‘Stock’ refers to a share in the ownership or partnership of a company in which you invested. Every amount you invested in the company is worth some share and has benefits. When you buy a share from any corporation with that comes the ownership of the company as per the percentage invested.
Let’s understand with an example:
Raghav wants to start his own hotel chain. But for the same, he needs to invest an amount equal to Rs. 50 lakhs. However, he has only 10 lakhs with him. He asks for help from four of his friends, to invest the same amount. By becoming his partner in business, he gives 10% of the company’s ownership.
After five years, Raghav’s business is doing amazing. His hotel is now valued at Rs. 2.5 Crores. This means they have increased five-time what they invested earlier.
Hence, you can buy shares in any registered IPO company and become a partner of the company. So, when the value of the company rises, your invested value will be increased too.
This exchange and listing of the company are done first through IPO(Initial Public Offering). After the listing in IPO, shares can be bought or sold as per the requirement by investors through Stock Exchange.
How do you buy or sell shares?
This works the same as any market in the world. People come and buy shares, not physically of course. This occurs by buying and selling shares of different companies.
Take, for example, Sharol buys 100 shares of Company XYZ at Rs. 10 per share. This means that she has invested Rs. 1,000 in Company XYZ.
After five months, the price of shares increases to Rs. 20per share. The value of her investment currently will be Rs. 2,000.
Now, if she wants to sell her shares at this time her net profit would be Rs. 1,000.
The fundamental principle in the domain of the stock market is : Buying low and selling at high.
What are the types of shares?
There are two types of shares: Equity and Preferred. Equity shares also known as ordinary shares are taking some percent of ownership of the company.
By the Equity share, you have the benefits of profit percentage and also power to hold company’s management as per the percentage say. However, there are a few downfalls too, like the cost of the issue of share is high and the returns are quite fluctuating.
Preferred shares like equity also have ownership. If the company distribute dividend, preferred shareholders will be receiving them at first then lead to other shareholders.
This can be considered the major advantage. But unlike equity share holders, the preferred one does not get voting rights.
How shares works?
In order to raise capital, companies sell shares. The IPO becomes the primary market to such companies where they issue shares and later trade in the secondary market. If you look for an option to buy shares, you do it from investors. Similarly, if you want to sell shares, you need to sell them to the potential buyer.
The entire trade of buying and selling is done through the stock exchange, with a broker along with each investor.
Why invest in shares?
Investing in shares has an opportunity for long-term capital appreciation. Also, you can earn profit through paid dividends by the company. If you want to sell them, the share can be easily liquidated.
If you own the larger percentage of the company’s ownership. You have the right to vote and say in their working and strategic business decision.
Investing in stocks is an upfront amazing way to earn money and increase wealth. Stock Exchange plays a vital role here. BSE and NSE offer a nice background to invest in various shares.
Open a Demat Account and start your share investment journey today!