There is alot of news on people making money from share market. While many people might not know how can we make money from share market, I have tried to point out 3 benefits of share market in this article, starting with the basic concepts of share/stock market.
Market:
A place where buying and selling of any goods or services takes place, is known as market. Buying and selling takes place when buyer and seller agree on a certain price level.
Share:
Share is simply a small portion of a company's total capital.
Share holder's:
Any individual or institution that have shares of a company are known as share holders of that respective company.
Share Market:
Share market is a place where buying and selling of shares take place. Share prices are determined by demand and supply of shares of a company.
(Buying and selling of shares of a company becomes successful at a price agreed by both buyer and seller)
* We all are free to choose price in which we are willing to buy or sell shares of any company. (Prices are effected by various factors)
Types of Shares:
There are many types of shares such as primary share (IPO), secondary share, local share, right share, bonus share, etc.
In General, there are two types of shares:
1. Primary Shares (IPO):
Primary Shares, commonly known as IPO (Initial Public Offering), are those shares that are directly issued by a company to the public. A company issues primary shares to increase its capital.
* Certain portion of such issues are separated for employees, mutual funds, etc. Remaining are issued to general public.
* General public can apply to issued shares directly from Mero Share app (online), or, can visit bank and fill up the form to apply for primary issues.
* If applied shares are alloted, then company takes the money and gives shares of a company in return.
* Generally, per share price of primary shares (IPO) is Rs. 100. Whyce of primary shares (IPO) is Rs. 100.
2. Secondary Shares:
Those shares that are trades among investors at agreed price is known as Secondary Shares. Primary Shares are traded later as secondary shares among investors.
* Secondary shares are bought and sold among investors.
* Investors are free to choose any share they want to buy/sell at given price.
* Investors can bargain price of secondary shares.
* Investors can buy/sell shares at market price. Or, hold until they meet their expected price to buy/sell shares.
* Secondary shares can be bought/sold from brokers. Also, we can easily buy/sell shares from TMS (Trade Management System), an online platform.
* Buying low and selling high can make good profit for investors.
Why Share Market?
1. Capital Gain:
Capital gain simply means the increase of per share price of any company from the price you bought the share. It is the difference between the price you bought share and the current price of the share.
For example:
You bought 10 shares of ABC Company @Rs. 100 each.
Now, the current value of shares of ABC Company is Rs. 400 per share.
Here, the difference of Rs. 300 is capital gain for share holders.
(Note: Investors might face capital loss as well)
In long run, usually share market outperforms the market price, so it's worthy to have share for long period of time.
2. Cash Dividend:
After the end of every fiscal year, companies distribute dividend from companies total profit during previous fiscal year.
For example:
ABC company proposes cash dividend of 10% from previous year's profit.
Then, any shareholder who holds the share of ABC company upto the book closure date will get 10% cash dividend deposited into his/her bank account.
*Book closure is the date when company will have a meeting to finalize the dividend of the company.
3. Bonus Shares:
Companies might choose to provide bonus shares to the existing share holders of the company, instead of distributing cash dividend. Bonus shares are also distributed from the profit earned from previous fiscal year.
For example:
ABC company proposes 10% bonus shares from previous year's profit.
Then, shareholders holding share upto book closure date will get 10% bonus on existing holding unit, and bonus shares will be deposited into their dmat account.
(If you have 10 shares of ABC company, you will get 1 bonus shares. Now, you will have total 11 shares of ABC company)
*Bonus shares can be easily traded in secondary market.
Hence, these are three basic advantages of share market. Investing wisely in share market is worthy for everyone in long run.
Share Market can make you money. Also, it can take your money. Investors should analayze well beofre making any decisions in share market.
Compounding is the key.
Sanjok Thapa
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