|
1. What are Markets?
A stock market is a market for the trading of company stock/ shares, and derivatives. This includes securities listed on a stock exchange as well as those only traded privately. Market is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc.
It also enables corporates, entrepreneurs to raise resources for their companies and business ventures through public issues. As a result, idle resources (of investors) are transferred to those who need them (corporates). Markets, thus, provide channels for reallocation of savings to investments and entrepreneurship.
-
1.1 Primary markets:
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO)
What are the types of issues in primary market?
Primary market Issues can be classified into four types.
- Initial Public Offer
- Follow on Offer
- Rights Issue
- Preferential Issue
For more details,click here…
-
1.2 Secondary markets:
The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. In the secondary market, securities are sold by and transferred from one investor or speculator to another.
The secondary market is where you can purchase securities from the seller as opposed to the issuer of such a security. Hence securities that are initially issued in the primary market by companies are traded on the secondary market.
The secondary market comprises of two broad segments viz. Equity and Debt. Equity shares are the most widely traded form of securities. There are various ways in which equity shares are issued such as IPOs, rights issues and bonuses.
How are share prices determined?
For more details, click here…
2. What are shares?
A share is one of a finite number of equal portions in the capital of a company, entitling the owner to a proportion of distributed, non-reinvested profits known as dividends and to a portion of the value of the company in case of liquidation. Equity is a share in the ownership of a company. It represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company increases. The terms share, equity and stock mean the same thing and can be used interchangeably.
Click here to know the different Types of shares
3. What is a stock exchange?
A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.
The Bombay Stock Exchange Limited, or BSE has a nation-wide reach with a presence in 417 cities and towns of India. Its index, or market indicator is known as the Sensex. It gives a general idea regarding the movement of the stocks; whether they have gone up or have gone down. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up.
The S&P CNX Nifty, or simply Nifty, is the leading index for large companies on the National Stock Exchange of India. It consists of 50 companies representing 24 sectors of the economy, and representing approximately 47% of the traded value of all stocks on the National Stock Exchange of India
4. Who is a broker?
A stockbroker is person who is licensed to trade in shares. Brokers also have direct access to the sharemarket and can act as your agent in share transactions. For this service they charge a fee. They can also offer additional services like advice on shares, debentures, government bonds and listed property trusts and non-listed investment options (cash management trusts, property and equity trusts.
In addition a stock broker can plan, implement and monitor your investment portfolio, conduct research and help you optimize your returns.
5. What is a Demat A/c?
Investors who wish to trade in the market need to have a dematerialized, or demat, account. In India, the government has mandated two entities –National Securities Depository, or NSDL, and Central Depository Services (India), or CDSL – to be the custodian of dematerialized securities.
-
5.1 What do you mean by dematerialization?
Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account with its DP.
-
5.2 Can I dematerialize any share certificate?
You can dematerialize only those certificates that are already registered in your name and are in the list of securities admitted for dematerialization.
-
5.3 What is a depository?
A depository can be compared to a bank. A depository holds securities like shares, debentures, bonds, government securities, and units, among others of investors in electronic form. A depository also provides services related to transactions in securities.
-
5.4 How can I avail the services of a depository?
A depository interfaces with the investors through its agents called depository participants, or DPs. If an investor wants to avail of services offered by the depository, the investor has to open an account with a DP. This is similar to opening an account with any branch of a bank in order to utilize the bank's services.
-
5.5 What are the benefits of opening a demat account?
The benefits of opening a demat account are:
- Immediate transfer of securities;
- No stamp duty on transfer of securities;
- Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.;
- Reduction in paperwork involved in transfer of securities;
- Reduction in transaction cost;
- Nomination facility;
- Change in address recorded with DP gets registered electronically with all companies in which investor
holds securities eliminating the need to correspond with each of them separately;
- Transmission of securities is done by DP eliminating correspondence with companies;
- Convenient method of consolidation of folios/accounts;
- Holding investments in equity, debt instruments and government securities in a single account;
- Automatic credit of shares into demat account, arising out of split/consolidation/merger etc.
-
5.6 How do I select a DP?
- You can select your DP to open a demat account just like you select a bank for opening a savings account. Some of the important factors for selection of a DP can be:
- Convenience - Proximity to the office/residence, business hours.
- Comfort - Reputation of the DP, past association with the organization, whether the DP is in a position to give the specific service you may need?
- Cost - The service charges levied by DP and the service standards.
For the complete list of documents required to start a DP/ Demat A/c. click here…
6. Buying and selling of dematerialised securities
What is the procedure for selling dematerialized securities?
The procedure for selling dematerialized securities is very simple. After you have sold the securities, you would instruct your DP to debit your account with the number of securities sold by you and credit your broker's clearing account. This delivery instruction has to be given to your DP using the delivery instruction slips given to you by your DP at the time of opening the account. Procedure for selling securities is given here below:
- You sell securities in any of the stock exchanges through a broker;
- You give instruction to your DP to debit your account and credit the broker's (clearing member) account before the deadline time specified by your DP;
- Before the pay-in day, your broker gives instruction to its DP for delivery to clearing corporation;
- Your broker receives payment from the stock exchange (clearing corporation);
- You receive payment from the broker for the sale of securities.
How can I purchase dematerialized securities?
For receiving demat securities you may give a one-time standing instruction to your DP. This standing instruction can be given at the time of account opening or later. Alternatively, you may choose to give separate receipt instruction every time some securities are to be received. The transactions relating to purchase of securities are summarized below:
- You purchase securities through a broker;
- You make payment to your broker who arranges payment to clearing corporation on the pay-in day;
- Your broker receives credit of securities in its clearing account (clearing member account) on the pay-out day;
- Your broker gives instructions to its DP to debit its clearing member account and credit your account;
- You receive shares into your account. However, if standing instructions are not given at the time of opening the account, you will have to give 'Receipt Instructions' to your DP for receiving credit.
You should ensure that your broker transfers the securities from its clearing member account to your depository account, before the book closure. If the securities remain in the clearing account of the broker, the company will give corporate benefits (dividend or bonus) to the broker. In that case, you will have to collect the benefits from your broker.
7. How to receive income from shares?
The income received from shares is called a dividend.
We invest in shares to make money – either through a share’s capital growth, i.e. the amount by which the share price increases in value over time, or through the dividends it pays to its shareholders. Dividends are payments made by companies to shareholders from their profits. Not all companies pay dividends. Dividends are usually paid twice a year and are in effect the yield from your investment. Some growth companies plough most of their profits back into generating more business rather than paying out dividends to investors.
How would I get my dividend/interest or other cash entitlements?
The concerned company obtains the details of beneficiary holders and their holdings from the depository. The payment to the investors will be made by the company through the ECS, or Electronic Clearing Service, facility or by issuing warrants on which your bank account details are printed. The bank account details will be those, which you would have mentioned in your account opening, form or changed thereafter.
How would I get my bonus shares or other non-cash entitlements?
The concerned company obtains the details of beneficiary holders and their holdings from NSDL. Your entitlement will be credited by the company directly in your depository account.
8. How much should you invest?
Asset allocator and other tools…
9. How to make investment decisions?
The stock market has, perhaps, the most exciting investment opportunities for the investor community. At the same time, it could be unnerving and scary. In fact, equity investment has always remained a big challenge, not only for retail but institutional investors, too. Moreover, investors’ discomfort generally increases with a rise in market volatility. You will find many investors entering the market at high levels and making a quick exit as the market witnesses a correction. Unfortunately, such investors seldom think of investing in stocks again. Thus, they ignore an excellent opportunity to earn above average returns.
In short, investing in equities can be a difficult proposition for retail investors. However, equity must form a part of every investor’s portfolio. The proportion could vary, depending on the investor’s age, monetary requirements, risk appetite, etc.
To cope with volatility, it is important to have a disciplined and systematic approach to equity investment. Set your own rules and more importantly, follow them religiously. Indeed, the mantra for successful equity investment is a well thought-out, disciplined investment strategy.
A long-term monetary commitment, adherence to discipline in investment and decisions based on company fundamentals are essential ingredients for successful equity investment.
To know the Golden Rules of Investing, click here…
10. How to track your investments? (Portfolio tracker)
Portfolio tracker
|
