What is Share Market in India? Understand How it Works

It’s smart to put your money in the right places to make more money. One good option is investing in the stock market, where you can earn much over time. But to do well in the stock market, you need to understand what is share market in India and how it works.

Here’s what you should know – 

The stock market is a big marketplace where people buy and sell things called securities, like stocks and bonds.

In India, when people talk about “the stock market” or “Dalal Street,” they’re referring to the whole world of buying and selling securities. This includes stock exchanges where shares of public companies are sold and other markets where different kinds of securities are traded.

Within the stock market, a share isn’t a physical thing you can hold. It’s a piece of ownership in a company. 

A company can create as many shares as it needs to raise money. If you want to buy or sell a security, you have to contact a broker or an exchange. The price of a share can go up or down depending on how many people want to buy or sell shares.

What is Share Market in India?

What is Share Market in India?

The share market is a place where people can buy and sell different kinds of investments like shares, bonds, and other financial stuff. The stock exchange is like a middleman that helps buy and sell shares.

India has two main stock exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

When a company first sells its shares, it happens in the primary market. After that, the shares can be bought and sold by investors in the secondary market.

The Indian Share Market And The Types of Shareholders

When you’re buying company shares, think about a few things.

First, see how much money the company pays as dividends. Look at the basics of the company and how it gets better over time. Also, check if the stock is currently expensive or cheap.

For beginners in the stock market, there’s a lot to learn. Let’s talk about the basics of buying and selling shares. People who trade shares are called share traders. 

When they buy shares, they’re basically buying the right to own a part of the company and get a share of its profits for a certain time. During this time, they also receive dividends, which are a share of the company’s earnings.

There are three types of shareholders –

  1. Face Value – These shareholders buy shares at the company’s original price. However, they don’t get any extra benefits in the future.
  2. Direct Benefit – These shareholders buy shares and receive additional perks. This could include things like coupons for extra dividends or the chance to attend a yearly meeting with top managers to share their opinions.
  3. Growth Option – These shareholders receive dividends and enjoy extra perks. For example, they might have the opportunity to join a special program called the Guaranteed Growth Plan. In this program, they get to vote on which customers receive a larger percentage of the company’s profits.

Read More: 7 Best Books For Stock Market Beginners In India [2024]

How Does the Stock Market Work in India?

Here are some elements to ensure smooth stock market work in India –

  • Participants

The stock exchange is a marketplace for buying and selling financial stuff. If a company wants to sell its shares, or if people want to trade, they have to sign up with SEBI and the exchange (like BSE, NSE, or local ones) first.

  • Securities and Exchange Board of India (SEBI)

SEBI is like the boss of the Indian stock market. Their main job is to make sure everything runs well, and everyone plays fair. This helps regular people invest in stocks without any problems. Everyone involved, like stock exchanges, companies, and brokers, has to follow the rules set by SEBI.

  • Stockbrokers 

Stockbrokers are people who are part of exchanges. Stockbrokers are like middlemen on the stock market. They help investors buy and sell stocks, and in return, they charge fees. In India, investors have to use broking houses or brokers to make trades, and these brokers help make the process easier.

  • Investors and traders 

The market has two main types of people – investors and traders. 

Investors buy company shares and keep them for a long time to make money over the years. Traders, on the other hand, buy and sell stocks more frequently. 

Investors like to see how well a company is doing over time if it has good chances for long-term growth, if it pays dividends, and other similar things. On the other hand, traders focus more on how the prices of stocks go up and down and the balance between how much people want to buy and sell.

How Can You Invest In The Indian Stock Market?

Companies give details about themselves in a document to SEBI. If SEBI approves it, the company sells its shares to people through an IPO in the main market. 

The company gives shares to investors who bid during the IPO. 

The shares are put on the stock market for trading. Brokers place orders for their clients. When a buyer and seller agree, the trade is done.

What Do You Trade On The Share Market?

What Do You Trade On The Share Market?

People trade four types of financial tools on the stock market. They are –

  • Share 

A share is like a piece of a company that you can own. If you have shares, you get a part of the company’s profits through dividends, and you also share in any losses the company has. Some people use a Share trading app to keep track of and manage their shares.

  • Bonds

For a company to do big money-making projects, it needs a lot of money. One way to get this money is by selling bonds to the public. Bonds are like loans that people give to the company. The people who buy these bonds become like the company’s lenders, and they get regular interest payments, like coupons. From the point of view of these bondholders, the bonds are like a way to make a steady income. They get interest on the money they invested and get their original investment back at the end of a certain period.

  • Mutual Funds

Mutual funds are like big investment groups managed by professionals. Many people put their money together, and the fund managers use it to buy different types of investments, such as stocks or bonds. There are different types of mutual funds, like ones focused on stocks, bonds, or a mix of both.

When you decide to invest in a mutual fund, you basically buy units of that fund, which are similar to shares. As the investments in the fund make money, you get a share of that profit. This can be shown as the fund’s net asset value or given to you as dividends. So, investing in mutual funds means you’re part of a group, and you get your share when the group makes money.

  • Derivatives

A derivative is like a special kind of investment that gets its value from something else, like stocks, bonds, money, or goods. People who buy and sell derivatives are basically making bets on whether the price of the original thing will go up or down in the future. They’re agreeing, like a bet, about what they think will happen to the price.

Different Kinds of Stockbrokers in India

In India, there are two major kinds of Stockbrokers: Full-Service Brokers and Discount Brokers. 

  1. Full-service brokers – They are the normal brokers who can help you buy and sell shares, plan finances, provide investment advice, update your portfolios, plan for retirement and tax, and research and analyze the share market. These brokers will tailor investment services according to your financial goals and requirements. 
  2. Discount Brokers – They are online brokers who can provide you with zero-commission stockbroking accounts. They’re known for giving you a place to trade stuff cheaply, but they don’t offer personalized help.

Some Stock Market Basics To Learn

Some Stock Market Basics To Learn
  1. Moving averages – Based on a stock’s past performance, these charts give you an idea of where the stock has been and where it might be going in the future.
  2. Business cycle – This process is like a roller coaster of feelings in the stock market. First, people get excited and want to buy many stocks. Then, they get scared and want to sell everything. The smart time to buy stocks is when everyone is really scared (during a recession) because that’s when prices are low. On the other hand, when the economy is doing really well, stock prices go up, and that’s a good time to sell and make a profit.
  3. Diversification – Putting your money into many different types of stocks from different industries is a good idea. This helps protect you from when the stock market goes down and makes things less unpredictable.
  4. Price of a stock – Don’t just look at a stock’s price when deciding to buy it. Think about whether it’s too expensive or a good deal. Also, consider other things like how the economy is doing or the overall situation in the industry. Traders need to understand the type of orders they use when buying or selling stocks. There are two main types: Limit Orders and Stop-Loss Orders. 
  • Limit Orders – These are orders where traders specify the exact price they want to buy or sell a stock. The trade only happens if the stock reaches that specific price.
  • Stop-Loss Orders – Traders use these orders to avoid big losses. They instruct their stockbroker to sell a stock if its value drops to a certain level. This helps protect their investment from significant declines.

Read More: Day Trading Patterns For Beginners

The Bottom Line 

The Indian stock market is a really interesting place for people who want to invest. It’s a good way to use your money and make more.

The stock market is a great way to grow your wealth. You can trade shares and invest in different ways, and it’s open to everyone. So, consider the stock market if you’re wondering what to do with your money. It’s not just about stashing your money away; it’s about making it work for you and giving it the chance to grow.

So, if you wish to enter the world of the share market, learn stock market basics, and how the stock market work in India, explore UpMarket Academy courses. It is one of the best platforms to learn and start your trading journey in the Indian stock market.

It offers valuable resources like videos, free courses, live sessions, and more to help you understand and navigate the complexities of the stock market effectively.

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