How To Select Shares To Buy In India?

What is the share market?

The share market is  a platform where buyers and sellers alike together trade on public  shares during certain specified time periods of the day. People often use the terms ‘stock market’ and ‘share market’ alternately.

However, the main difference between the two is in the fact that while the former is used for trading only in shares, the latter allows the user to trade into various financial securities such as bonds, derivatives, forex etc.

The primary stock exchanges in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Types of Shares

Primary Share Markets

When a company at its rooting stage registers itself for the very first time at the stock exchange to raise its funds through shares, it enters the primary market. This procedure is called an Initial Public Offering (IPO), after this step the company becomes registered into the share market and its shares are then eligible for public trading within participants of the market.

Secondary Market

Once a company’s newly displayed securities have been sold in the primary market for the very first time, these are then traded on the secondary stock market. At this juncture the investors get the opportunity to buy and sell the shares among themselves at the prevailing market prices. Investors carry out these transactions with the help of brokers or other intermediaries who can facilitate this process.

The question now arises as to what is traded in the share market, there are four financial instruments that are primarily traded in the share market, these are as follows:

1. Shares: By share we mean and represent a unit of equity ownership in a particular company. Shareholders are entitled and guaranteed to any profits that the company may earn in the form of dividends. They also have to incur any losses that the company may face during its business transactions.
2. Mutual Funds: Professionally managed funds that gather the investments of a multitude of investors and then set out to invest the collective capital into various financial securities, one can find mutual funds for a variety of financial instruments like equity, debt, or hybrid funds, to name a few.
3. Derivatives: A security that derives its value from an underlying security is called a derivative. This includes a wide variety of shares, bonds, currency, commodities and many more. Buyers and sellers who deal with derivatives have ideas of opposing expectations of the price of an asset, and due to this, enter into a “betting contract” with relation to the future price of the product.
4. Bonds: To invest in long term and profitable projects, a company requires a substantial amount of capital. One easy way to raise capital is to issue bonds to the public sector. These bonds are equivalent and represent a loan taken by the company. The bondholders become the creditors of the company and receive timely interest payouts in. For the bondholders, these bonds act as fixed income streams, where they receive interest on their investment and also as their invested amount at the end of the specified period.

Invest money in share market

In recent times and these volatile and fast-moving financial markets, investing in stocks is considered as one of the best ways to generate long term income and a steady flow of finances. With a strategic investment plan, any investor can achieve their long-term financial goals by investing in the stock market.

There are many benefits to investing money in the share market. It gives the investor a steady flow of income.

Capital Growth:

Selling a share for more money than one paid for it is known as Capital Gain. This happens when an individual has a significant rise in share prices and this is one of the long-term objectives of investing in shares.

Liquidity

Naturally and intrinsically, listed shares are a very liquid product and can be bought and sold quickly and seamlessly over a share exchange platform. There arises no hassle of consulting a broker or a middleman and also at a relatively low cost as compared to other financial products. Trading in an exchange also allows an individual to sell part of the share pockets rather than redeeming the whole lot.

Shareholder Benefits

Some companies which are listed in the share market from different market sectors like retail, hospitality, entertainment and financial services offer luxurious discounts to shareholders when they buy goods or services from the companies. However, this comes with a catch, in most scenarios, a huge amount of shares need to be owned to qualify for these benefits.

Dividends

Dividend is a cash reward given out to shareholders as part of the profit made by the company at the end of each financial year.