How To Invest In Stocks: A Beginner's Guide To Stock Market Investment

Investing in the stock market can be an intimidating endeavour, especially if you do not have any prior experience in investing or knowledge of how the stock market works. However, investing systematically in the stock market is one of the best ways to grow your wealth. However, a large portion of the Indian population does not yet invest in the stock market, mainly due to a lack of basic knowledge of the stock market. So in this article, we’ll take a look at the stock market basics of investing in India.

A share or a company’s stock is a small portion of the company’s total ownership. For instance, if you own 10% of a company’s stock, you effectively own 10% of the whole company. In essence, shares and stocks are a way to buy any company’s ownership to an extent. Once you purchase a company’s stock, you become a shareholder in the company. There are also multiple types of shares that are available to purchase in the stock market.

So why do companies sell shares? Basically, companies need to raise funds or capital for various purposes, such as paying employees, expanding the business, buying or renting office space, paying debts, and more. One of the best options companies have to raise funds is by selling part ownership of the company in the form of shares.

Companies can choose to sell off their shares privately to venture capitalists/investors or they can become a publicly listed company through an Initial Public Offering (IPO). IPO refers to the first time a previously private company offers its shares to the public through the stock market. At this point, the general public can also start investing in these companies. However, listing your company for an IPO is not an easy process. The companies have to follow very stringent laws and guidelines as laid out by the Securities and Exchange Board of India (SEBI). SEBI is a governmental body that oversees the stock market to ensure that are no illegal activities or frauds happening. If a company is found to be breaking any of these laws or they are not following the right guidelines, its IPO may get denied.

A stock exchange refers to the place where the shares of various companies are bought and sold by traders and investors. There are two main stock exchanges that operate in India; the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). When a company wishes to get listed publicly through an IPO, they have to either do it through the BSE or NSE.

There are thousands of companies that are listed on the BSE and NSE. However, it can get extremely difficult to analyse the condition of the stock market if investors and experts have to look at the performance of each company’s stock individually, but Nifty and Sensex solve this problem. Nifty or Nifty 50 is a set of the top 50 companies that are listed on the National Stock Exchange. On the other hand, Sensex refers to a set of the top 30 stocks that are listed on the Bombay Stock Exchange in terms of market capitalisation. Nifty and Sensex basically serve as good indicators of how the stock market is performing, as the top companies hold a major influence over all of the stock market.

There are basically two major ways to make money through the stock market. First, you can buy a company share at a lower price and sell them later for a higher price to make a profit. Second, you can buy a company’s share to earn dividends. When companies make a profit, the dividend is passed on to the shareholders after the necessary expenses have been taken care of. If you happen to own a large amount of stock in a number of companies, your dividend earnings can be quite high. Some traders also make money by speculating and predicting the prices of the stocks of various companies. However, you should also be aware that capital gains tax would be applicable on profits earned through investing or trading in the stock market.

While the above points are just some basic concepts of the stock market that you should be aware of, you should do more thorough research before you learn stock trading and start investing.