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Basics of starting with the share market

What are the basic requirements for starting with the share market?

An Investor is a person, who is having some idle money that is intended to be invested to get his expected return/profit over a period of time. Hence An investor always keeps searching for beneficial investment proposals so that he can multiply his idle money. Share market is always an easily available and attractive option for them. But investing in the share market also carries some risk (as per the choice of the instrument) hence investors must be very careful while putting their money in the share market.  An Investor may be an Individual, a HUF, a firm, a Company, FII (Foreign institutional investor), or other institutional investors.

Generally, we need the following three accounts to do transactions in the equity/ share market:-

  1. Bank Account (opened with Bank)
  2. Trading account (opened with a broker)
  3. Demat Account (opened with DP)

Please note that-

  1. An investor can reach a bank to open a bank account. He can reach a broker to open a trading account and He can reach a DP (depository participants) to open a Demat account.
  2. But many brokers are also registered as depository Participants (DP ) hence they offer both trading accounts as well as Demat accounts like Zerodha Securities.
  3. Further many banks are also registered as brokers and DP and they offer their customers all three accounts i.e. Bank account, Trading account, and Demat account.

What is the index? What is Sensex/ Nifty?

An Index is a benchmark used to measure the performance of a selected bunch of securities. Without an Index, It would not be possible to measure the combined performance of securities listed on any stock exchanges. Hence a bunch of well-performing bigger securities is chosen as a benchmark for the exchanges. Each selected security is given a weightage as per its market capitalisation. The index of NSE & BSE are explained below:-

  • S&P CNX Nifty 50

Nifty is the index of NSE (National stock exchanges). Nifty is comprised of 50 well-established and financially sound companies selected from 22 different sectors of the economy. Nifty was launched by NSE in 1996. Construction of Nifty is done on the basis of the full capitalisation of 50 companies. Nifty is widely used for benchmarking mutual funds and other portfolios. Currently, Futures and Options (F&O) are available for those companies which are part of Nifty.

  • Sensex

Sensex is the index of BSE (Bombay Stock Exchange). Sensex is comprised of 30 well-established and financially sound companies. Sensex was first compiled in 1986 on the basis of the full market capitalisation of companies. But currently, the construction of Sensex is done on the basis of “Free Float market capitalisation” while Nifty is still being calculated using full market capitalisation.

What are the Participants involved in a transaction in the share market?

The following parties are involved in completing your transaction in the Share market:-

  1. Investor i.e. a person who intends to invest money in the share market.
  2. Bank i.e. maintains the bank account of the investor.
  3. Broker ie. A broker is a member of the stock exchange. A broker must be registered with SEBI. A broker provides services related to the trading account and arranges the transaction (buy/sell) on behalf of his client for a commission. The trading facility provided by the broker may be mobile app based, telephonic, web-based, or other. As per SEBI regulations, only registered members can operate in the stock market. Hence we need to trade through a broker and we cannot trade in share market without opening a trading account with any registered broker.
  4. Depository Participants i.e. DP provided services related to the Demat account. DP is a member of the Depository (NSDL, CDSL). A Depository is an organisation that holds the securities of an investor in Dematerialised form. There are two Depositories in India i.e. NSDL, and CDSL.
  5. Listed Company: – A public company have to do the listing of its securities on any stock exchange. But the listing of securities is not mandatory under the companies act. But it becomes necessary when a public company wants to offer its securities to the public. Stock exchanges facilitate for completing the buy/sell transaction of these securities
  6. Stock Exchange:- Stock Exchanges are the provider of services related to the listing of various securities for facilitating transactions in these securities through its registered members i.e. brokers.  . BSE & NSE are the two major exchanges of India. Clearing of settlement of a transaction is done by clearing house in a timely manner on T+2 basis i.e. 2 days after the transaction. For example, I bought some shares on Monday then these will be get credited to my Demat account on Wednesday.
  7. AMC (Assets management company i.e. Mutual Fund Company):- Assets Management Company are also referred as Mutual fund house. An AMC company offers various Mutual funds to collect fund from investors and invest the pooled fund into various assets. For example, DSP black rock mutual fund company or HDFC mutual fund company are offering various mutual fund scheme. For investment in mutual fund DEMAT account is not mandatory. Investor can directly buy mutual fund from the AMC and record of unit owner is kept by AMC in electronic form. But it is recommended to open Demat account even for investing to mutual fund to keep control through DEMAT.   
  8. SEBI;- SEBI is the regulatory body securities and commodity market in India. If any investor is having any issue related to broker or DP which is not attended by them. Then investor can write a complaint to SEBI for resolution.  

Making transaction in Stock market?

To make transactions in stock market-

  • Open a bank account in the bank of your choice and take net banking & cheque book facility.
  • Now open a trading account & Demat account with the broker & DP (depository participants) of your choice. And complete your KYC requirement. A cancelled cheque may be required to maintain your bank detail in the trading account.
  • At present almost all big brokers are also a member of the depository and also offers Demat account services but still, an investor can choose to open Demat with a different DP.
  •  Once your account is active. You can login to your trading account on the portal provided by your broker.
  • You can add funds to your trading account and you can call your broker to buy or sell any security.
  • Sell proceeds of security are credited to the trading account on T+2 basis. You can transfer the fund from your trading account to your bank account.
  • Many brokers also provide mobile application-based facilities for trading to its client. So that they can place buy & sell orders of their own choice.
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