What is Share Market?: Stock Market Basics for Beginners

Share Market Basics, Complete Guide, How To invest in shares in India, Tips for Share Trading

Dear investors,

If you are passionate about trading on stock market then I am glad to share my knowledge on stock market basics with you. The most obvious query that strikes in the mind of beginner investors is How to invest in share market? How can I learn about the stock market?

To the beginners, one of the very nice things about investing in the stock markets is that you learn about all different aspects of the Indian economy. It’s your window into a very large world.

Through this post, you will learn about stocks markets basics.

Share Market Basics

This is a very basic tutorial about the share market. The point from where the journey of share market begins and the trend which it follows while traveling in the market and finally the destination results all will be elaborated to you in this article. But we will not go in-depth; we will just try to hone your basics about the share market and its objectives.

Let’s understand the basic unit of the share market and that is the share.

The share is nothing but a value of ownership that you have to pay to acquire ownership in the company. The percentage of a share will depend upon the number of shares and the value that you have purchased from the company.

Physically, it is a valuable paper which denotes that you are having a value-based paper. The value of these shares keeps on changing with the time being. For example- the market value of your share today is Rs10. Tomorrow it can be Rs20.

So, how can you trade on this is that you can sell your 10 rupee shares to another person at a profit of Rs10 by selling it at Rs20. The value of profit will increase with the number of shares you have at your disposal when they have increased their value in the market.

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In this way, there are lakhs of investors in the market who are playing the same game with each other at the stock exchange platform. Some gain a lot of profit, some moderate and some are left with no profits, by buying and selling the shares.

So, this is how you trade in the market and earn tremendous profits in a short span of time. But this is just a simple logic to begin your basic understanding of the shares.

Now the question arises is that who decides the value of shares? Is there any big personality in the market who has the decision making power or what do you think?

Actually, the value price for the shares depends upon the demand and supply factors. Like you know that this is a very common phenomenon in the market that the high demand of any commodity lowers the supply and thus to balance the equation between the two factors, the demand is controlled and for that prices of commodities are set higher.

The same is true in the reverse case.

Similarly happens in the stock trade. When a number of people trade their shares in the share market and there is a high demand for shares for a particular company, then the values of shares are set to a high price.

Likewise, when the demand is low, then to increase its supply the share prices are set at lower values.

In this way, the prices of shares are set, depending upon the market fluctuations. The market rate of the shares can be seen at the stock exchanges, and two of them are the highest. These are the

BSE (Bombay Stock Exchange) and
NSE (National Stock Exchange)

Why & Who issue the shares?

OK! You have purchased the shares of the company and earning well by trading at the stock-exchange platform. But did you ever give a thought that where these shares come from? What is the need for these shares to arrive in the market? How is it benefiting the issuing authority?

We tell you.

Actually, the shares are issued by the existing companies or the IPO companies. Once the company attained a certain size and prospers well, its next objective targets to become India’s largest company. This is when the company goes out to the public for raising money.

Obviously, becoming India’s biggest company is not a joke and it will definitely require a large capital investment. So, to raise the funds, the company seeks for people who can give them money on debt.

The reasons for raising money from the people by the company may be any of the following-

Maybe, the company wants to expand its business by launching new sectors.
Maybe, the company wants to pay its debt loans and other liabilities.
Maybe, the company wants to improve its existing infrastructure.
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What to do to buy shares in India?

To buy shares in the market is not like giving money and earn the shares in exchange 

There is a systematic process for acquiring shares from the exchange market. As you know the share market is not meant for 2, 3 or 100 people. Rather, millions of people from every corner of the country have eyes on the share market and they keep their investment activities on.

To allot shares to the individuals at every location, it is impossible to hand over the shares to all of them individually in their hand physically. So a system was created where the person’s account is linked to two kinds of accounts.

One is the Demat Account and another is the trading account.

The Demat account and trading account of your will be linked together with your savings account (everyone has their saving account in their banks).

If you want to buy shares of market caps and if they are allotted to you then the respective amount of shares will be deducted from your savings account and the shares will be transferred at your Demat account.

When you need to sell or buy the shares that will be done through the trading account. It means that all your business activities i.e. exchange of shares will be transacted through the trading account only.

In short, you will need-

A broker, to help you in filling your application form and in further activities.
Your passport size photographs, your Aadhaar card, and your PAN card to fill in the form.
A Demat account
A Trading Account
A Savings account.

What are the benefits of buying shares?

The benefits which you receive after buying shares are much appreciated than what you receive as an interest in an exchange of your bank deposits.

On the return of your investment in shares, you receive-

Dividends- these are not fixed and depended on the company’s profit. The more company will gain the more return you will earn.
Bonus– this may take place sometime when the company performs well and earn a really good profit.
Your invested capital is appreciated (grown) highly with the time being.

All the above profits are not framed for bank deposits. When you deposit your money in the banks, you only earn the interest on them and that is fixed in nature as per the amount you deposited.

Summarily, buying shares is a good option if the benefits are counted in respect of those bank deposits.

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When to buy shares and make a profit?

Have you heard about the famous phrases that tell us an investment in knowledge pays the best interest

To be a smart player of the share market, you need to take much experience of investment activities and that experience comes gradually with your every investment step.

If someone says that “it is the right time to invest in the market as you definitely can earn a handsome profit”, that doesn’t mean that you’ll invest just like that. In fact, you have to maintain a level of understanding about the market and you should possess a common sense that when to invest and when to not. You have to think rationally here.

But if you are a beginner you should hire a broker who will help you until the end. He will make research reports for you and also gives knowledge to you regarding the market status.

Ideally, you should buy shares when the rates are lower. You must have heard about the NIFTY and SENSEX. These are the best trade exchanges. You can refer to them to analyze the market price of shares.

If you want to sell your existing shares, you should wait for the time when the value of shares reaches high. As soon as it reaches high, you should immediately sell your shares.

Are shares a better investment than real estate and bank deposits?

Definitely, there is no doubt in the fact that the real estate does not provide you as many returns as what you can earn from the sole share market.

The real estate restricts you to sell the whole property. The shares at least enable you to sell or buy in a partial way.

The real estate properties do not reflect changes frequently, like today the value is lower and tomorrow it is on the highest. On the other hand, the share market face often fluctuations and you can earn tremendously by instantly buying and selling shares.

There is a security threat also on the properties in real estate as some fraudulent can fraud acquires your property. This is not in the case of share market.

The bank deposits only give you interest but the share market provides you not only the concerned percentage of returns but also bonuses and attractive dividends.

The bank does not provide you professionals and there is no need for that also, but in the share market, you can hire a broker for you to guide you every time.

Taxation on Shares

The taxation policy of shares is very attractive. Let’s see how?

The dividends received are tax-free, when you are gaining dividends up to Rs 10 lakhs.
If you buy shares and sell them after 1 year at some profit, then no tax will be charged.
On the other hand, if you have bought the shares and sell them before 1 year at some profit, then a certain percentage of tax will be charged on your profit gains. This will be paid by you at the time when you file your income tax returns.

How to Invest in Shares in India?

The investing in the shares requires some common and compulsory things to start your investment activity practically in the share market.

PAN card–

You will need a PAN card at the time when you apply for the shares of some company. You have to fill the PAN number.

To fulfill your tax liabilities, you are ought to provide your PAN number there. Moreover, it is needed to open your bank account and investing in mutual funds.

A broker–

A broker can be an agent, or an agency or a company, which holds the authorization from the SEBI (Stock Exchange Board of India). You can hire anyone among them, depending on your choice.

The broker will help you in buying and selling of shares and earn the profit on them. He will also take responsibility to fulfill all the pre-requisites which are required to enter in the share market.

A Demat and trading account-

You have to open two kinds of accounts and they will be linked to your saving account in the bank.

One account is the Demat account and the other is the trading account.

The Demat account will gather all your bought shares and the trading account will handle your trade exchanges that is buying and selling of shares.

The amount credited or debited will take place through your personal savings account.

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UIN

If you want to invest a big amount, i.e. if you invest more than or equal to Rs 1 lakh at a single time to buy the shares, then you will be needed a UIN. UIN stands for Unique Identification Number).

Buying and selling-

If you want to buy shares or sell them off, you should inform your broker regarding this. The broker will do all the things for you on behalf of you.

You can place orders via telephone also. You can call customer cares and just order them to do the activity.

You can take help from the internet also. For this, you should have known about the share market and the internet mediums.

The buying and selling of shares take place through the stock exchanges. Two biggest stock exchanges of India are the NSE and the BSE.

Tips for Share Trading in India

To beat every competition, there are some dos and don’ts. Similar to the share market. You should follow the Do’s and don’ts of investing. What are those, let’s check them out-

Do’s-

Your chosen broker should contain a relevant authorization from the SEBI.
You should fill correct details about you in the application form of the shares.
Do a proper analysis of the reports generated by your broker and also match the details on the NSE or the BSE websites.
Before placing an order, always check the company’s financial status, the company’s objectives and future potentials, the risk appetite, and creativity to fulfill its obligations. You should see whether the company has the potential to grow your capital in the future.
Carefully read the Risk Disclosure Document.
You should be very careful of the stocks which suddenly highs or lowers its price value by a large margin, and especially that of low price stocks.
Be aware that it is not mandatory that the shares bought will provide you returns always. Sometimes, you may have to face loss also.
Send your important documents by a reliable and authorized mode to ensure its successful delivery.
Keep track of your holding, how many shares you have in your account and how much you have already sold out.
Mention clear whether you want to transact physically or via the Demat account.
If you want to file a complaint against any company which is listed under the BSE, you can do by registering to the concerned Regional Investor Service Center by confirming geographical jurisdiction. To decide the geographical jurisdiction, you have to use your address.

Don’ts-

Do not deal with fraud or unregistered brokers.
Don’t sign any documents without reading them properly.
Don’t get mislead by any fraud phone calls or companies, showing approval from government agencies.
Don’t blindly follow the decisions of the other people for what they make for themselves.
Don’t get mislead by guarantees of repayment of your investment through postdated cheque.
Don’t deal on the basis of rumors.
Don’t take a decision in chaos and haphazardly.

It is aptly stated that investors must keep in their mind there is a difference between a good company and a good stock.

Final words

The share market is a sensitive platform for earning money. You should be backed with proper conceptual knowledge and expertise support. The article must have provided you a basic knowledge regarding what is share market basically and all.

Always remember that “An investment in knowledge pays the best interest!

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Till then, Bye.