Stock Market Investing- Basics & Requirements

Introduction

Investment has always been one of the big questions that no one can answer with a definite certainty. We all try and save at least 15-20% of our monthly income, but we never really know what to do with it. Banking Interests although provide a risk free return on your savings, but they have never been a satisfying mode of investment due to a smaller return percentage. This has led to an increase in the amount of Stock Market Investments across the globe. As of December 31, 2019; the world market capitalization of all stocks worldwide was approximately US$70.75 trillion.

Today, we will try and answer some of the more basic questions relating to Stock Market Investments.

 

What is Stock Market?

A Stock Market just like any other market is a place to buy and sell. The only difference between a stock market and any other market is that here you do not buy fruits & vegetables but instead you buy and sell shares and other securities such as Bonds, Mutual Funds etc.

 

What are the requirements to invest in Stock Market?

1. Bank Account- The very first thing you are going to need is a bank account. This will be linked to your trading account in order for you to transfer funds.
2. Broker- Broker acts an intermediary between the stock exchange and the investor. You can only buy or sell securities in the market with the help of a broker. A broker facilitates the trading between the buyer and the seller.
3. Demat Account- Once you have decided on your broker, you must open a demat account. A demat account just like a bank account is responsible for holding securities in the electronic form that you purchase. In India NSDL and CDSL are the two depositories responsible for performing this task.
4. Start Investing- Once you have an operational demat account, you will get a login ID and Password for your trading platform with the help of which you can start investing.

 

What is a stock exchange?

A stock exchange or share market is an organization that provides facilities to traders to buy and sell securities. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.

Two of the biggest stock exchanges in India are:

1. The Bombay Stock Exchange Limited, or BSE– BSE has a nation-wide reach with a presence in 417 cities and towns of India. Its index, or market indicator is known as the Sensex. It gives a general idea regarding the movement of the stocks; whether they have gone up or have gone down. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up.

 

2. National Stock Exchange of India or NSE– The S&P CNX Nifty, or simply Nifty is the leading index for large companies on the National Stock Exchange of India. It consists of 50 companies representing 24 sectors of the economy, and representing approximately 47% of the traded value of all stocks on the National Stock Exchange of India.

 

What is a depository?

Depository is a detailed concept that needs to be elaborated. Please follow the link below

Depository and Depository Participants- Meaning, Benefits and Services