Instead of keeping all your money in the bank, it is generally a wise idea and a healthy practice to invest your money and let it grow over time. Earlier, when one thought of investing, they would prefer investing in fixed deposits and real estate. However, today the stock market is probably the best place to help you compound your wealth. But at the same time, investing in the stock market also comes with some risks. Hence, as a beginner, you should only focus on learning the fundamentals first. Later on, you can explore more advanced topics like how to do intraday trading and derivatives.
What are Equity Shares?
When you think of investing in the stock market, you are likely thinking of buying a few shares or stocks of a few companies. But have you ever wondered what are stocks and shares, and what decides their value? Equity shares, commonly referred to as shares or stocks, are tradable units or documents that indicate your ownership of a company. In the past, a company’s investors traditionally would get physical share documents to validate their status as shareholders. However, today the investing system has digitally transformed, so shares exist in the electronic format.
The value or price of a share depends on how analysts and investors perceive the company’s future earnings growth. If analysts and investors expect a company to expand its operations and grow its profits, the demand to own the shares of that company increases. Conversely, when there is a negative perception of the future earnings, or if the company starts showing signs of degrowth, owning the specific company’s shares is not lucrative anymore. In the second scenario, there is an excess of supply and the share, and the price drops as more investors continue to sell the shares. On the other hand, in the former case, where the demand exceeds the supply, the share price will increase.
How to invest in shares?
So if you plan on investing in some equity shares, you will first require the tools that allow you to invest in the stock market. To begin your investing journey, you must open a Demat account and a trading account. Your Demat account functions as a safe to store your electronic shares, and the trading account lets you make buying and selling transactions. You can open a Demat account and a trading account online by approaching a SEBI licensed stockbroker. Now, after opening the above mentioned accounts, there are two ways of investing in equity shares.
Investing in Equity Shares Through an IPO
The first way to invest in equity shares is to bid for shares in the primary share market, where equity shares are created. You may have come across the term IPO or as the term is all over in the news lately. When you invest in an IPO, you invest in the primary share market. That is because an IPO or an initial public offering is the process of offering shares of a company to the public for the first time.
Investors may apply for an IPO, and if the demand exceeds the supply, a system similar to a lucky draw decides the share allocation. If an IPO is open for subscription, you can apply for it by logging in with your trading account and selecting the IPO tab. After submitting a bid for the IPO, you permit your bank to block funds. If you get the IPO shares, the money goes to the company, and the shares will appear in your Demat account.
Investing in Equity Shares Trading on The Exchange
Following the allotment of an IPO, the company’s shares will be listed on the stock exchanges like the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). Once the company has been listed on an exchange, you can buy its shares, provided you have a trading account. You place your order by logging into your trading account and selecting the share you wish to buy. Set the price and quantity, ensure you have the requisite funds, and place your order. Your order is sent to the exchange, and if it is successful, the shares will appear in your Demat. Likewise, for selling shares, you place a sell order.
Now that you what are stocks and shares should open a Demat account and start investing. No, before you invest, you must do your due diligence and research well before you invest in any company. First, learn to analyze a stock fundamentally, then build your technical skills and then you can consider learning about derivatives and how to do intraday trading.