What is the Stock Market and how to invest money in the Stock Market in 2021?

The Stock Exchange is a place where various types of securities are purchased and sold. The term securities include equity shares, preferred stock, debentures, government securities, and bonds, etc. including units of Mutual Funds. Stock exchanges act as intermediaries between investors and borrowers.

What is the Stock Market?

A Stock Market is an important constituent of the capital market. It is a neighborhood of the financial market where corporate securities are bought and sold. It is an organized Capital market where second-hand securities are bought and sold for investment and speculation purposes. Only listed Securities are often traded on a stock market . To provide safety and stability to the investors, Stock exchanges in India are regulated by SEBI

Functions of Stock Exchange

  1. Mobilization of Savings
  2. Capital formation
  3. Pricing of Securities
  4. Economic Barometer
  5. Protecting Interest of Investors
  6. Liquidity
  7. Better Allocation of Capital
  8. Contributes to Economic Growth
  9. Providing Scope for Speculation
  10. Promotes the habit of Saving and Investment

Major Stock Exchanges in India

Bombay Stock Exchange (BSE) :

Bombay Stock Exchange was founded in 1875 is the oldest stock exchange not only in India but also in Asia. It was the first exchange to receive recognition from the Indian Government. BSE Online Trading (BOLT) facilitates online screen-based trading in securities. BSE reaches over 400 cities across India.

The BSE’s overall performance is measured by the Sensex, a benchmark index of 30 of the BSE’s largest and most actively traded stocks covering 12 sectors. Debuting in 1986, the Sensex is India’s oldest stock index. Also called the “BSE 30,” the index broadly represents the composition of India’s entire market.

National Stock Exchange (NSE) :

NSE commenced its operations in the Wholesale Debt Market (WDM) in April 1994 and in Capital Market (Equities) segment in June 1994. It formed the first clearing corporation (NSCCL), which carries out clearing and settlement of trades executed in equities and Derivatives segments.

Since then it has evolved to be the highest volume generating Exchange in India. It has got the widest network of terminals across India. They also provide online trading facilities over the internet.

National Stock Exchange has a total market capitalization of more than US$2.27 trillion, making it the world’s 11th-largest stock exchange as of April 2018.

Important terms related to Stock Market

Index :

An index is the benchmark used for measuring the performance of a fund manager and is a comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements.

An index comprises stocks that have large liquidity and market capitalization. Each stock is given a weightage in the Index equivalent to its market capitalization.

  • BSE Index – Sensex
  • NSE Index – S&P CNX Nifty 50

Sensex :

Sensex has become the barometer of the Indian Stock Market. It is comprised of 30, well-established, and financially sound companies. Sensex first compiled in 1986, was calculated on a “Market Capitalization-Weighted Method”. The base year of Sensex 1978-79. Right now Sensex is calculated using the “Free-float Market Capitalization” methodology.

S&P CNX Nifty :

Nifty is a well-diversified 50 stock index accounting for 22 sectors of the economy. This Index was launched in 1996. It is the first index constructed by the National Stock Exchange. Its construction is slightly different from that of Sensex. Sensex measures the floating capitalization of its constituents, however, Nifty is a step behind, it takes the full capitalization of its 50 constituents.

SEBI (Securities and Exchange Board of India) :

The Securities and Exchange Board of India was established on April 12, 1992. It is an interim administrative body to function under the overall administrative control of the Ministry of the Central Government.

Investors can write to SEBI all their complaints. Online complaint forms are available on the website of SEBI.

Options to Make Money in Stock Markets :

We can make money in Stock Market in the following ways –

  1. Investment (Delivery Based Trade)
  2. Speculation (Intraday and Derivatives Positions)
  3. Hedging and Arbitrage
  4. Margin Funding
  5. Dividend Income

How to invest money in Stock Market

Investment means investing money or capital to gain profitable returns, as interest, income, or appreciation in value. Those who want to take a position their money within the stock exchange for a couple of days, or say few months or a couple of years, need to take delivery of the stock. Such stocks are bought through your stock broker, which is then transferred to your Demat account, where it stays in electronic form, and you get a press release of it on a monthly or quarterly basis, as opted to you, which shows the balance of stocks you hold in Demat account.

This option is for such people that want to shop for shares as per the spare amount they need in hand. one must always remember, that you cannot employ the buy and forget strategy in the case of shares.

When we sow a seed, we’ve to require care of it; so later it grows into an enormous tree and bears fruits. The same is the case with investment in the Stock Market. If fruits aren’t plucked in time they will rot, within the same way, one has got to learn to book profits on time to form good returns on investments. If proper monitoring and care are taken, stocks can give phenomenal returns within the future 

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