When the profits of the company are not enough to meet the needs of working capital, the companies invite normal people to put their money in the company through the share market. It helps the company to run efficiently, while the investors get a profit share. And this answers the question of what is share market.
But that’s not all you need to know! Here are a few basic facts you need to know before considering how to invest in share market.
What Exactly Are Shares?
Share offers a way for an investor to own a portion of the value of the company. Based on the capital that is invested, an investor gets the ownership rights to a particular percentage in that company. So, suppose an investor owns three percent of the market-traded shares; they have three percent of company ownership.
Thus, shares are like the units of ownership in a company and the financial assets it owns. Shares are also called scrip, equity, or stocks, and you become a shareholder of that company after purchasing it.
The Reasons Why A Company Needs Shares
A company needs more capital when it’s expanding the business and scaling up. During this time, a company tries to get into the stock market and offer a particular number of stocks as per its market valuation. The investors purchase these stocks in exchange for money to become part owners of the company.
Therefore, when the share values of the company rise in the market, the value of the shares held by the investors increases in tandem. But don’t confuse shareholders with creditors who lend money to the company. Shareholders are more like partners in a company.
The Way Of Listing The Shares By A Company
IPO (Initial Public Offering) is a crucial aspect of the share market basics. So the first time the shares of a company are offered to the public, it’s known as an IPO.
Sebi (Securities and Exchange Board of India), the securities market regulator in India, has a couple of regulations in place to let a company list the IPO on stock exchanges. They need to adhere to these rules to be allowed to list their shares.
How To Make Money In The Share Market
You basically purchase shares at a low price and sell them at a higher price to earn capital gains. And, there are 2 ways for you to do this:
Stock traders purchase and sell shares in one trading session. They use technical assessments to figure out the profitable stocks and aim for quick and short gains.
Stock investors keep the money in a stock for years to allow the returns to compound over a period. They use fundamental assessments based on a company’s growth trajectory.
Hopefully, you have a basic idea about the share market and its ways by now. Going ahead, make sure you get yourself as much informed as possible before opening your Demat and trading account to start investing.