With industrialisation and commercialisation, share market investments have seen a tremendous boom. Investors from different genres and backgrounds are investing in different shares in the stock market and reaping the benefits and profits from them.
The people are slowly losing their inhibitions about the share market and are going out and investing in it. It is imperative to take the market as it comes without any preconceived notions and unbiased viewpoints. People who venture into this equity market without any prior knowledge and research are the ones who ultimately face losses. Thus, it is imperative to broaden one’s perspective before venturing into the stock market.
There are two key stock exchanges in India viz. National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Most of the share trading occurs via these platforms only.
Established in 1992, the National Stock Exchange began with trading in 1994. It was the first dematerialised electronic stock exchange in India and the first to provide an automated screen-based trading system. It is the 12th largest stock exchange in the world with a net market capitalisation of US$ 1.4 trillion.
Bombay Stock Exchange was established in 1875 and is the first and largest stock exchange in Asia. It has a total market capitalisation of US$ 1.83 trillion and has around 5500 listed companies.
A stock market can be defined as a platform of stock buyers and sellers representing ownership in listed companies. It is also known as the equity market or share market.
Stock trading is the buying and selling of stocks by shareholders.
Share: A share can be considered to be a unit of ownership in businesses. Whenever anyone indulges in buying of shares, it means that they are buying a unit of that business. The businesses, instead of raising funds for the growth of their companies, make the shares of their companies public, which is when one can buy them as per one’s capacity and calculations. These shares are involved in trading on the stock exchanges wherein one can sell or buy them. The companies launch these shares in the form of an IPO- Initial Public Offering. Companies reputation, net worth and the determine shares issued determines the price of the IPO in the market. When a buyer buys the shares he gets partial ownership of that company and the money spent by him to buy the share goes to the company. It is to be noted that the company which issues the shares only gets the money through IPO. The buying and selling of stock which occurs through the stock exchanges do not have the companies as the beneficiary. It is the investors who bear the profit or loss during the trading of his shares in the stock market.
One key feature of the stock market is that it is very unpredictable. Analysts and experts work day and night to speculate and predict the stock market, but it is one herculean task. Investors are thus often advised not to take any hasty decision and get befooled by the predictions which run around the shares. The stock market is neutral, unbiased and is free of any pattern.
It is very important to track the share of the businesses to assess the market performance and growth of the company. But tracking is one tedious task. Therefore it is imperative to have an index which monitors the market performance of the stocks of the companies listed underneath the exchange.
NSE uses Nifty 50 and BSE uses Sensex as their respective indices to assess the stocks. The index is defined by a base year and a base value which helps in the computation of stock prices. Free-float market capitalisation weighted method is used to calculate the aforementioned indices and undertakes all variables and corporate actions into consideration.
Stock Market Regulation
The stock market is regulated by the Securities and Exchange Board of India (SEBI) which upholds the responsibility of regulation of stock markets. It ensures that the stock dealing is transparent and free of frauds. It supervises the stock exchanges and in case of any breach, it penalises the company or the involved individual. SEBI ensures fair trade, unbiased and quick regulatory action and thus is a trusted authority by the investors.
Why should one invest in the stock market?
Usually, many investors try to calculate the future of the stock market before stepping into it. This goes wrong as the stock market is one unpredictable market wherein one cannot assume the next minute situation. Many investors make this blunder of waiting for a stable scenario to invest. Instead, they should concentrate on their shares and what profit they can make.
It is very crucial to understand that the stock market requires one to have patience and perseverance if one wants to gain something. Being consistent and maintaining a long term approach helps investors tremendously. Here is a list of reasons why one should invest in the stock market.
Diversify your investment:
The stock market is like an asset. If one has time and patience, then one is certain to gain from it. However, it is also key to understand that is one risqué market and relying solely on it is one big mistake which usually young investors make. It is thus advisable to invest a part of your income in stock and stay safe by having a diversified portfolio of investments with other assets too. Keep factors like personal goals and risk capacity in mind before taking a plunge.
The stock market goes up with time:
As already mentioned, patience is the most important trait which one should possess before one venture into the stock market. The stock market will certainly grow over time and market prices will also shoot heights due to the numerous social security schemes and investments. Investors shouldn’t take any hasty decision in times when the market falls. The market will go up certainly but one should keep their patience.
Win over Inflation: Stock market is an excellent way of winning over the effects of inflation. As the purchasing power of money goes down, the market increases and offers great returns on long term investments. Over a while, your value of money will increase with an increase in the value of the stock.
Advantages of long term investment in the stock market
Stock market strategists and experts advise keeping the equity for longer periods to gain the maximum returns. Investors have to face the volatility and fluctuations of the market if they go for short term investments. Some advantages of long term investment in the stock market are:
Better Returns: Stock market has time and again proven that long term investments in stocks have turned to be way better and beneficial than returns from other asset classes. Even the most risqué stock classes have fared tremendously well and have given excellent returns when held for long durations. Thus the stock market always has a better scope of returns. However, the risk involved is also high and therefore investors should always make an informed decision.
High Survival Rate: If the investor holds his shares for longer durations ranging from a few years to decades, chances of his losing the money falls significantly. It gives the cushion to the investors who survive the highs and lows and stays patient even during the times when the economy fickle.
Avoidable Mistakes: Many investors make the mistake of taking the stability of the stock market for granted. This is where they fall and lose their hard-earned money as their share drops. The stock market is one unpredictable market and timing it is one big mistake which investors tend to make. Long term investments allow the investors to hold their share even during the time of economic crises and not display ‘buy high-sell low’ behaviour which becomes the thing for investors who make sudden withdrawals as the market crashes.
Lower Capital Gains Tax Rate: Long term investment gets capital gain tax which has a low rate of interest in comparison to short term investments wherein the investor has to pay regular tax.
Thus the stock market is one interesting market wherein you gain some and lose some. No one can predict the market and how the shares will grow over time. The market is closely linked with the economy of the country and walks sideways to the business which is listed in the exchanges. A big business move results in favourable ups whereas a bad business decision may hamper the equity badly. Choose the stock market as one of the asset classes and enjoy the fruits of your investments over a course of time.