Share Market Basics. How Share Market Works In India

The share market is considered the biggest source of investment revenues in India. Investors and companies from all over the country pour their assets and capital into this market to see them grow.

Any young investor who aspires to make a fortune out from his investment in the share market should be familiar with its basics. Knowing what are shares and how does share market works can give them a brief idea about how things go about here. So without beating around the bush let us get started.

What Are Shares?

Shares are something the name of which is familiar to everyone. But what are shares exactly? They are basically the unit value of a company’s capital. When a company opts to raise funds it does so in the form of shares. If a company has issued 5,000 stocks at the value of Rs 10 per stock then the total capital of the company would be Rs 50,000. To cut the long story short, shares are the number of units in which a company’s capital in the share market is evaluated.  

Types Of Shares

The question of what are shares can be further explored by looking at the types of shares. The Indian share market primarily comes up with two types of shares: equity and preference shares. 

Equity Shares 

Equity shares, also known as ordinary shares, are the most common type of shares. A company issues a large chunk of its shares in the form of equity shares. Although these shares offer voting rights and are also transferable, they also are highly risky. This is because they are directly subjected to the fluctuations of the market. 

Preference Shares

One of the best ways to invest is to go for preference shares. These shares provide maximum benefits to the investors. An investor with preference shares is the first to be paid both in terms of profit as well when the company is going for liquidation.

What Is The Share Market?

A share market is a place where shares are bought and sold. There are primarily two Stock Exchanges in India: National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The stock market is regulated by the Securities and Exchange Board of India (SEBI). SEBI was founded as an independent body in the year 1992 for the regulation and administration of the Indian stock market. It ensures that the market remains fair for investors to thrive in.

Types of Share Market 

The union budget may give you a direction as to where to invest. But the markets where you have to look forward to are not just one. There are basically two types of share market: Primary share market and Secondary share market. 

Primary Share Market

In the primary share market, companies issue new shares. Whenever a company is looking for raising capital, they do so in the form of shares in the primary share market. IPO or initial public offering is one such means by which the capital is raised. You can get the IPO through your bank account. 

Secondary Share Market

The secondary share market is where the issued shares are brought to be sold or purchased. If you want to sell your existing shares or buy new ones, then this is where you will have to do the transaction. The secondary share market brings together investors and based on mutual negotiations between them the shares are bought or sold.

Read more about it if you want to know about the share market in further details. 

How Does The Share Market Work?

The working fundamentals of the share market are quite simple. They are as follows:

Stock Exchange

The first constitutive mechanism of the share market lies in the stock exchange. The companies, investors and brokers all have to be registered with the stock exchange for any investment procedure to continue. Now, this stock exchange can either be Bombay Stock Exchange or National Stock Exchange. But without a stock exchange share market transactions will not be able to take place. 

The stock exchange is a platform where all investment procedures for shares take place.

Share Market Basics. How Share Market Works In India

Investment In Primary Share Market

Those investors who look for IPOs go into the primary share market where companies issue new shares. In the working of the stock market, the primary share market plays an important role. Since it is here that the new shares are issued, the secondary market cannot facilitate without it. 

Investment In The Secondary Share Market

Once the shares are issued in the primary share market, they can be brought into the secondary share market to be bought and sold. The listings in the secondary share market require that the shares to be traded must be first issued in the primary share market. Only the already issued shares can be bought and sold amongst the investors here. 

The Stock Broker

Given the huge number of investors from all over the country entering the stock exchange, it is not possible for the latter to manage all of them at once. To resolve this issue, stockbrokers are out there. These brokers are the representatives of the exchange who look after the needs of the investors and assist them in their investments.  The stockbroker, thus, acts like an agent who connects you with the exchange through himself. 

Requirements In The Share Market

Once you have figured out what shares are and how the share market works, the next thing to know about is the requirements to invest in the share market. 

Demat Account 

The first important thing you as an investor must have is the Demat Account. What are shares good for if you cannot hold them as assets in an account? This is precisely what the Demat Account is made for. It keeps stocks of your shares along with various other investment options in a dematerialized form.  

Trading Account

The trading account is required for you to buy or sell stocks in the share market. It differs from the Demat Account in the sense that Demat Account stores funds while the trading account is used for transaction purposes only. 

Bank Account

You need a bank account to be linked with your trading account to make the transactions. 

Share Market Basics. How Share Market Works In India

Your bank account will be credited or debited depending on whether you sell shares or buy them.

Hence, the stock market may look complicated and confusing but once you figure out the basics like what are shares and how they work, you will be able to grasp the totality of things in a short period of time.

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