Share Market 101: A Beginner’s Guide to Investing in Shares

 The share market is a place where people buy and sell shares of companies, which represent ownership of a part of the business. The share market is also known as the stock market or the equity market. The share market is influenced by various factors, such as economic conditions, political events, corporate performance, investor sentiment, and global trends. In this article, we will explore some of the aspects of the share market and how it works.

What are shares and why do people invest in them?

Shares are units of ownership in a company. When a company wants to raise money for its business, it can issue shares to the public and sell them in the share market. The people who buy these shares become shareholders of the company and have certain rights and responsibilities, such as voting on important decisions, receiving dividends (a portion of the company’s profits), and selling their shares to other investors.

People invest in shares for various reasons, such as:

To earn income from dividends or capital gains (the difference between the buying and selling price of a share).

To diversify their portfolio and reduce risk by investing in different sectors, industries, and countries.

To support a company or a cause that they believe in or are passionate about.

To benefit from the growth potential of a company or an industry.

How are shares traded in the share market?

The share market is divided into two segments: the primary market and the secondary market. The primary market is where new shares are issued by companies for the first time through a process called an initial public offering (IPO). The secondary market is where existing shares are traded among investors through intermediaries called brokers or dealers. The secondary market is further divided into two types: the exchange-traded market and the over-the-counter (OTC) market. The exchange-traded market is where shares are listed and traded on a regulated platform called an exchange, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India. The OTC market is where shares are traded directly between buyers and sellers without an exchange, such as through online platforms or networks.

The price of a share in the share market is determined by the forces of demand and supply. When more people want to buy a share than sell it, the price goes up. When more people want to sell a share than buy it, the price goes down. The price of a share also reflects the expectations and perceptions of investors about the future performance and prospects of the company. The price of a share can change rapidly due to various factors, such as news, rumors, events, reports, announcements, etc.

What are the risks and rewards of investing in the share market?

Investing in the share market can be rewarding but also risky. Some of the rewards of investing in the share market are:

Potential for high returns in the long term compared to other asset classes, such as fixed deposits, bonds, gold, etc.

Opportunity to participate in the growth and development of companies and industries.

Ability to benefit from compounding effect (the reinvestment of earnings to generate more earnings).

Liquidity (the ease of buying and selling shares).

Tax benefits (such as exemption from capital gains tax for long-term investments).

Some of the risks of investing in the share market are:

Volatility (the fluctuation of prices due to various factors).

Loss of capital (the possibility of losing some or all of the invested amount).

Market risk (the possibility of losing money due to adverse movements in the overall market).

Company risk (the possibility of losing money due to poor performance or failure of a specific company).

Fraud risk (the possibility of losing money due to scams or illegal activities by companies or intermediaries).

How can one start investing in the share market?

To start investing in the share market, one needs to follow some steps, such as:

Opening a demat account (an account that holds shares in electronic form) and a trading account (an account that enables buying and selling of shares) with a registered broker or dealer.

Transferring funds to the trading account from a bank account.

Researching and analyzing various companies and sectors based on their financial statements, reports, news, etc.

Selecting suitable shares based on one’s goals, risk appetite, time horizon, etc.

Placing buy or sell orders through online platforms or phone calls.

Monitoring and reviewing one’s portfolio regularly and making necessary adjustments.

What are some tips and strategies for investing in the share market?

Some tips and strategies for investing in the share market are:

Setting clear and realistic objectives and expectations.

Doing thorough research and due diligence before investing.

Diversifying one’s portfolio across different companies, sectors, industries, and countries.

Investing for the long term rather than speculating for short-term gains.

Avoiding emotional decisions based on greed or fear.

Following a disciplined approach and sticking to one’s plan.

Learning from one’s mistakes and successes.

The share market is an exciting and dynamic place that offers various opportunities and challenges for investors. By understanding the basics of the share market and following some tips and strategies, one can make informed and profitable decisions and achieve one’s financial goals.