What is the stock market? How can you make money from Share Market?

Hello friends! Let’s talk about the stock market, what is the stock market? Why is it in the field?  How does this work? What are its advantages and disadvantages? And how can you invest money in it? Let’s get more information about stock markets in this article.

What is Share Market?

Share Market or Equity Market – All three mean one. These are markets where you can buy or sell shares of a company. Buying shares of a company means buying some percentage of ownership of that company, that is, you become the holder of one percent of that company. If that company makes a profit, then some percentage of that profit will also be given to you. If that company incurs a loss, then a percentage of that loss will also be borne by you.

Assuming you an example of this on the smallest scale, let’s say you have to set up a start up. You have 10,000 rupees, but this is not enough, so you go to your friend and ask him to invest 10,000 rupees and share 50-50℅. Therefore, 50% of the profits that your company will make in the future will be yours. 50% of this will be from your friend.  In this case, you have given 50% shares in this company to your friend.

The same thing happens in the stock market in a big way, the only difference is, instead of going to your friend, you go all over the world and invite them to buy shares in your company.

History and Purpose of Shares

The origins of the stock markets date back some 400 years. Like the British East India Company, there was a Dutch East India Company, a similar company in the country of the Netherlands, which is now known as the Dutch East India Company.

In those times, people used to do a lot of research using ships, the map of the whole world was not discovered till that time. So companies used to send their ships to search for new lands and to trade with distant places, the voyage was over a thousand kilometers in a single ship, it required huge amounts of money.

In those times no one had such a sum, therefore, he publicly invited people to put money in their ships. When these ships would travel long distances to go to other countries and return from there with treasures. They were eventually promised a portion of these treasures / money. But it was a very risky affair, because during that time, more than half of the ships failed to return. Either they were lost, or broken or looted. Anything could happen to them. Hence investors realized the risky nature of this venture. Therefore, they preferred to invest in 5 to 6 rather than investing in a single ship. So that at least one of them is likely to return. A ship approached many investors for money. Therefore, it created a stock market to some extent.

The ships had an open bid on the ship’s docks.  Docks are the places from which ships depart.  Gradually, this system failed as companies faced shortage of money. Then it was supplemented by common people. And common people got a chance to earn more money.

You must have read in the history books, how prosperous the English East India Company and the Dutch East India Company were during that time. Today, each country has its own stock exchange and every country has become very dependent on the stock market.

What is a stock exchange?

A stock exchange is a place, or a building, where people buy and sell shares of companies. The market can be divided into two types – primary market and secondary market.

The primary market is where companies sell their shares. Companies decide what their share prices will actually be. However, it also has some rules.  Companies cannot maneuver too much because a lot of it depends on demand. And on how much people are willing to pay for the company’s shares.  If the company is valued at Rs 1 lakh, it sells 1 lakh of its shares and offers shares at 1 ₹ per share.

If its demand is high and many people want to buy its shares, the company will obviously be able to sell its shares for a higher price. What companies do nowadays is that it is fixed on a threshold.  Minimum value and maximum value. They decide to sell their shares within that range.

How many shares are possible?

The point to note here is that every share of the company has an equal price. This company has to decide how many shares it wants to make. If the total value of the company is 1 lakh, it can make 1 lakh shares of every 1, or it can make 2 lakh shares of 50 paise.

When companies sell their shares in the stock market, it never sells 100% of them. Because the owner always wants to retain the majority of the shares in order to retain possession of his decision-making power. If you sell all the shares, then all the buyers of the shares will become the owners of the company. Since they have all become owners, they can all take decisions regarding that company as well. A person who has more than 50% shares is able to make decisions regarding the company.

Hence the founders of the company prefer to retain more than 50% of their shares. For example, Mark Zuckerberg owns 60% of Facebook’s shares.  People who have bought the shares of the company can sell it to other people, it is called secondary market. Where people buy and sell shares among themselves and trade in shares.

In the primary market, companies set the prices of their shares. Companies cannot control the prices of their shares in the secondary market. Share prices fluctuate depending on the demand and supply of the shares.

Indian stock exchange

Almost every major country has its own stock exchange. There are two popular stock exchanges in India. There is a Bombay Stock Exchange, which has about 5400 registered companies. The other is the National Stock Exchange which has 1700 registered companies.

With a number of countries registered on the stock exchange, if we want to see if, overall, whether the stock prices of companies are rising or not, how do we see it? To measure this, some measurements have been made – like SENSEX and NIFTY.

What is Sensex and Nifty?

The SENSEX represents the average trend of the top thirty companies on the Bombay Stock Exchange. On average, are the stocks of companies going up or down. The Sensex has a full form, sensitivity index, and reflects the same.

The number of SENSEX has reached 40,000 digits.  This number does not mean much, the value of this number can be understood only when compared to the previous numbers, because this number is fixed randomly. He initially decided that the value of the shares of the thirty companies would be this.

So we compile all the numbers and then say that it is 500, thus gradually, the sensx is increasing and it has reached the 40,000 mark in the last 50 years.  So this shows how much the share prices of these 30 companies have increased in the last 30 years.  Another similar index is NIFTY-National + Fifty.

The Nifty refers to the fluctuations in the value of the shares of the top 50 companies listed on the National Stock Exchange.

How to sell your company’s shares?

If a company wants to sell its shares on the stock exchange, it is called “public listing”. If a company is selling its shares for the first time, it is called an IPO – Initial Public Offering.

That is, for the first time, offering shares to the public, in the days of the East India Company, it was very easy to do this work. Anyone could sell their company’s shares to the public, but today, the process is very long and complicated, and it must also be complicated because, think about it, how easy it is to scam people.

If simple, anyone could have been listed on a stock exchange with a fake company, and could have exaggerated the value and achievements of their company. They could lie to people and people would foolishly invest in his company. Then he can escape with the money, so it would be very easy to scam someone.

India has witnessed many scandals like these in its history. Like, Harshad Mehta scam, Satyam scam.  They were all the same – fooled people and listed themselves on the stock exchange. Collected money and then escaped.

So whenever and when these scams happened, the stock exchanges felt it. And they needed to strengthen their processes and give evidence of scandal. For this, resolutions and rules were strengthened due to which there are very complicated rules today.

SEBI – Security and Exchange Board of India.  There are regulatory bodies that look into these issues such as which companies should be listed on the stock exchange and whether it is being done properly or not.

If you want to do so (ie to be listed), then you have to meet the SEBI norms. Their criteria are very strict, for example, there needs to be a lot of checks and balances on your company’s accounting.  At least two auditors must have checked your company’s account. This entire process can take about 3 years.

If you want to publicly list a company, the company must have more than 50 shareholders.  When you go to sell their shares, but there is no demand among people. Then SEBI can also remove your company from the stock market list.

How to buy shares?

Now, how can you invest money in the stock markets? During the time of the India Company, one could visit those docks. From where the ships sailed and could engage in bidding and buying and selling stocks.

Before the advent of the Internet, one had to physically go to the Bombay Stock Exchange building to transact in the stock market.

However, with the Internet, you need only three things to transact in the stock market – a bank account, a trading account and a DEMAT account.  A bank account because you will need your money. A trading account, which allows you to invest and invest in a company. DEMAT account for storing the shares you have purchased in digital form.

Most banks have now started offering 1 compiled account of these three accounts. All three accounts are added to your bank account.

People like us will be called retail investors, that is, ordinary people who want to invest in the stock market. A retail investor always needs a broker. A broker is one who brings the buyer and seller together. For us, our brokers can be our bank, a third party app or a platform.

When we invest money through brokers in the stock market, the broker keeps some money as his commission. This is called the “brokerage rate”.  Banks mostly charge a brokerage rate of around 1%. But 1% is slightly higher. So how much should it be?

If you look properly, you can search for good platforms. Whose brokerage rate is around 0.05% or 0.1%. This brokerage rate is a disadvantage for those who want to trade a lot of shares. If a lot of stock is bought and sold in a day, a lot of money will be sunk as a brokerage fee. But if you want to invest for the long term, then a high brokerage rate also does not make much difference because you will only pay it once.

What is the difference between investment and trade

Investment and trade are two different things.  Investing means putting some amount in the stock market and letting it stay there for some time.

Trading or trading means quickly putting money in different places and withdrawing money from some places. It all happens in a hurry. Actually trading of shares is a job in itself.

There are many people in our country who are businessmen and do this work throughout the day.  Withdraw money from one part and invest it in another. Earn profit by removing from one place, putting it in another.

Is the stock market gambling?

An important question is, should you invest in the stock markets? A lot of people compare it to gambling because it involves a lot of risk.

In my opinion it is correct to say that because it is really some kind of gambling. If you are not aware of the type of company, parameters of the company and its financial records and its performance. If you do not inspect its history and accounting information. 

So again, in a way, it is similar to gambling, because you have no idea how the company will perform in the future. You only hear people saying that the company is doing well and we should invest in the stock market, so you invest in it. You should never do this because it is extremely risky.  And obviously, there are people here who do this job day by day,

For example, traders, who are experts in this field and are more knowledgeable about the stock market. They will obviously do better than others because they have an idea of ​​how it all works.

Therefore, in my opinion, you should not invest directly in the stock market and instead you can rely on experts. A very efficient form of this is mutual funds because in mutual funds you do not directly decide which companies you will invest in.

In mutual funds, you place your trust in experts and let the experts decide which companies to invest in. A lot of mutual funds invest in many different companies to reduce their chances of loss.

For example, I gave the example of East India Company above. Investors quickly learned that they should not invest their money in a single vessel. Be sure to invest money in 5-6 of them so that at least one of those ships will come back.

Mutual funds operate in a similar way, investing money in many different places. There is a great app for investing in mutual funds called “Kuvera”.  Kuvera is an app that charges 0% brokerage. Therefore, if you invest in a mutual fund through this app, it will maintain a 0% commission for itself. No matter how much money you put.

A question also arises that how does it make money for itself? The app has also specified that it makes money by selling the rest of its investment products. But it has kept investment in mutual funds completely free. This is something unique and special that I have never seen in any other app. Another feature of this app is that you can set goals.

For example, if you want to buy a house, or a car, as soon as you enter this app, its total cost, for how many years you want to buy it and how much money you can pay for it. Through the application of your algorithm and AI, you can see the mutual fund in which you should invest the money.

Using the same algorithm, the app also tells you how to reduce your tax. Long term capital gains tax is what you have to pay if you invest money somewhere. So, this app, keeping in mind inflation, will tell you how much you should invest and how much money you should withdraw. So that you have to pay minimum tax.

So I suggest that if you want to invest in mutual funds, then you install this app. If you feel that you have learned something new from this article, then share this article. Write in the comments to tell me which academic and financial topics I should write an article about.

Various Info Conclusion