Are you curious about the world of stocks and how they work? Imagine a pizza divided into four equal slices. If you own one slice, you are the owner of 25% (or 1/4) of the pizza. Similarly, when you buy one share out of four shares of a company, you become a 25% shareholder of that company.
In this blog, we will explore what stocks are, how companies use them to raise funds, the role of stock exchanges, and the factors influencing stock prices. Additionally, we'll touch upon the process of investing in the stock market and the importance of market research and financial planning.
What are Stocks?
Stocks, or shares, represent ownership in a company. When you own shares of a company, you become a partial owner or shareholder. Companies generate revenue by selling their products or services, but they often require investments to expand their operations. To raise capital, companies can choose to list their shares on a stock exchange, which allows them to sell shares to the public.
Understanding Stock Exchanges
Stock exchanges serve as platforms where companies list their shares to raise funds from the public. Investors can then buy and sell these listed shares on the exchange. In India, the two most popular stock exchanges are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). NSE is the largest stock exchange in India, with approximately 1,650 listed companies, while BSE is the oldest, with 5,250 listed companies.
Determining Stock Prices
The price of a listed company's shares is determined based on the principles of supply and demand in the market. If the supply of shares exceeds the demand, the share price may decrease. Conversely, if the demand exceeds the supply, the share price may increase. Other factors, such as the overall economy, the company's financial performance (revenue, profits, etc.), also influence stock prices.
How can I invest in the Stock Market?
If you are interested in investing in the stock market, you will need a demat and trading account. A demat account is used to hold your purchased shares in electronic form, while a trading account allows you to buy and sell shares.
Once you have opened your accounts, you can deposit funds into your trading account wallet and start investing in your chosen stocks.
The Importance of Market Research and Financial Planning
Before making any investments, it is crucial to conduct market research and consider your financial planning. Stay updated with the latest market trends, company news, and financial reports. In the upcoming chapters of this course, we will also introduce you to the basics of fundamental analysis, which will further enhance your understanding of stock market investment.
By following these steps and partnering with a reliable broker, you can easily begin your journey of investing in the Indian stock market. Remember, always prioritize market research and financial planning when making investment decisions.
Key Takeaways
- Stocks, or shares, represent ownership in a company. When you own shares, you become a partial owner or shareholder of the company.
- Companies use stocks to raise funds for their operations and expansion. By listing their shares on a stock exchange, companies can sell shares to the public and generate capital.
- To invest in the stock market, you need a demat account to hold your shares electronically and a trading account to buy and sell shares.
- Conducting market research and financial planning are essential before making any investment decisions.
How can I start investing in stocks?
To start investing in stocks, you will need to open a demat (dematerialised) account and a trading account with a stockbroker. A Demat account holds your shares in electronic form, while a trading account allows you to buy and sell shares.
Once your accounts are set up, you can add funds to your trading account and start investing in stocks of your choice.
Can I invest ₹1000 in stock market?
When investing your initial ₹1000 in stocks, it's important to set realistic expectations. Stocks should not be viewed as "lottery" tickets promising instant wealth. Even if you were to achieve a 100% return in 6 months, your profit would only amount to ₹1000 (equivalent to Rs 166 per month on average). While this profit may not significantly impact your financial situation, investing in stocks can offer potential growth over the long term.