What is a stock market?
A share market is where shares are either issued or traded in.
A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares.
The key factor is the stock exchange – the basic platform that provides the facilities used 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 and the National Stock Exchange.
Why to invest in stock market?
To make sure we have enough funds to be prepared for the future. Simply earning and saving is not enough. Inflation – the price-rise beast – eats into the value of your money. To make up for the loss through inflation, we invest and earn extra. This is the investment fundament. The stock market is one such investment avenue. It has a history that goes way back to the 1800s.
Various components of stock market
Companies need money to undertake projects. One way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely payments of interest, it is called a bond.
These are investment vehicles that allow you to indirectly invest in stocks or bonds. It pools money from a collection of investors and then invests that sum in financial instruments. This is handled by a professional fund manager.
These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price.
Stock markets are risky. Hence, they need to be regulated to protect investors. The Security and Exchange Board of India (SEBI) is mandated to oversee the secondary and primary markets in India since 1988 when the Government of India established it as the regulatory body of stock markets. Within a short period of time, SEBI became an autonomous body under the SEBI Act of 1992.
How to invest in stock market
Learn about various types of investments
If you are new to investing, do researchers learn about companies, join a meetup group and read books. Keep increasing your knowledge and stay up to dated with the market news. Even if you are used to stock market it is better to stay updated.
Invest in various portfolios and keep costs low
Try in various portfolios and don’t restrict to one of them. Keep your initial investments low and don’t raise investments rapidly. See how much you are able to understand the market Going with index funds and ETFs not only keeps your costs low, but it also limits your risk.
Don’t try to beat the market
Don’t try to win victoriously in the first attempt itself. Take sometimes participate and keep your margins low.
Set your goals
How much do you want to gain out of the market? Do not set your goals very high and lose out expecting high.
Determine risk tolerance
How much risk can tolerate how much can you lose? If you are on full time or part time, calculate risk based on your family requirements or individual expectations.
Determine where you want to invest and in which type of investment. Do Study which type of investments suits you the best and has the returns that you would expect in the long run.
Hold for long term
Do no jump to conclusions during a bad day or low period and sell your stocks and lose out. Wait for a period of time and see if the market is gaining back selling on a bad day serves no purposes. Wait till the storm passes out. The long range direction is always towards higher side.
Invest regularly and systematically
Do not invest in burst and keep it very low at other times. Invest systematically and slowly. This will reap benefits on an average. Do not invest without plans have a system.
Have bench marks
These benchmarks are based on the performance of various market indexes. These will help you to improvise in the long run.
Compare performance and expectations
How much are you gaining compared to what you are expecting? This will let you know the path of your growth. If you are gaining a lot than what you are expecting it is a good thing and starts to expect higher.
Don’t just let your broker handle everything solely and sign the forms. Get yourself involved and look after your progress.
Unwillingness to book losses
In the beginning calculate all your losses do not just look at your gains and be happy. Loss is also your money. Many fail to acknowledge this in the beginning.
Do not ignore any particular portfolios. Invest small if you are not sure but don’t ignore completely.
Sort term vision
Retail investors often look for short-term gains. If you want to make a quick profit from stocks, you should have the ability to time the stock market. Stock prices fluctuate wildly over short periods. Your profit or loss depends on your ability to clinch the deal at the right moment.
Guard against the temptation to invest excessively
After a few successes don’t be enthusiastic and invest a lot as mentioned earlier be systematic and don’t rush. Take time and thing before each investment.
Following all the above will get you a safe investment path avoiding too many risks
Anand Rajendran, CEO of Uptra.in, a leading provider of legal services, including company registration. He is the Head of Communications at Uptra Consultancy Services, India’s largest online legal services facilitator.
By: Anand Rajendran