Not everyone is cut out to be an entrepreneur. But just about anyone can part-own a company by investing in the share market. When you invest in the shares of a public limited company on the stock exchange, you gain part-ownership of the company. This brings you benefits in the form of dividend payments, as well as bonus and rights issues of shares. If this is something that interests you, get familiar with the details of where and how to buy shares.
- The stock exchange:
The buying and selling of shares take place on the stock exchange. There are several stock exchanges in India today. But the premiere exchanges are the Bombay Stock Exchange (BSE), which is the oldest in the country, and the National Stock Exchange (NSE), which has the highest turnover. All transactions and share market activities are regulated by the Securities and Exchange Board of India (SEBI).
- The marketplace:
You can buy company shares in either the primary market or the secondary market:
- Primary market: When a private company wants to go public, it submits an application to SEBI. Once SEBI approves the application, the company can issue an initial public offering (IPO). Here, the company issues a number of shares to the public for the first time ever. The company may wish to use the funds generated through the IPO to fund expansion or some other objective. To purchase these IPO shares, investors must apply for the same in the primary market. The company will allot shares based on the subscription ratio and the allotted shares will be listed on the exchange. Those who have bought the shares will become shareholders of the new company.
- Secondary market: Following the IPO, the buying and selling of these shares will shift to the secondary market. Buyers can purchase the shares at the market value or negotiate different rates with the shareholders.
- The depository participant
While the transactions take place on the stock exchange, to buy shares you will need to have an account with a depository participant (DP). The DP is a registered agent of an entity known as the depository. The depository holds financial securities in dematerialised (demat) form. It facilitates transactions of these demat securities and maintains ownership records. The DP acts as an intermediary between the depository and the investor.
India has two depositories at present: National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CDSL). Most brokerage houses and financial institutions are DPs registered with either NSDL or CDSL.
- The trading platform
Not long ago, shares were bought and sold at a physical marketplace. But the introduction of demat facilities changed everything. Today, investors can log on to a trading platform from an internet-connected device or instruct their broker to buy shares. Even the transfer of funds and securities takes place online via online trading terminals, websites, and mobile phone apps.
As you can see, starting to invest in the share market is simple enough. You could even open a bundled account that gives you demat, trading, and savings bank accounts in a single package. If you are new to share trading, stop worrying about how to buy shares. Instead, shop around for the right DP. Look for DPs like Kotak Securities that provide robust trading platforms and comprehensive research material. It will help you gather the necessary data to make effective share market investments.