Introduction to Stock Market

Need to Invest

Everyone worries about what future might hold for them. People invest to secure their future. Investments are useful in old age or a critical time of need.

Value of money depreciates year on year that is know as Inflation. In simpler terms same packet of milk that you have bought for 14 INR two months ago is now 16 INR. It has become more expensive or commodity remained same but the value of money depreciated.

Every investments has different returns which is proportional to risk associated with the investment. We can broadly divide investments in 4 categories.

  1. Equity : Highest return and high risks as well. Ex : US Stock Exchange, National Stock Exchange (NSE), Bombay Stock Exchange (BSE), etc.
  2. Real Estate : Quite good return and little risk, but a huge problem of liquidity and outlay cash required for Investments. Ex : Apartments, Flats and Agricultural Lands.
  3. Commodity : little return and negligible risk, very good liquidity. Ex : gold, silver bonds.
  4. Fixed Income Instruments : negligible return, effectively losing money. Ex : FDs, Bonds by Govt. or related agencies like HUDCO, NHAI. Corporate bonds.

Amount of risk an individual can take directly depends on their age, At younger age (<30), A person should do high risk investments in his portfolio and should slowly diversify and move his portfolio towards with more safe investments during his retirement.

Regulators

How do we invest in stock markets ? Who enables, verifies and secures the transactions and the rights of those who are investing in markets ?

Stock Markets are made up by Stock Exchanges. They are Bombay Stock Exchange and National Stock Exchange. There are other exchanges but they really don’t contribute much in market.

Stock Market Participants

  • Domestic Retail Participants : These are people like you and me in market.
  • NRI’s and OCIs : These are indians but based outside of India
  • Domestic Institutions : Large corporate entities based in India like LIC.
  • Domestic Asset Management Companies : these are mutual fund companies such as SBI Mutual Funds, DSP Black Rock, Fidelity Investments, HDFC AMCs, etc
  • Foreign Institutional Investors : Non-indian corporate entities. For e.g. Foreign AMC, Hedge Funds, or other investors.

Remember Irrespective of the category of Market Participant, Everyone’s agenda is to make MONEY :P

When money is involved, human emotion run high in form of greed, fear, persuation and scams. One can easily fall pray to such practices and to ensure the rights of everyone we have SEBI.

Security and Exchange Board of India (SEBI), ensure :

  • Stock exchanges conducts its business fairly.
  • Stock Brockers and sub-brokers conduct business fairly
  • Corporate don’t use markets to dully benefit themselves
  • Large Investors with huge cash pile should not manipulate markets.