Shares or Stocks

What are shares or stocks?

Every company needs money to carry on its operations. For that purpose, companies reach out to banks or investors for loans and to common people for borrowing money by issuing bonds. But, in both cases, the company must pay a huge amount of interest. So, to avoid huge costs of interest, companies can raise money from the market by issuing its shares to the public that do not carry any such obligations.

Why do people invest in stocks?

It is because they get proportional ownership in the company depending upon the number of shares they buy. This entitles them to the share in the profits of the company which is distributed among shareholders in the form of a dividend. Apart from dividends, shareholders also enjoy capital appreciation (Increase in the price or the value of company’s stock). The share prices of the company increase as the company’s revenue & profitability grow. Hence, one can sell his/her shareholding at a price greater than his/her purchase and earn a profit.

What are the pre-requisites to start trading in the share market in India?

Here are the essentials that you need to start trading in share market:

• Pan Card: You must have a Permanent Account Number (PAN) to do any financial transaction in India. It is required to open a bank account, make investments, file income tax returns, etc. It is a unique number assigned by the Tax authorities to an individual for assessing his tax liabilities in all financial transactions. Click here to know how to apply for a PAN Card 
• Bank account: You also need to have a bank account registered in your name which shall be used for transferring money to and from your trading account.
• Broker: Transactions in the stock market cannot be carried out directly between the investor and the exchange. A stock broker acts as an intermediary between the two and facilitates seamless transactions.(We will discuss some tips and tricks for selecting the right broker for your investments in the next unit.)
• Get a Demat and trading account: You must open one with a registered stockbroker authorized by SEBI. A demat account stores all your stock holdings in the dematerialized form whereas a trading account is used for buying and selling of shares.