Navigating Indian Securities Markets Fundamentals:
Welcome to NSDL पाठशाला, your go-to free knowledge source for comprehensive and open stock market and financial education. In a world where financial literacy is crucial, NSDL पाठशाला will help you learn the basics of the stock market, why you should invest and who are different financial intermediaries. NSDL is committed to breaking down barriers to knowledge and providing accessible financial education for everyone. There won’t be any complicated jargon, just straightforward information to help you understand Indian securities markets.
Q1. What is a Stock Market?
In simple words, the stock market is a place where you can buy and sell securities. The main purpose of the stock market is to help the buyer and seller of securities meet. It serves as a platform for companies to raise money and individuals and institutions buy and sell ownership shares in publicly listed companies.
Q2: Why do Investors Buy Shares?
Well, buying shares of a company provides investors with a share of ownership in that company. If the company performs well, the share price is likely to increase, allowing investors to make a profit when they sell them. Additionally, some companies distribute a portion of their profits to shareholders in the form of dividends. This could be another source of income for shareholders. However, it's important to note that if the company underperforms, the value of your stock may decrease, posing a risk to the investment.
Q3: Is the Stock Market and Stock Exchange the Same?
Stock market is the entire ecosystem of buying and selling shares and other financial instruments. It reflects the combined activities of different market participants. On the other hand, stock exchange is a regulated marketplace where securities are listed and traded. It’s a platform where buyers and sellers come together and execute trades. In India, stock exchanges are run as per the regulatory standards set by SEBI.
- Bombay Stock Exchange (BSE)
- National Stock Exchange (NSE)
Q4. How Can I Buy Shares on the Stock Exchange?
Shares are listed and traded on exchanges. However, you need the services of an intermediary to buy them. To facilitate your transaction, you need to deal with a SEBI registered broker.
Q5. What is the Role of a Stockbroker?
This intermediary is authorised to buy and sell shares and other securities based on the investors instructions. . They charge fees or commissions for their services. In India, stockbrokers need to be registered with SEBI.
Q6. Why do Stock Prices Fluctuate?
- Company performance
- News and global events
- Economic indicators
- Market sentiment
- Industry trends
- Interest rates
- Regulatory changes
- Corporate actions
- Technological advances
- Natural disasters
- Market supply and demand mismatch
Q7. What Happens After You Own a Share?
- Voting Rights: Depending on the type of shares you own (common or preferred), you may have the right to vote on certain resolutions of the company.
- Capital Gains or Losses: The price of your stock can change based on market conditions and the performance of the company.
- Decision-making Influence: You may have the opportunity to participate in major corporate decisions, such as mergers and acquisitions or changes to the company's charter.
- Company Updates: You will receive regular updates and reports from the company, including annual reports and financial statements.
- Corporate Actions: Stock splits, reverse splits, stock buybacks and merger and acquisitions are some corporate actions that affect the price of your stocks.
Q8. How are Stocks Traded on Stock Exchanges?
Investors access stock markets through a SEBI registered stockbroker electronically. However, there are various market intermediaries within the stock markets who play important roles in executing trade transactions. Here’s the stepwise process that explains the working of different entities:
Step 1: Investors Initiate Trade Through Stockbroker: Investors start the stock trading process by placing buy or sell orders through their stockbroker.
Step 2: Order Placement: Once the order is placed, the stockbroker matches buy and sell orders. It is at this stage that the trade takes place.
Step 3: Clearing: After execution, the Clearing Member steps in to ensure trade settlement. Clearing involves verifying trade details and ensuring both parties have the necessary resources.
Step 4: Settlement: Settlement follows, involving the actual transfer of ownership and funds to complete the transaction. After the settlement, the investor's stock ownership information is updated in the depository system such as NSDL. Depositories keep a centralised record of all stock ownership changes.
Q9. How to Calculate Returns?
Returns on an investment can be calculated using the formula:
Return = (Current Value−Initial Investment)×100
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Initial investment
Let's say you invested Rs. 10,000 in a stock, and after one year, the value of your investment increased to Rs. 11, 200.
Using the formula, in this example, your return on investment is 12%. This means that your investment has appreciated by 12%.
Q10. Are Investors the Same?
Often the words investors are used interchangeably. But there are some fundamental differences. Investors typically hold stocks share for an extended period, embodying a long-term approach. On the other hand, a trader is more responsive to the market's fluctuations. The trader prefers short-term investment and aims to gain from price fluctuations.
Q11. What are the Different Types of Investors?
- Growth Investors: These investors seek opportunities in industries or markets experiencing rapid expansion, often driven by the development of new technologies and services.
- Value Investors: These investors look for stocks that they believe are undervalued due to, say short term market sentiment. They identify strong companies, regardless of their growth or maturity phase, that have experienced significant declines in their stock prices. Their aim is to capitalise on the market's short-term pessimism, ultimately selling the stocks once the price goes up.