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What is meant by stock market?

A stock market is a private / public market where securities of companies and their derivatives are traded at a predefined / agreed price. Usually these securities are listed on stock exchanges. A stock market consists of few stock exchanges where the listing and trading takes place. All stock markets are regulated by some organization designated by the Govt.

How does a stock market function?

A stock market has many members who co ordinate for various activities in the process of placing orders, their execution and settlement etc. A person who desires to buy / sell shares in the stock market, can place his order through the broker either in the traditional manner or can place an online order himself through the terminal provided by the broker.

When an order is placed, the order is sent to the exchange and then the order resides in the Exchange system till all conditions of the order have been met with. When the conditions of the order are fulfilled, the order is executed and the shares purchased / sold are delivered to the buyer / obtained from seller through the broker. The whole settlement process takes place through NSCCL (National Securities Clearing Corporation limited), the official clearing agent for the stock market in India.

Who regulates the stock market?

In India, the stock markets are regulated by SEBI (Securities and Exchange Board of India). There are several stock exchanges in the country out of which the two most prominent exchanges are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). The signature index for BSE is Sensex while for NSE, it is NIFTY.

What is Rolling Settlement?

Rolling Settlement is the mechanism adapted by the Indian Stock markets for faster settlement of trades. In Rolling Settlement, trades executed during the day are settled on net obligations basis. In India, settlement of trades executed is done on T+2 basis where T stands for Trading day and +2 stands for two working days excluding the trade day. Net the effect of shares bought or sold is on the third day from trade day.

In this kind of settlement, two trading days are considered for settlement where Saturday, Sunday, Bank Holidays and trading holidays are not considered as working days for settlement. Hence, a trade done on Monday will get settled on Wednesday.

What is dematerialization?

Dematerialization is the process by which an investor can get the physical share certificates converted into electronic shares of equivalent number and value. Dematerialization takes place though a depository participant who assists an investor to get the shares dematerialized.

In this process, once the physical shares have been converted into electronic shares, they are credited to the clients demat account which is with the depository participant. An investor can get those shares dematerialized into his / her account only if those share certificates are registered on his / her name.

Why invest in shares?

Investing in shares is like investing into ownership of a company which no other investment instrument can give you. Unlike any other investment instrument which either give you fixed income or meager returns and no owned share in the same, equity investment gives you an opportunity to become a part of the company ownership and also gives you regular returns on your investment as dividend income or through price changes.

Investing in equity also allows you to enjoy the flexibility of staying invested as long as you wish to, take advantage of the price movements and thus utilize the liquidity. In an overall view, equity investment is better than any other investment.

Can I invest in any share?

By the virtue of investing in shares, you can invest into any share but since investing in equity is like owning a part of the company, you should be careful about which share are you investing your money. The profits that you earn from such investment will largely depend on the shares that you have purchased. If you have invested in a low earning share, no matter how much you invest, it is not going to fetch you the same kind of return as a high earning share.

How do I buy / sell shares?

In order to buy / sell a share, you need to first become a client of one of the stock market members who are commonly known as stock brokers. But before you sign up with a stock broker / financial services provider, you need to understand the importance and sensitivity of the relationship between the stock broker and yourself so that you are familiar with the rules and regulations abiding in the relationship.

Once you have chosen your stock broker / financial services provider, you need to open an account with the same, get quotes for the share that you wish to buy and place orders either by calling up or online.

When am I ready to buy shares?

Before you put your money into shares, you need to be aware that investing in shares is not only rewarding but also risky so you need to make sure that the surplus money available with you at hand may not be required in near future. This is so because to reap the benefits of investing in shares, you need to stay invested for a considerable time period.

Once you are clear about the above mentioned facts, you are ready to buy your first share.

How much does a share cost?

The price of a share is preset by the exchange. The demand and supply factors of the market determine the price at which a share is bought or sold. A share can cost anywhere from less than Rs. 10 to an amount even above Rs. 2000.

If you are keen on buying a share of a company, you can either refer to any of the news papers that provide such information or find it online thorough online trading platforms provided by your broker or even calling up to your broker in order to assist you in the same.

Can I put all my surplus money in shares?

The answer to this is all dependent on your age, your financial requirements and future goals. If you are young, surplus money at hand that is not likely to be required in near future, can stay invested for few years, then you can invest all that in shares.

But if you are retired / likely to retire soon / old, have no other source of income or earn meager income, surplus money at hand that is not likely to be required in near future, you should not resort to investing all that in shares, instead you can diversify your investments into bonds, fixed deposits, Govt. securities etc. and a lesser exposure in equity investment.

Always consult a professional

In order to avoid any mistakes in your investment decisions, you should always consult a professional to plan out your investments and to get qualified investment Advice. It is advisable to get a specialist s help where your money matters are concerned.

Keep yourself updated with latest market news

If you are investing in equity, it is advised that you keep yourself updated about the latest market news as there are a lot of announcements that take place from day to day such as mergers, acquisition, dividends, Annual Meetings etc. This helps you to get a clue as to what is the effect of such news on your investments and what is the expected return from your investment.

Assess the extent of risk involved

Before you put your money in some share, try to access the extent of risk and rewards involved in that investment opportunity so that it doesnt turns out to be a Losing opportunity rather than a winning one. This will keep you informed as to what can be the impact of any adverse movement on your investment.