Investing in the equity market is a very challenging job for investors especially those who are new to this field. But the functioning of the stock market is not that complicated as it made to sound like. By just learning a few basic things before you start investing in the share market, you will be able to understand the field and can perform much better. But before you start investing you must know a few things about equity investments, how it works and how to start investing in the equity market.
Here is what you need to know about equity investments.
What is Equity Investment?
Before equity investments, companies use to raise money for their business through business loans. But one of the main drawbacks of a business loan is that one has to return the money to the lender with the agreed interest irrespective of profit or loss in the business. With the advent of Equity Investments, businesses can now raise funds from the public by giving them a share in the ownership of the business.
When a company goes out to collect money from the general public, the investor can buy a partial share of the company which is called equity investments. In return, the company will not pay the shareholder back but will provide dividends on the profit earned by the company.
How Does Stock Market Work
The concept of the stock market is very easy to understand. Just like the auction house, the stock market enables buyers and sellers to negotiate prices and make trades of company shares. The public listing companies can sell their shares in the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) which are the biggest market place for an equity share. A company must have a public listing to sell and buy shares in the equity market.
Requirements to enter the Equity Market
- Apply for a PAN card
The Permanent Account Number is a must-have for making any financial transaction. The PAN is given to individuals by Tax Authorities for assessing their tax liabilities. So if you don’t have a PAN card, apply it to enter the stock market.
- Hire a Broker
No one can enter the stock market directly and start selling or buying stocks of one’s choice. Only a category of people are authorized to do so and they are called brokers. Brokers are the individuals or companies or the online agencies who have a license provided by SEBI (Securities and Exchanges Board of India).
- Open a Demat and Trading Account
The next step of investing in the stock market is opening a Demat account. Every shareholder must open a Demat account in order to do a transaction in the stock market.
- Depository Participant
A Demat account reflects the number of shares a shareholder holds. But the shares are actually held by Depository Participant. The Depository Participants is a link between the depository and the investors. In India, two Depository Participants are functioning: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).