The share market, also known as the stock market or equity market, is a platform where company shares are bought and sold.
Buying shares means:
- Acquiring partial ownership of a company.
- Receiving a share of the company’s profits (as dividends).
- Bearing a percentage of the company’s losses if it underperforms.
Example:
Imagine you start a business with ₹10,000, but you need ₹20,000. You ask a friend to invest ₹10,000 in exchange for 50% ownership. Similarly, companies sell their shares to the public to raise funds.
The History of Share Markets
The concept of share markets began 400 years ago with the Dutch East India Company. During the 1600s, ships would travel to undiscovered lands for trade, requiring large investments. To manage the risk:
- Investors funded multiple ships to minimize potential losses.
- Ships sought investments from multiple people, creating an early version of the share market.
Over time, this system evolved, leading to the formation of stock exchanges worldwide.
How Does the Share Market Work?
The share market operates through two types of markets:
- Primary Market:
- Companies sell their shares to the public for the first time (IPO – Initial Public Offering).
- Companies determine a price range based on demand and regulations.
- Owners retain majority shares (over 50%) to maintain decision-making power.
- Secondary Market:
- Investors trade shares among themselves.
- Share prices fluctuate based on supply and demand.
Stock Exchanges in India
India has two major stock exchanges:
- Bombay Stock Exchange (BSE): Over 5,400 registered companies.
- National Stock Exchange (NSE): Around 1,700 registered companies.
To track the overall market trend:
- Sensex (BSE): Monitors the top 30 companies.
- Nifty (NSE): Tracks the top 50 companies.
How to Invest in the Share Market
Investing in the stock market today is easier due to the internet. You need:
- Bank Account: To manage funds.
- Trading Account: For buying/selling shares.
- DEMAT Account: To store shares digitally.
Most banks now offer a 3-in-1 account that combines these features.
Retail investors (common people) require a broker (banks, apps, or platforms) to facilitate trades. Brokers charge a fee called a brokerage rate, usually between 0.05%-1%.
Investing vs. Trading
- Investing:
- Long-term approach, where money is invested and held for years.
- Brokerage fees are minimal because trades are infrequent.
- Trading:
- Short-term approach, where stocks are bought and sold frequently.
- Traders rely on daily price fluctuations for profit, but high brokerage rates can eat into earnings.
Should You Invest in the Share Market
Investing in the stock market can be risky if:
- You don’t analyze the company’s performance or financial history.
- You rely on rumors or trends without proper research.
Dhruv suggests:
- Avoid direct investment unless you have expertise.
- Use mutual funds, where experts manage your investments and diversify risks.
Role of SEBI
The Securities and Exchange Board of India (SEBI) regulates the stock market to prevent scams like the Harshad Mehta Scam. Companies must meet strict criteria to list their shares, ensuring transparency and accountability.
Conclusion
Dhruv Rathee emphasizes that understanding the share market is essential before investing. If you’re unsure, mutual funds are a safer option as they reduce risks by diversifying investments.
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