Layman’s Guide to Investing in Stocks

• Stock Market is an important part of the daily economy and it provides a platform for wealth generation.
• Shares or Stocks are issued by Publicly listed companies, which can be bought and sold by investors.

Stock Market or Share Market is basically a platform where buyers and sellers unite to trade and transact publicly listed shares of companies. The regulatory authority for the conduct of this market is SEBI (Securities and Exchange Board of India). It looks after the functioning of the Stocks Exchanges and authenticates listed companies, traders and brokers to conduct the transactions.

Stocks and Exchanges

Stocks are basically equities that give shareholders who have bought that particular stock a fixed ownership interest or a stake in a public company. If you buy all the shares of the company, you get the right to operate business in that company. When you invest your money in a stock or share, you become part-owner of that company and it gives an opportunity to the stakeholder to potentially benefit from the company’s growth and profits through capital dividends

Any company who issues its share goes through Primary Market and Secondary Market. Initially when a stock is issued it comes out in the Primary Market which is known as IPO (Initial Public Offer) in stock market terminology. Main objective of an IPO is to get the stock listed in the Market. Once the stock is listed and bought, the further trading of the share happens in the Secondary Market. NASDAQ and the New York Stock Exchange are the significant examples of Secondary Market Exchanges. 

Pricing of Stocks

As per the usual rules of supply and demand, prices of stocks are assigned or determined by the Market. Normally share prices escalate when the company is earning tremendous profits and growing eventually or when it gets new orders. As demand for the stocks picks up, more and more investors want to buy the stock at higher prices and that eventually makes the price of stock go up.

In stock market terminology, when the overall market is going up it is referred to as the ‘Bull’ market and when the overall market is going downturn, it is referred to as ‘Bearish’ market. Bear market can be an outcome of a declining economy of a country facing a downfall and it is generally advised to invest money during the Bull market trend as it is less risky and provides a favorable scenario to make profits. 

In order to acquire or take up big projects, companies generally require a lump sum of money. They raise this by issuing Bonds in the stock market and bondholders are repaid through financial gain made on that project that company took up. Bonds are a type of financial instrument where several investors lend money to a company.

Conclusion

Making the right investment requires patience and long term vision. Holding a different portfolio can help chances of significant returns and Investing can be a platform to build wealth over the long term.