Saving and investing are two things which are given equal importance in an Indian household as earning. Your investment is your turn to savior in case of urgent need and family emergencies, and stocks are one of the most sought-after investing options, they offer lucrative returns and always beats inflation better than all its counterparts and can be started with very little capital as well. Below are a few questions commonly pondered by beginners planning to start investing in the stock market?
What are stocks?
A stock is a share in the ownership of a corporation; they also depict the rights in the earnings and assets of the said corporation. They are often termed as equities and represent equity (ownership) in the corporation.
What are the types of stocks?
There are broadly two types of stocks. One is common stocks where shareholder are entitled to their proportionate share in corporate’s profit and losses, have the right to elect a board of directors, who represent them and make a decision on various thing concerning company and profit, that whether they will be reinvesting profit or sharing it in the form of dividend with shareholders. The other types of stocks are preferred stocks, in these preferred stocks owners are entitled to specific dividends at pre-defined intervals of time. They are given priority over common stockholders while paying dividends. In case of bankruptcy, also preferred stockholders are given property vis-à-vis common stockholders for reacquiring their investments from sales and recoveries received by bankruptcy trustees.
How do stocks work?
Stocks are purchased and sold in two types of markets. One is the primary market, where the company comes out with IPO (Initial public offering), here the shares held by the company are offered to the general public. The second one is a secondary market, where shares owned by the general public are traded on registered stock exchanges. The prices of stocks on the stock exchanges are regulated by forces of demand and supply, company management, growth, and future prospects.
Always try dealing with registered market intermediaries, those registered with SEBI/stock exchange.
Be sure of clear communication with your agent, broker, an intermediary.
Carefully go through the offer documents and risk closure documents before making investing.
Carefully check the company’s management, credentials, and other vital information before placing an order.
The investment must be done after careful due diligence, proper research, and analysis.
Avoid dealing with intermediaries who are not registered with SEBI/stock exchange.
Your own knowledge must go into the decision making apart from, media reports, herd mentality, and speculation.
Do not let greed and fear affect your investing decision.
Do not go ahead with any documents without understanding the terms and conditions of documents.