The share market is one of the most dynamic places in the financial ecosystem. It’s where you can buy or sell stocks of publicly listed companies. In other words, the share market is a platform to buy and sell shares. Prudent investment in the share market can help you grow wealth in the long run and contribute to the nation’s economy. Read on to know the various aspects of the share market and the advantages of stock investing.

Types of Share Market

Share market is of two types, namely:

Primary Market

In the primary market, companies issue shares or stocks to the public for the first time. In the primary market, you buy the company’s share directly through initial public offering (IPO).

Secondary Market

In the secondary market, existing stocks are traded among buyers and sellers post-IPO. In the secondary market, stocks are bought and sold without the issuing company’s participation, and their prices depend on demand and supply.

Financial Instruments Traded in the Share Market

When you invest in the share market, you can trade in a range of financial instruments, including stocks, exchange-traded funds (ETFs), bonds, commodities, etc. Among these instruments, stocks are quite popular among investors because of several advantages they offer.

Advantages of Investing in Stocks

Investing in the stock market, particularly stocks gives you the following advantages:

Potential to Generate Inflation-Beating Returns

Share market investment in stocks has the power to offer inflation-beating returns in the long run, especially equity stocks. Inflation has a decompounding effect on wealth and lowers the value of money with time. However, stock investment, particularly mid and small-caps, allows you to counter the impact of inflation in the long run. 

To accomplish long-term goals like children’s higher education and retirement, investing in instruments that can offer inflation-indexed returns is vital. That said, when you invest in shares of mid and small-cap firms, note that they carry higher risk than stocks of large-cap companies.

High Liquidity

This is one of the major highlights of investing in the stock market. Stocks are one of the most liquid financial instruments. Several companies trade their shares on the Bombay Stock Exchange (BSE) and the National Stock Exchange (BSE) with large daily transaction volumes. This lets you purchase or sell shares when needed quickly. 

Also, the Indian share market has one of the fastest settlement cycles in the world. The market, which follows a T+1 settlement cycle, is also taking steps to reduce it to T+0. If it happens, trades will get settled on the same day.

Can Receive Dividend Income

Share market investment allows you to receive dividends. If you’ve invested in stocks of a company that has performed well, the company can distribute some of its profits through dividends. Earning dividends can help augment your primary income. 

That’s not all. Dividend payments can enhance your overall returns from your stock investment and help lower volatility.

Ownership Benefits

Purchasing company stocks gives you a stake in the company. It allows you to vote in the company’s decision, thus allowing you to drive decisions that can benefit your interests.

Can Start Small

Contrary to the belief that stock investment requires a large amount of money, it doesn’t. You can invest in stocks even with a small amount and participate in the company’s growth story. Thanks to stock SIPs, you can invest a predetermined amount of money at specific intervals in your chosen stocks. Stock SIPs work similar to mutual fund SIPs and offer the benefits of rupee cost averaging and help you stay invested across market cycles, which is essential for wealth creation.

Complete Transparency and Well-Regulated

Stock investment is entirely transparent, and Sebi monitors the share market closely. You get a complete overview of your investments and the regulations Sebi has put forth to help safeguard your interests.

How to Invest in Stocks?

Now that you know the advantages of investing in stocks, let’s see how to invest in them:

Open a Demat and Trading Account

Before investing in stocks, you need to open a Demat account and a trading account with a broker. While a Demat account stores your stocks electronically, a trading account eases the buying and selling of shares.  

There are several share market app in India that allow you to open a Demat and trading account in a few clicks online. Just provide your basic details along with documents about your address and identity, and you are done.

Choose Stocks to Invest In

Next, pick up the stocks to invest in. As per your objectives and risk tolerance, you can choose from a range of stocks, including large-cap, mid-cap or small-cap. Make sure to do due diligence on the company before investing in its stocks.

Purchase the Stocks

Once you’ve zeroed in on the stocks to purchase, place an order through the share trading app. Make sure you have enough funds in your bank to execute the transaction. After successful execution, the money gets debited from your bank account, while shares are credited to your Demat account.

What Not to Do Before Entering Share Market?

Before you invest in shares, there are certain things you need to be careful about. These include:

Investing Without Proper Homework

Never invest in stocks without proper homework or based on tips received from friends and on social media. Do your research on the company, evaluate its growth prospects and go ahead only if it matches your financial goals and risk tolerance.

Having Unrealistic Expectations

While stock market investment can offer prudent rewards in the long run, setting realistic expectations is advisable. For example, you can’t expect high double-digit returns within a short time frame. Even in the long run, you can’t expect your returns to be astoundingly high.

Investing a Large Amount Initially

Don’t invest a large amount in one go initially. If markets move against expectations, you can incur heavy losses, which can sour your experience. Therefore, invest a small amount and see your investment’s performance before committing big.

Investing Under Emotions

Always keep your emotions under control. Be it greed, fear or euphoria, never allow emotions to cloud your judgement. More often than not, investing under emotions results in flawed decision-making, which can impact your goals.

Panicking Following Short-term Volatility

The share market is inherently volatile. Several factors contribute to it, and most of them are beyond your control. Hence, don’t fret following short-term volatility and exit markets. If you do so, you convert notional losses into actual ones. Stay disciplined and imbibe patience during your investment.

Wrapping it Up

With the right approach, coupled with patience and discipline, investment in the share market and stocks brings several advantages. With a share trading app like HDFC SKY, you can seamlessly invest in stocks and various other financial instruments.

This app also offers margin trading facility through which you can amplify your buying power significantly and ensure funds are not a paucity in stock investment. Happy investing!