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BEGINNER INTERMEDIATE ADVANCED

Share market basics CHAPTERS

Ever wondered what are shares and share markets all about? Let’s learn share market basics in this section. Each and every one of
us has de ned goals in life and have time limits by which we have to attain these goals. For example, you may plan to study
abroad, buy a car, build a home, etc. To achieve these, you need to have a proper nancial planning. By this, I mean investing has
to become your habit. Financial assets or share markets provide high returns and so start investing at a young age and do it
regularly for a long period of time.

You can invest in the share market for short term or long term depending on your needs. Based on your risk appetite, age and
dependency, you can be a trader or investor in the share market. As markets are always associated with risk, you have to read
carefully. The various investment options in the Indian share market today are equity, mutual funds, SIP, IPO, bonds, debentures,
derivatives, commodity, currency, etc.

How to invest in share market?

Demat and Trading Accounts:
So what you have to do to invest in the share market? Firstly, open a demat and trading account online with a broker and link your
bank account with that. Opening demat account is a very simple and easy process. Once you have your demat and trading
account, you can start investing in the Indian share market. It’s essential for you to be familiar with the stock exchanges and their
functions. Stock exchange is where buying and selling of shares take place. The stock exchanges are regulated by SEBI (Securities
and Exchange Board of India). The 2 important stock exchanges of India are NSE (National Stock Exchange) and BSE (Bombay
Stock Exchange).

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 As per your goals, choose the particular nancial asset for investment. Indian share market
(https://www.karvyonline.com/markets/share-market/) is the one stop destination for all your needs. If you are more concerned
about regular income and preservation of capital, you can opt for debt instruments likes bonds. If you want capital appreciation
and willing to take risk, equity is the one for you. Before you invest in a share, do a complete study of the company, its nancials,
future prospects of growth, etc. Below is what you have to do to achieve your goals:

De ne your life goals

Learn about nancial assets

Choose the respective asset as per your need

Start investing regularly

Ful ll your goals

Hope you have got a basic idea of share market and so now it’s time to understand the different nancial instruments.

Types of Stocks to Invest in Share Market

When you buy a share, you can be a common shareholder or preferred shareholder on the basis of ownership.

As a common shareholder, you are permitted to vote in shareholder meetings and you are eligible to receive dividends. If the
company where you have invested goes bankrupt, you will receive the share of proceeds of liquidation only after all creditors and
preferred shareholders have been paid.

As a preferred shareholder, you may not have voting rights. But you will get dividends before common shareholder receives it.

On the basis of market capitalization, you can invest in large cap, mid cap and small cap stocks. Market capitalization = share
price*number of shares outstanding

Outstanding shares are the shares that can be bought and sold in public markets. I will explain this with an example. Say a
company A has 100 outstanding shares and the share price is Rs. 20, then market capitalization of the company will be 20*100=Rs.
2000

Large cap stocks:

These companies are well established and have a strong presence in the market. Companies like TCS, Infosys and Wipro fall under
this category. Investing in these companies are less risky.

Mid cap stocks:

These companies have the potential to grow big and are relatively riskier compared to the large cap companies.

Small cap stocks:

Start ups fall under this category and are highly risky compared to the above two. On the upside, they can become a runaway
success overnight.

The next essential aspect you should know is IPO (Initial Public Offer). A company raises money from public through IPO. It sells its
shares so as to bring in capital for its future development. Your yield is high when you invest in a share due to the power of
compounding. In simple terms, the price of share you hold today may be Rs. 100, it can double or triple if you hold the share for a
long time.

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 Key Financial Instruments Traded in
Stock Market
Shares/ Equity:
Equities or stocks or shares give you ownership of a company. You can buy or sell
shares through a broker.

Mutual funds:
Here, the money is pooled from many investors and then invested in various
nancial instruments. Investors are referred to as unit holders. Pro t generated is
distributed to unit holders in proportion to the units held by them.

Bonds:
These are xed income instruments also known as debt instruments by which government or a company borrows money from
investors at an agreed interest rate for a speci c tenure. These are less risky when compared to shares.

Derivatives:
A derivative is a nancial contract whose value is derived from an underlying asset. It can be used to mitigate a number of risks.
Derivatives include forward, futures, options and swaps.

Share market tips

Its always better to do your own research before investing.

Its not wise to take decision based on rumours.

Monitor your investments regularly so that you can eliminate the loss making stocks.

Patience is very essential for any investor.

Take the help of research experts also before making an investment move.

Always be updated with share market news.

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