Imagine this: A man's company is knee-deep in debt from banks and creditors. But when he opens up his company to the common man, other people invest in the company and become part owners in the process. These owners together invest money, and work towards making the company debt-free and profitable.
How do so many people own a single company? If one man started the company, what role do these people have? Why would someone prefer taking money from people and making them part owners instead of just borrowing from banks? And how good is this option for the common man as an investment? What are the things he should take care of before investing in a company? These are some of the questions, the answers to which will help you understand share trading in India.
Share trading in India - Joint Stock Company
Once the venture capital funding is exhausted and the company has attained a certain size, its next objective could be to become India's biggest company. This is when the company goes out to the public to raise money. People can buy part ownership of the company for as little as 10 rupees. Therefore, if the company has Rs 5 crore invested in it and you have invested 10 rupees in it, you own the proportionate share in the company - (2e-7) %.
Whenever the company earns a profit, every owner is entitled to dividend.
Share trading in India - Equity shares
The certificates issued to the public who invest in a company are called equity shares. These are issued when the company gets publicly listed and people start stock market trading in its equity shares. The public listing of a company means its shares get available in a marketplace for equity shares. The NSE and BSE are the two biggest marketplaces for equity shares.
Share trading in India - Primary and Secondary Market
The stock market is divided into two kinds of market. The primary market is where the shares of any company getting newly listed are bought directly from the company through the stock market.
The other, much bigger and sometimes more profitable, market is the secondary market where the shares bought off the primary market may be traded further. For example: All shares of a company have been sold and you want to trade in those shares. You can bid for the shares from the new owners by quoting a higher amount: Rs. 20 for the Rs.10 share. Any new owner of the shares may take up the offer and exit the investment.
Tips for share trading in India
Do's for share trading in India:
Always deal with the market intermediaries registered with SEBI / stock exchanges.
Ensure that the documents or forms for registration as Client, are fully filled in.
Give clear and unambiguous instructions to your broker /agent / depository participant.
Always insist on contract notes from your broker. In case of doubt in respect of the transactions, verify its genuineness on the Base website.
Always settle dues through the normal banking channels with market intermediaries
Before placing an order with the market intermediaries, please check about the credentials of the companies, its management, fundamentals and recent announcements made by them and various other disclosures made under various regulations. The sources of information are the websites of Exchanges and companies, databases of data vendor, business magazines etc.
Adopt trading/ investment strategies commensurate with your risk-bearing capacity as all investments carry some risk, the degree of which varies according to the investment strategy adopted.
Carefully read and understand the contents stated in the Risk Disclosure Document.
Be cautious about stocks that show a sudden spurt in price or trading activity, especially low-priced stocks.
There are no guaranteed returns on investment in the stock market
Send important documents by a reliable mode (preferably through registered post) to ensure delivery.
Ensure that you are holding securities before you sell.
Keep track of your posts – both the ones you send or are yet to receive.
Mention clearly whether you want to transact in physical mode or in Demat mode.
Lodge your Arbitration Application against the Trading Member, at the concerned Regional Investor Service Centre, by confirming geographical jurisdiction. Please use for the purpose, your address as intimated to your Trading Member by following due process of law. The details of geographical jurisdiction of each Regional Investor Service Centre are also available on the Contract Note. The period consumed in redressal of complaint thru IGRC services will not be considered while measuring period of ‘limitation’ in filing arbitration application provided the complaint and / or arbitration application is / are filed at the concerned Regional Investor Service Centre.
Lodge your complaint against a company listed on BSE, at the concerned Regional Investor Service Centre, by confirming geographical jurisdiction. Please use your address for deciding the geographical jurisdiction. This will enable to process the complaint expeditiously.
Don’ts for share trading in India:
Don't deal with unregistered brokers / sub - brokers, or other unregistered intermediaries
Don't execute any documents with any intermediary, without fully understanding its terms and conditions
The Exchange redresses investors’ complaints through arbitration and IGRC mechanism, which are quasi-judicial in nature. The period consumed in redressal of complaint thru IGRC will not be considered while measuring period of ‘limitation’ in filing arbitration application provided the complaint is filed at the concerned Regional Investor Service Centre.
Don't deal based on rumours or 'tips' or believe in guaranteed returns
Don't get misled by companies showing approvals /registrations from Government agencies as the approvals could be for other purposes and not for the securities you are buying
Don't blindly follow media reports on corporate developments
Don't imitate investment decisions of others
Don't forgo obtaining all documents of transactions, even from people you know
Don't get misled by guarantees of repayment of your investment through post-dated cheques