What is Share Market? – The Complete Guide

The Indian share market is the 11th largest in the world by market capitalization. India has seen significant growth over the years, with close to 5,500 listed companies. The share market or the stock market, is an important component of any financial system and provides individuals the opportunity to invest in companies and earn profits. The performance of the share market often indicates how strong the economy of a country is. Having understood the importance of the stock market, let’s take a close look and understand what is the share market.

Share Market Meaning

The share market, also referred to as the stock market or equity market is a place where investors can buy and sell shares. It’s a platform where companies list their shares to be bought and sold by both individual investors as well as institutional traders.

Investing in the stock market is more rewarding in terms of higher returns than those found in more traditional investments such as savings accounts or bonds. However, every coin has two sides, in addition to the benefits, it also carries risks associated with its volatility. So it’s important for investors to understand both the risks involved and how to reduce them before investing any money into the share markets.

Types of Share Markets

There are primarily two types of share markets. Let’s have a look at them:

The Primary Market

This is the place where companies issue new stocks and securities to the public for the first time. This can be done through a variety of methods such as initial public offerings (IPOs), or private placements. These stocks and securities are bought directly from the issuing company. In this market, investors have the opportunity to buy shares at their face value or offer price before they begin trading on secondary exchanges.

The Secondary Market

This is where existing stocks are traded between investors after they have been issued by a company in the primary market. Popular stock exchanges like NASDAQ, NYSE, London Stock Exchange (LSE), Tokyo Stock Exchange (TSE), and more that provide liquidity for previously issued publicly-traded stocks and bonds are part of the secondary market. The prices of these assets fluctuate based on supply and demand from traders who actively participate in buying and selling them; so there’s always potential for profit when investing in this type of share market.

Thus, primary markets focus more on individual investments into newly issued shares without much volatility due to a lack of trading activity whereas secondary markets provide greater liquidity due to higher volumes of buyers/sellers being active participants all at once – creating opportunities for larger profits but also higher risks associated with price fluctuations.

You can learn more about the share market and how to trade in the share market by pursuing a course on stock market.

What is Traded on the Share Market?

Following is a list of the most commonly traded commodities in the share market:

 Shares

These are the most common type of commodities traded on the share market. The value of shares can rise or dip depending on how well a company performs. Thus, careful monitoring is needed before investing. Someone who owns the majority share of a company also holds ownership of that company.

Bonds

Bonds are a type of debt that you grant to the issuer for which you get interest. Your money, principal, and interest are returned by the bond’s issuer when it matures.  Bonds usually have fixed terms and interest rates that remain constant over time, unlike stocks which may fluctuate due to diverse market conditions. Investing in bonds specifically provides steady returns but does not offer potential gains like stocks do.

Mutual Funds

These are collections of investments such as stocks, bonds, or other securities owned by a group of individuals who pool their money together to invest collectively. Mutual funds let individuals with limited resources diversify their portfolios without having to buy each individual asset independently, however, fees associated with these types of investments should be taken into consideration when making your decision about whether or not they’re appropriate for you.

Debentures

These are debt instruments issued by companies that are repayable after a certain period. They provide creditors with regular income stream returns paid out during the instrument’s lifetime before finally receiving back the full amount invested once the bond’s maturity date arrives.

What are Sensex and Nifty?

Sensex and Nifty are two of the most important stock market indices in India.  The Sensex lists the 30 largest stocks of the Indian economy. It reflects the performance of the listed companies and provides investors with an overall view of how their investments are performing.

Nifty maintains a record and measures the movements in 50 large publicly traded companies across various sectors in India’s equity market. It is composed of blue chip stocks from multiple industries to provide a broad overview of stock price movements within an industry or sector.

Both indices have become extremely essential and serve as important reference points for calculating and evaluating financial performance and investment decisions for individuals and institutional investors alike. By tracking changes in both indices, traders can gain valuable insights into different aspects such as trends or economic factors impacting Indian markets at any given point in time which helps them make informed decisions and make choices about where to invest their money.

What is SEBI and Its Role?

The Securities and Exchange Board of India (SEBI) is the principal regulator of the Indian financial markets. It was established in 1988. It has been given statutory powers through the SEBI Act 1992 to regulate and develop stock markets and protect investors’ interests, encourage fair practices, and prevent fraudulent activities.

SEBI’s main mission is to provide a safe and secure environment for investments while promoting fair stock market practices in India. To achieve this goal, SEBI regularly updates its regulations on various aspects such as margin funding rules for stock brokers/traders or guidelines on mutual fund investments.

SEBI as a market regulator takes foresighted measures like formulating policies for listed companies and undertaking investigations into suspicious trading activities. This not only helps safeguard investors’ funds but also boosts confidence among them so they can participate more actively in the markets knowing their money will remain safe no matter what. 

How to Trade in Share Market

Follow the below-mentioned steps to start investing.

• The first step is to open a Demat and trading account. This is a compulsory step.
• After successful verification of the documents provided by you, your account will be opened and you’re good to go.
• You can choose a suitable platform that is convenient for you and start buying and selling the shares.
• Make sure you have funds in your account to buy those shares.
• Select a price at which you wish to buy and sell shares. 
• Wait for your request to be processed.
• Once the transaction is done, you will either receive stocks or money depending on if you’ve bought or sold.

Things to Keep in Mind Before Investing

You should have a fair understanding of how the share market works and the following points before you enter the share market: 

• Choose the right type of share- This is definitely the most important part of investing in stocks. As a beginner, one should do thorough research on the shares before actually investing in them.
• Invest in common shares – Common types of shares include blue-chip stocks, mid-caps, small-caps, growth stocks, value stocks, and income stocks.
• Conduct thorough research – After selecting their desired share type, the investor should conduct thorough research about the companies that are within their chosen criteria. This can be done by studying annual reports or other financial documents to get a better hang of the company’s performance over time. 
• Stay up to date with the market – Investors should constantly look for news about mergers or acquisitions which might indicate potential for future growth. They may also want to consider management changes or any legal issues that could affect the company’s operations going forward.
• Create a diverse portfolio – Creating a diversified portfolio is another important step in a successful share market investment. A diversified portfolio helps to reduce the overall risk by including different types of investments with varying levels of return expectations; this way if one stock performs poorly there are still others which will help cushion losses whilst providing potential opportunities for gains elsewhere in the portfolio. 

It’s recommended to invest in both domestic and international securities as well as bonds, commodities, real estate funds, etc. so that your investments are not dependent on one particular sector performing well at all times but rather spread out across several areas. Thus, giving you more stability just in case there is suddenly a decline in a sector due to unforeseen reasons.

Conclusion

The stock market offers numerous benefits to investors, including the potential for high returns and diversification. Knowing about what is share market and investing in stocks can be an effective way to build wealth over time, as long-term investments tend to produce higher returns than short-term ones.