Investment and share markets have become a common denominator for everyday words pertaining to finance. Most people are familiar with the terms but may not have a sufficient idea regarding what they stand for and how they are carried out in their functioning. It is likely that many people are going to flock to investments sooner or later in their life. For them, it is important that they grasp a definite understanding of what share markets are and how they serve the world of finance. Some brief information about the various aspects of the share market is as follows.
Before proceeding to the share market, it is important to clarify what shares stand for. When a company divides its capital into small and equal units the name which these units take is called shares. The number of shares an investor holds is equal to the number of units he has in a company.
For instance, if a company has a capital of Rs 1,00,000 and has divided it into 1000 shares then each unit of shares would amount to Rs. 100. An investor who has bought 200 shares of the said company will have shares worth Rs. 20,000 where the value of each share is Rs. 100. Therefore, of the company’s Rs 1,00,000 capital, an investor has a claim of Rs. 20,000. If the company earns any profit, the dividend to be paid by the company will be proportionate to the number of shares an investor holds.
Understanding Share Market
As the meaning of shares is understood it would be even easier to understand what does share market stand for. If shares represent the value of a company, the share market is the place where these values are traded. The buying and selling of shares are done in the share market which is also called the stock market.
There are two types of share market: the primary market and the secondary market
If a company wants to raise funds in the share market, the first step for it would be to get itself registered in the primary market. In this market, the shares of a company are created. In the primary market, a company issues a prospectus which is meant for the prospective investors who want to know about the company: its financial status, the type of business it conducts, types of shares being issued, and about the company itself. The primary market is the place where the company first sells its shares to the public in the form of Initial Public Offer (IPO). Once the processes involved in the primary market are completed, the company gets listed in the stock exchange.
In the secondary market, trading is done for the shares which are already listed in the stock market. This is the place where the shares are bought and sold amongst the investors. An investor who had already bought shares IPO can buy new shares or sell the existing ones in this market. Buying or selling of shares is done with the help of a broker.
Securities and Exchange Board of India
Both primary and secondary markets are under the jurisdiction of the Securities and Exchange Board of India (SEBI). SEBI safeguards the interest of all the parties involved in trading in the share market. Thus, shares can only be bought and sold if they are registered with SEBI.
To trade in the share market, an investor has to open Demat account. Demat account is meant for keeping the shares of an investor in an electronic form. This account uses a technology where physical share certificates are converted into electronic form. The conversion of physical shares into electronic ones is known as the dematerialization. Demat account opening steps are relatively easy and any investor can get an account opened for oneself without inconvenience.
The main function as well as the purpose of an open Demat Account is to store an investor’s different types of investments under a common platform and enable the investor to transact in the share market with more efficacy.
Things To Know About Demat Account
Before investors open a Demat account, there are a number of things they should know about.
1. Depository Participant
A depository participant (DP) refers to the agent or broker who acts as an intermediary between the depository and the investor. Investors, to open Demat Account, first have to assign for themselves a depository participant or DP.
A depository is basically the institution under which a Demat Account is opened. Getting a compatible DP and depository is important for an investor to meet his financial goals efficiently.
2. Software Service
After an investor open Demat Account, it interacts with the share market through the digital medium of a software application. The software application, then, should be such that an investor does not face any difficulty in operating it. Moreover, the software should be compatible with all the major devices such as desktop, tablet, and smartphone.
3. Customer Support
Sometimes, once investors open Demat Account, there are chances for the occurrence of a technical lapse or some other systematic error or maybe the investor is unsure about the software. In such situations, it is important that there should be someone to help an investor as soon as possible. This can only be done with highly improved customer support.
4. Demat Account Charges
There are several charges which a Demat Account holder has to pay after open Demat Account is done. With different DPs some charges are mandatory while others are with discount offers or absolutely free. Some of the charges are as follows:
- Account Opening Charge: It refers to the one-time charge an investor has to pay to open Demat Account.
- Annual Maintenance Charge (AMC): AMC is charged annually by the DP for the services they provide to the investors.
- Dematerialization Charge: For the conversion of physical shares into electronic units, a fee is charged either on the per-unit share basis or according to the total value of shares of an investor.
- Postal Charge: These charges are levied for the transit expenses that had to take place for an investor’s paperwork.
Investors or potential investors must have a brief knowledge about the share market before they step into investment plans. To trade in the share market, investors have to open Demat Account, and to open Demat Account there again are certain things which an investor should be clear about. Thus, all these pieces of information form an important circle of knowledge for the investors and effectively guide them through the share market and investment schemes.