The share market, also known as the stock market or equity market, is a fascinating and complex arena where investors buy and sell shares of ownership in companies. Understanding its workings can be daunting for new investors, but with the right information, you can make informed decisions and potentially build wealth over time.
What are shares?
When you buy shares in a company, you become a part-owner of that company. Your ownership is proportional to the number of shares you hold. As the company’s performance improves, the value of its shares typically increases, leading to potential gains for investors. However, share prices can also fluctuate significantly, leading to losses.
How does the share market work?
The share market is essentially a marketplace where buyers and sellers of shares meet to trade. Buyers bid a certain price for shares, while sellers ask for a certain price. When a buyer and seller agree on a price, a trade is executed.
There are two main types of share markets:
Primary markets: These markets are where companies issue new shares to raise capital. The process of issuing new shares is called an initial public offering (IPO).
Secondary markets: These markets are where existing shares are traded between investors. The most well-known secondary markets are stock exchanges, such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India.
Benefits of investing in shares:
Potential for high returns: Over the long term, the share market has historically provided higher returns than other investment options like fixed deposits or savings accounts.
Liquidity: Shares can be bought and sold easily on the secondary market, providing investors with easy access to their capital.
Diversification: Investing in shares allows you to diversify your portfolio across different industries and sectors, which can help to reduce risk.
Ownership: Owning shares gives you a sense of ownership in the companies you believe in.
Risks associated with investing in shares:
Market volatility: Share prices can fluctuate significantly in the short term, leading to potential losses.
Company risk: The performance of your investment is closely tied to the performance of the companies you invest in. If a company does poorly, its share price will likely decline.
Economic factors: The overall economy can also impact the performance of the share market.
Before investing in shares:
Educate yourself: Learn as much as you can about the share market, different types of shares, and how to analyze companies.
Set your goals: Determine your investment goals and risk tolerance.
Diversify your portfolio: Don’t put all your eggs in one basket. Invest in shares of companies across different industries and sectors.
Seek professional advice: Consider seeking advice from a financial advisor who can help you create a personalized investment plan
