In this article, I’ll cover the stock market’s basic concepts, stockbrokers, different market participants and the regulatory body that regulates the stock market. So what is a stock market? A stock market is a place where you can buy or sell shares of publicly listed companies. Please note that a person can only trade within the stock market only via a registered intermediary known as a stockbroker. Nowadays, this buying and selling of the share occur via electronic medium to avoid discrepancies within the system. Let us look into the major stock exchanges in India.
Bombay Stock Exchange (BSE):
Known as BSE in short, Bombay Stock Exchange is Asia’s first and the oldest stock exchange in India. It was established in 1875 in Mumbai, Maharashtra, India. As per current stats, it has approximately 5,295 companies listed out of which around 3,972 are available for trading as on August 21, 2017. BSE Sensex is the flagship index of BSE that keeps a track on the 30 largest, most liquid and financially stable companies across key sectors.
National Stock Exchange (NSE):
Established in 1992, in Mumbai, Maharashtra, India, NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed companies. NSE has a flagship index named as NIFTY50. The index has top 50 companies based on its trading volume and market capitalization. This index has been widely used in the country and globally as the barometer of the Indian capital markets.
So, who are the different market participants here?
Let us dig a bit more in-depth. So, in layman’s term, anyone who buys/sells shares in a stock market is termed as a market participant. Some of the categories of market participants are as given below:
- Domestic Retail Participants-These are individuals who transact in the markets.
- NRI’s and Overseas Citizen of India (OCI)-These are people of Indian origin who reside outside India.
- Domestic Institutions-These is large corporate entities based in India (for example LIC of India).
- Domestic Asset Management Companies (AMC)-The market participants in this category would be mutual fund companies like HDFC AMC, SBI Mutual Fund, DSP Black Rock and many more similar entities.
- Foreign Institutional Investors-FIIs are Non-Indian corporate entities such as foreign asset management companies, hedge funds and other investors.
Financial Intermediaries:
Now, let us look into types of financial intermediaries in the stock market for gaining more knowledge on how the stock market works. From buying shares to transferring it to the Demat account, many corporate entities are involved to ensure a smooth transaction. These corporate entities are known as financial intermediaries and the crucial bodies within the system. They work according to the rules and regulations set by the Security and Exchange Board of India, also known as SEBI in short. Let us look into those financial intermediaries:
- Stockbroker: This is basically the professional dealer who buys or sells the share on behalf of the clients. A stockbroker is registered as a trading member with the stock exchange and holds a stockbroking license. Even the stockbroker works as per the rules set by SEBI.
- Depository Participants: The service of Demat account is provided by a Depository which is a financial intermediary. All the shares owned by the investor in the electronic format will be available in the Demat account. In India, there are only two depositaries which offer DEMAT account services – National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). For an investor to open the Demat account, the investor needs to appoint a Depository Participant (DP). Any investors cannot approach to the depositaries to open D-E-M-A-T account.
- Banks: Banks are the bodies that help transfer funds from a bank account to a trading account. The client needs to categorically mention which bank account has to be linked to the stockbroker’s trading account when opening the trading account.
- National Security Clearing Corporation Ltd (NSCCL): National Security Clearing Corporation Ltd is a subsidiary of National Stock Exchange, that ensures the guaranteed settlement of transactions carried in the stock exchange.
- Indian Clearing Corporation Ltd (ICCL): Indian Clearing Corporation Ltd is the Bombay Stock Exchange subsidiary guaranteed settlement of transactions carried in the stock exchange.
- Demat Account: Demat account, also known as dematerialized account, allows the investor to hold shares in electronic form instead of taking physical possession of certificates. DEMAT account contains all the investments an individual makes in shares, exchange-traded funds, bonds, government securities, and mutual funds in one place
- Trading account: To place buy/sell orders in the stock market, one should have a trading account. The stockbroker who is registered to SEBI, one can open trading accounts with the help of a stockbroker.
Finally, to invest in a share market, one must have a PAN card, Demat account, trading account, linked bank account where all the buying and selling happens over time. Thus, one will need a bank account linked to your trading account to ensure that money flows in and out of your account seamlessly when you transact.
List of Documents Needed
- PAN Card
- Aadhaar Card
- A cancelled cheque from your bank account with your name on it
- Proof of address (from the list of documents accepted by the bank/depository participant/broker)
- Proof of income
- Photographs
Before investing in a share market, one must keep in mind that it must understand the investment goals, risk tolerance level, investment horizon, and other things. Secondly, research the company before putting your money into it. Don’t make investment decisions based on the stock price alone, unless you’re trading. Thirdly, try diversifying as there are lots of risks associated with the stock market. Always keep a track on your investments. Investors must keep track of their assets, even if there is a concept of ‘invest and forget’. Since, the stock market is quite a volatile place, it is essential to keep a track always no matter what.
I hope the article has covered the basic concepts here. So, Happy Investing!
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