What is the Share Market?
A stock market, which is also sometimes called a share market, is like a big money place where people trade different things, like stocks, bonds, mutual funds, and more. The main difference between them is what you can trade. In a stock market, you can trade lots of different financial stuff, making it a big hub for investments. It’s a place where regular people and big organizations can buy and sell parts of companies, government bonds, and other money-related things to help with investing and moving money around in the economy.

But when we talk about a share market, we’re talking about a smaller part of the stock market. In a share market, it’s all about buying and selling parts of companies, which we call shares or stocks. These shares represent a piece of a company, and people can buy or sell them to have a share in that company’s money and profits. So, while we sometimes use the words “stock market” and “share market” the real difference is that a stock market has more things to trade, while a share market is all about trading pieces of companies.

Why Invest In Share Market?
We buy shares in companies to help our money grow over time. Some people worry that investing in shares is risky, but lots of research has proved that if you pick the right shares and hang on to them for a while, like five to ten years, they can make your money grow even faster than things like houses or gold, and they can beat the rising cost of living (inflation). So, investing in the right shares for the long run can be a smart way to make your money grow.

Stockbrokers used to congregate around Banyan trees to make stock dealings. They had no choice but to move from one location to another as the number of brokers grew and the streets filled. Finally, in 1854, they moved to Dalal Street, which is now home to Asia’s oldest stock market, the Bombay Stock Exchange (BSE). It is also India’s first stock exchange, and it has played a significant role in the Indian financial markets since then. Even today, the BSE Sensex is one of the benchmarks used to assess the strength of the Indian economy and financial system.

Types Of Share Market
Primary Market:
This is the process through which a corporation registers to sell a specified number of shares and raise funds. This is also known as being a stock exchange listed company. To raise finance, a corporation goes to the major markets. If a firm is selling shares for the first time, it is referred to as an initial public offering (IPO). Read more on factors to consider before investing in an IPO.

Secondary Market:
The secondary market is where new securities are exchanged after they have been sold in the main market. This is to allow investors to sell their shares and exit an investment. Secondary market transactions are in which one investor buys shares from another investor at the current market price or at a price agreed upon by both parties.

What Is Sebi?
In India, there’s a group called the Securities and Exchange Board of India (SEBI), and they’re like the boss when it comes to overseeing the stock and investment markets. Their main job is to make sure that people who invest their money are safe, and they also want the stock market to work well. They do this by making rules and standards for different folks involved in the market, like companies, brokers, and people who invest. They also look after the stock exchanges and make sure there are fair rules for how things work in the share market. Their aim is to protect everyone’s rights and interests while making sure the market is honest and works properly.

Key Financial Instruments To Trade In The Stock Market
1. Bonds:

Companies need money to undertake projects. They then pay back using the money earned through the project. One way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely payments of interest, it is called a bond. Click here to read about the importance of tracking bond yield movements.

For example, imagine you want to start a project that will start earning money in two years. To undertake the project, you will need an initial amount to get started. So, you acquire the requisite funds from a friend and write down a receipt of this loan saying ‘I owe you Rs 1 lakh and will repay you the principal loan amount by five years, and will pay a 5% interest every year until then’. When your friend holds this receipt, it means he has just bought a bond by lending money to your company. You promise to make the 5% interest payment at the end of every year, and pay the principal amount of Rs 1 lakh at the end of the fifth year.

Thus, a bond is a means of investing money by lending to others. This is why it is called a debt instrument. When you invest in bonds, it will show the face value – the amount of money being borrowed, the coupon rate or yield – the interest rate that the borrower has to pay, the coupon or interest payments, and the deadline for paying the money back, called the maturity date.

2. Shares:

Investing in the share market is another place for raising money. In exchange for the money, companies issue shares. Owning a share is akin to holding a portion of the company. These shares are then traded in the Indian share market. Consider the previous example; your project is successful and so, you want to expand it.

Now, you sell half of your company to your brother for Rs 50,000. You put this transaction in writing – ‘my new company will issue 100 shares of stock. My brother will buy 50 shares for Rs 50,000.’ Thus, your brother has just bought 50% of the shares of stock of your company. He is now a shareholder. Suppose your brother immediately needs Rs 50,000. He can sell the share in the secondary market and get the money. This may be more or less than Rs 50,000, as the price of the shares may change. For this reason, it is considered a riskier instrument.

Shares are thus a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value and so will your investment.

3. Mutual Funds:

These are investment vehicles that allow you to indirectly invest in share market markets or bonds. It pools money from a collection of investors, and then invests that sum in financial instruments. This is handled by a professional fund manager.

Every mutual fund scheme issues units, which have a certain value just like a share. When you invest, you thus become a unit-holder. When the instruments that the MF scheme invests in make money, as a unit-holder, the value of your investment also increases get money.

This is either through a rise in the value of the units or through the distribution of dividends – money to all unit-holders.

4. Derivatives:

The value of financial instruments like shares keeps fluctuating. So, it is difficult to fix a particular price. Derivatives instruments come handy here. These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price. Read more to understand how to buy or sell a futures contract