START INVESTING IN STOCKS, A BEGINNERS GUIDE

ROOTS OF SHARE MARKET

When I ask you about the return you expect from your investment, your answer might be 10%, 20%, 30% or some might rarely say 50%. What if I say you should expect 5000% return or even 10,000% return? Most probably you would say this is impractical or impossible. But you are wrong. You can actually earn a massive 3 digit return or even a 4 digit return. But how it is possible? Well, if you are thinking about risk free investments, you are going in a wrong direction. If you want such humongous returns risk is compulsory.

Let us start learning about risky investments, an enthusiastic and adventurous journey towards massive 3 digit return.

SHARES

In order to understand what shares are, we firstly need to understand how a company raises funds in order to run its business.

A company in order to start or grow its business can raise money from following major sources:

1. Loan from a Bank.
2. Loan from Public also known as debentures(we will learn about debentures in next articles)
3. Loan from friends and relatives technically called as private placement.
4. Issue of SHARES.

Let us understand with an example about shares:

E.g. ACC Cements is a company and it wants to raise money to run its business. Company decides to raise funds through issue of shares. Now you can give your money to company and you will now become the owner of the company. Yes! you are now the owner of the company.

What you will get if you invest in shares?

• OWNERSHIP: You will become the owner of the company.

• REGULAR INCOME:When company make any profit you would get part of such profits in proportion to your investments, this income is known as dividend in technical terms.

• CAPITAL GAINS:You can sell your shares in market at current prevailing price and the profit you get out of selling them are known as “Capital Gains”.

• DECISION MAKER:You have to take part in major decision of company by attending the meetings called as Annual General meetings(AGM).
• And much more other benefits which we will discuss later on.

In order to understand in depth about shares we need to know “How a company issue shares”.

• Firstly a company decides how much amount it wants to raise and breakdowns the amount it wants to raise into pieces or parts and each such part or piece is known as “SHARE”.

E.g.: Company wants to raise Rs.1, 00, 00, 000.Now it will break the amount into pieces, let’s say 100000 pieces or shares and value of each piece or share is Rs.100 (100000 shares x Rs.100 each=Rs.1, 00, 00, 000)

(Note:The number of shares and its price at the time of issue depend on company itself.)

• Now you can purchase any number of shares you want to purchase according to money you have.

E.g. You want to invest Rs.1000. You will get 10 shares of 100 each. (10 shares x Rs.100 each =Rs.1000)

FACT:

When a company raises fund for the first time through issue of shares is called an Initial public offer (IPO).

Platform for buying and selling shares

Well it is just like you buy anything from a supermarket. Similarly a company also sells shares in a market. Now these markets are of 2 types:

A)  PRIMARY MARKET

When a “company” raises funds from “public” through shares, it sells such shares in primary market. In other words if you want to purchase shares directly from company you have to purchase them from primary market.

B) SECONDARY MARKET

Once all the shares are sold to public a company registers itself with secondary market this process is known as LISTING. In secondary market, person who purchased the shares from primary market can sell such shares any time to some another person. This market is also known as “Second hand market” because you are selling shares you already hold to some other person.

Let us understand primary and secondary market with an example;

E.g. ACC cements issued shares to raise funds. You can invest in shares by purchasing them in primary market. Now suppose you want to sell your shares and get your money back, you can easily sell those shares in secondary market to some other person who wants to purchase shares.

Are these markets physical?

Answer is NO; these markets are no more physical markets. Earlier these markets used to be physical market like a supermarket, but with advancement of technology you can access these markets through your smartphones in the similar way you buy anything from an online shopping site.

To summarize, shares are like broken pieces of the amount a company wants to raise to run its business and each share has a certain value. You can share any number of shares according to money you have. When a company announces IPO you purchase shares from primary market and if you want to sell your shares you can sell them only in secondary market to some other investor.It is well said that:

"DESIRE" changes nothing, "DECISION" changes something.But "DETERMINATION" changes everything....

Thanks for reading.If you haven't read my previous articles link in down below.

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