Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders choose who runs a company and are involved in making key decisions, such as whether a business should be sold.
While shares are most obviously associated with the stock market, most small businesses don’t go near a stock market in their lifetime. They are more likely to issue shares in their company in return for a lump sum investment. This investment may either come from friends and family or, for businesses that are looking for capital to fund high growth, through formal equity funding finance.
Formal equity finance is available through:
- business angel investors
- venture capital firms
- stock markets
On the basis of returns, here is a look at the types of shares:
- Dividend Shares: A company can choose to pay dividends in the form of issuing new shares, on a pro-rata basis.
- Growth Shares: These types of shares are associated with companies that have extraordinary growth rates. While such companies might not provide dividends, the value of their stocks increase rapidly, thereby providing capital gains to investors.
Value Shares: These types of shares are traded in stock markets at prices lower than their intrinsic value. Investors can expect the prices to appreciate over a period of time, thus providing them with a better share price
It is a place where shares of public listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering (IPO) to raise capital.
Once new securities have been sold in the primary market, they are traded in the secondary market—where one investor buys shares from another investor at the prevailing market price or at whatever price both the buyer and seller agree upon. The secondary market or the stock exchanges are regulated by the regulatory authority. In India, the secondary and primary markets are governed by the Security and Exchange Board of India (SEBI).
A stock exchange facilitates stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers.
India’s premier stock exchanges are the
- Bombay Stock Exchange.
- National Stock Exchange.
The primary objective of investing is to ensure that every person is able to meet his or her future financial objectives. Rise in inflation makes it inadequate for individuals to simply earn and save some part of their incomes. To meet the price increases due to inflation, investments become important. The stock market is one of the oldest and most popular investment avenues due to several benefits of investing in stocks
Benefits of Investing in Stocks
- Higher Liquidity:
In the Indian stock market, two exchanges, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) play important roles. Most companies trade their shares on either or both of these exchanges. This provides higher liquidity to investors because average daily volumes are high. Therefore, if an investor wants to buy or sell any product on the stock exchanges, this liquidity makes it easy.
The stock market offers different financial instruments, such as shares, bonds, mutual funds, and derivatives. This provides investors a wide choice of products in which to invest their monies. In addition to providing investment choices, this flexibility is beneficial in mitigating the risks inherent to stock investing by enabling diversification of investment portfolios.
- Higher Returns in Shorter Periods of Time:
Compared to other investment products like bonds and fixed deposits, stock investing provide investors an excellent possibility of making greater returns in comparatively shorter time periods. Adhering to the stock market basics, such as planning the trade, using stop-loss and take-profit triggers, doing the research and due diligence, and being patient can significantly mitigate the risks inherent to stock investing and maximize the returns on share market investments.
- Acquire Ownership and Right to Vote:
Even if an investor acquires a single share in a company, he acquires a portion of ownership in the company. This ownership, in turn, provides investors the right to vote and offer his contribution in the strategic movement of the business. Although this may seem like an exaggeration, it is true and there are several instances when shareholders have prevented company management from making unreasonable decisions that are detrimental to their interests.
- Regulatory Environment and Framework:
The Indian stock market is regulated by the Stock Exchange Board of India (SEBI). The SEBI has the responsibility of regulating the stock exchanges, its development, and protecting the rights of the investors. This means when investors invest in financial products on the stock market, their interests are well-protected by a regulatory framework. This significantly helps in reducing risks due to fraudulent activities of companies.
Technical development has influenced every aspect of modern living. The stock exchanges are also using various technical advancements to provide greater convenience to the investors. The trades are all executed on an electronic platform to ensure the best investment opportunities to investors in an open environment. In addition, broking service providers offer online share trading facilities that make investing convenient, because investors can place their orders through a computer from the comfort of their homes or offices. The demat account makes it easier for investors to hold all the products within their investment portfolio electronically in a single location, which makes it easier to track and monitor the performance.
Although stock investing has several benefits, investors must also be cautious while making their decisions. Understanding the stock market basics and doing their research before investing is advisable to mitigate risks and maximize returns.