What is the Stock Market all about?
All companies need money to run their business. Sometimes the profit acquired from selling goods or services is not sufficient to meet the working capital requirements.
And so, companies invite normal people like you and me to put some money in their company so that they can run it efficiently and in return investors get a share of whatever profit they make.
Shares are a way to own a part of the company’s value. In proportion to the capital you invest, you can get ownership rights to a certain percentage in the company. Say you own 2% of the shares being traded in the market, you can say you have 2% ownership in the company.
Hence, shares are units of ownership in the company and its financial assets. Shares are also known as stocks, equity, scrips etc. After purchasing them you will be known as a stockholder or a shareholder of the company.
Why does a company need money from the market? As mentioned before, when a company is scaling up, expanding its business etc, it will need more capital. During such times, a company can tap into the share market and offer a certain number of shares based on its market value, which investors can buy.
Investors will be paying the company some money and in return get to be part owners. So when the value of shares rises, the value of shares investors own rises. Investors are however not lending money to the company so they are not creditors. These indeed share market basics for beginners because it is essential to understand why companies need shares at all.
Another important aspect of share market basics is Initial Public Offering (IPO). The first time a company offers its shares to the public, it is called an IPO. Securities and Exchange Board of India (Sebi), our markets regulator, has laid out a few rules and regulations for a company to list its IPO on exchanges which they have to comply with before being eligible for listing.
Securities and Exchange Board of India is the securities market regulator to oversee any fraudulent transactions and activities made by any of the parties: companies, investors, traders, brokers and the likes.
