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How Share Market Works In India

  •  4m
  • 0
  • 14 Mar 2023
  • In India, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two main stock exchanges.
  • The share market is a place where shares are issued and traded.
  • Stocks, shares, and equities are all the same thing.
  • Holding a share means owning a unit of a company.

Read more: Share market timings

To correctly understand how share market works in India, it is important to know about the participants in the share market. The Stock Exchange Board of India (SEBI), stock exchanges, publicly listed companies, traders, investors, brokers—they are all participants in the share market. Each one is connected with the other, either directly or indirectly.

In general, there are two types of share markets:

Primary market: Here, companies create new securities and offer them to the public. So, the transaction is between issuers and buyers. Secondary market: In the secondary market, you may buy and sell shares that are issued in a primary market. The transaction takes place between sellers and buyers. Now, it is time to understand the roles played by different participants in the share market.

Read more: How to trade in the stock market for beginners

  • Stock exchange and SEBI:

The stock exchange is the platform where equities are traded. Before trading, publicly listed companies, brokers, traders, and investors must be registered with SEBI and the stock exchange. SEBI is the regulatory body for the securities market in India. The stock exchange does not transact directly with investors. The broker acts as an intermediary between them.

  • Publicly listed companies:

The issuing company submits a draft offer document to SEBI to get approval for its public offering. The documentation consists of information about the company, like price band, shares being diluted, and many other details. Upon receiving approval, the company offers its shares to investors and brokers through an initial public offering (IPO) on the primary market. The price of the IPO is decided based on the company’s worth and the issued number of shares. Through the IPO, the company raises funds for further growth. Shares are allotted to almost all the investors who participated in the bidding. At this point, one part of trading is completed. The other part takes place in the secondary market.

  • Traders and investors:

The allotted shares are now ready for listing on the secondary market. You as a buyer or seller may now participate in investment or trading. The initial investors have a chance here to exit if they want. At the same time, the investors who missed the opportunity on the IPO may participate in investment.

  • Brokers:

The broker is a professional organisation or individual who executes buy or sell orders on behalf of the investor. On receiving the instruction from the client, the broker places the order on the share market. The stock exchange sends a confirmation to the broker which is then conveyed to the client. A brokerage fee is applied to the transactions.

Read more: What is IPO in the share market?

The following are minimum requirements to invest in the stock market.

1. Savings account:

Having a savings account is essential. That is the primary source of money you will use to invest in the stock market.

2. Documents:

Keep your PAN and Aadhaar cards ready before you start stock market investments. These are your mandatory documents for buying or selling stocks.

3. Demat account:

To start investing and trading, you must have a demat account. The demat account lets you link your savings account with it. It keeps track of your equity transactions electronically.

Once you fulfil the above steps, you are ready to start investing. The following tips could help you to be successful: **Investment term:**Have a clear idea about your requirements and your limitations. A long-term investment keeps you from paying short-term capital gains tax. So, decide whether to proceed with a long-term investment or to keep it short term. Research: Study the market, read investment-related books or websites, and seek the help of experts to choose the right stocks. **Portfolio management:**Different factors make the share market volatile. So, stay updated by gathering the latest information about the company in which you have invested.

Read more: Difference between stock market and share market

Conclusion

Any share market investment has a huge potential for growth. But you must beware of the volatility, which is an inherent feature of the stock market. Having the right knowledge can help you to navigate the ups and downs of share trading and investment. Open a demat account today to start your journey.

Read more: Share market holidays

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