avenue for indirect investment in shares and bonds. A professional fund manager collects funds from many people and invests them in various instruments. When those instruments make money, you also make money along with the other holders.
Derivatives are instruments that allow you to fix the price of a future trade, today. This instrument is often used to fix the price of fluctuating financial instruments.
You now have a bird’s eye view of the share market and its functions. The next step is to open a trading account with a dependable broker like Kotak Securities that offers a range of value-added services. Once you have the tools in place, simply outline your strategy and start online share trading with our translators and interpreters.