What is the share market investment?
Before we talk about share market investment. Lets go step by step.
Why promotor or company issue a share?
Let us try to understand the concept of share. In order to run a business,or to start a business or to expand the operations of the business. A large sum of capital is required for which there are number of methods which promoter of the company or board of company can use. Some of these ways to generate funds are Bank loans, personal investment, family and friends investment into a company or borrowing from the public by way of issuing shares.
A company which wants to expand its business, the best way what a promoter find to raise fund for the same is going to the public by issuing company shares.
From promoter perspective issuing share is the best option. Because if the promoter borrow money from the bank as a loan he has to repay the amount and also huge interest on that capital. Whereas shares are issued as a part of ownership to the shareholder, thus no refund of funds or any type of interest is paid on the fundraised. Now it is clear why promoters of the company issue shares.
The very next question is,
Why do people invest in the share?
As far as a common investor are concern each and every one of us is looking to generate some passive income. Share market investment is one of the source of passive income to the investor. We invest into the other’s business by buying its shares i.e we get ownership proportional to the percentage of share in the business. Now if a business does well our income grows in the form of an increase in share price and if the business makes a loss then that also is born by a shareholder in the form of reduction in the share price.
Finally share is an agreement between the company and investor, there by the promoter gives some percentage of business to the invester and make him one of the owner of the company proportional to the percentage of shares issued to investor.
What is share market investment?
Like we have discussed above that every one of us wants some passive income. There are number of ways, to generate passive income. One of the ways is the share investment also called as share market investment.
In share market investment we buy shares of a company. Once the company make a profit, company declares a dividend and also share price appreciate.
Long term investment into share market is considered to be one of the best investment for wealth creation.
Types of stock market?
Share market is a place where buying and selling of different financial instruments like shares, Bonds, Equity traded funds ( ETF ) is done. There are two basic types of share markets.
(1) Primary stock market.
The primary stock market, Company register to regulator ( SEBI ). When a company reaches to the public for fundraising the very first time companies do these by IPO ( Initial Public Offer ). Every company raise fund first time by IPO route of the primary stock market.
In the primary market company directly sell their shares, in the form of IPO or FPO. Since in primary market direct sale of shares takes place hence no brokerage is charged on IPO sale.
(2) Secondary stock market.
Commonly known as stock market, basically it refer to the secondary stock market. In the secondary stock market anyone can sell or buy shares, Bond or Equity traded funds.
We can also say that this is the market where ownership is transferred from one person ( referred as seller ) to the other person ( referred as a buyer ) by the way to transfer of shares of the company. In this market shares are not sold directly from the company, shares are sold by one of the existing shareholders of the company.
Difference between the primary market and secondary market.
| Primary Market | Secondary Market |
|---|---|
| In primary market companies raise fund to full fill there capital requirement by directly selling shares into the market. | In secondary market the holder of the share transfer ownership from self to the buyer of the share. |
| In primary market there is a fixed price of a share at which company issue share to the investor. | Share price changes in every minutes or second depending upon demand and supply of share at that moment. |
| IPO remain open for subscription for very limited small period (3 days) in which an individual need to apply for subscription of shares. | Once listing of shares is done then during any one can buy or sell share in market on any working day. |
| In the primary market, a share can be sold only once. | In secondary market a share can be sold any number of time. |
| Once shares are sold in the primary market the capital belongs to the company. | In secondary market on sale of a share the capital belongs to the seller ( Share Holder ). |
| In the primary market seller of share is the issuer of shares. | In secondary market seller is the share holder. |
What is stock market?.
There are number of reasons why people save ( invest ), like want to buy a car, buy a house, want to go for a foreign tour. Children’s high school expence or children marrage and most important retire at younger age. In financial terms are said to be different goals for life for which investment is required.
Based on the duration or time when you want to achieve these goals.
Goals are classified as
(1) Short term goals.
(2) long term goals.
For longterm goals, stock investment is considered to be one of the best investment options.
Investing in someone else business / business idea is said to be investing in shares. How we identify where to go in order to do investment into shares. Lets’s understand this by an illustration.
Let us consider that you want to buy a titan watch for self, what will you do?
You search for the Titan shop near you. You make a visit to the shop and buy a watch. The place ( shope ) is called as market. Remember that shopkeeper himself is not a manufacturer. He is only one of the trader, or link to connect company to the customer.
Similarly, in stock market investment, Lets us say I want little ownership of company XYZ Ltd. What do we need to do, we find the market from where we can buy shares or sell shares. These markets where shares of the companies are bought or sold is called share market. Retail investors need not go to the market directly, there are many brokrage companies authorised by SEBI to trade on share market on behalf of retail investor, called brokrage companies.
There are mainly two share markets that exist in india.
(1) BSE – Bombay Stock Exchange.
(2) NSE – National Stock Exchange.
Reasons for stock invest?
Lets try to understand the need to invest. Today earnings from salaries or profession to meet all present requirements may be sufficient but may not be sufficient for future.
Still bigger problem with most of us are we feel we have kept our money in bank, either in saving account or in fixed deposit or recurring deposit is sufficient. Practically money kept in bank gets devalued since net return what we get after tax from bank is less then inflation.
Keeping in mind not only I need to meet my both ends of income and expenditure today. I also need to ensure through out our life we need income to meet expenditure, even though salary has stopped. I need huge fund to Not only certain big expected or unexpected expenditure like buying car, house, children’s education or children’s marriage.
Above all are some of the reasons, why we need to investment? It should be good if we can ensure that today I save such that it can ensure my expenditure even tommorow.
