How Does The Stock Market Work - Beginners Guide

How Does The Stock Market Work

Beginners Guide

Hello friends, so in the previous chapter we learned why should invest, now we will know " What Is The Share Market ", which attracts everyone so much, how does it start.

What is stock market:-

In fact, it attracts everyone because of the good returns of the stock market, which has the ability to give returns much higher than the inflation rate. Now the question comes that How To Invest In It? Before knowing the answer, it is very important to know who invests or can invest in equity and how this whole system works.

Who can participate in the stock market:

1. Indian citizens who live in India, that is we and you Indian citizens settled abroad.

2. Big Indian companies like LIC domestic mutual fund companies such as mutual funds, Fidelity Investments, HDFC AMC etc.

3. Foreign companies, foreign asset management companies, hedge funds etc.

Read This Also : Technical Analysis Part -1

We have told you that who can invest in the share market, it becomes very important to answer a question that What Is This IPO and why do companies bring it, if you have heard about the share market so you must have also heard that the IPO of this company has come.

There are many such questions on which we will discuss one by one, so let us know what is IPO and why it is brought, but before that, understand something else, then you will understand well.

How to start a business:

Answer this question Before we know how a company starts. Let us try to understand this through a story, so that it can be known that how the system of raising funds for the business works.

Let's say a businessman who has a great business idea. That idea is for food business, these food items will stand out, their prices will also be attractive to the customers and good quality has been used in their production.

Read This Also : Technical Analysis Part -2

The entrepreneur is sure that this business will be successful and he is also very excited to turn this idea into a business. But he does not have the money which is needed in huge amount for the smooth running of the business.

In such a situation, what will he do, either he will take a loan from the bank or he will borrow from his relatives / friends, he will have to pay interest immediately in taking a loan from the bank and it is difficult to get such a huge amount from relatives.

In such a situation, we tell what he will do, he will tell his idea to his friends and ask them to invest more to work as a business partner.

Then he invests his deposits and simultaneously convinces two of his friends to invest money in the business. These two friends are investing money early in the business and are kind of betting on that new trader. These two friends are called Angel Investors. The money these people invest is not a loan but an investment.

Now the promoter i.e. who has the business idea and the angel investors together have added Rs 3 crore capital. This capital is called "seed fund", they keep the seed fund in the bank account of the company.

Read This Also : Technical Analysis Part - 3

As soon as the seed fund is deposited in the company's bank account, this money is called the "Initial Share Capital" of the company. In return for this investment, the promoter and both the angel investors are issued share certificates of the company, which gives ownership rights to all three.

Right now the company has only Rs 3 crore, this is the company's asset. Hence the value of the company is also Rs 3 crore. This is called the Valuation Of The Company .

Now the company also needs to increase its business, then the question comes whether taking a loan from the bank is not a good option, in such a situation, he thinks of issuing shares of the company, it is very easy to issue shares.

The company assumes that the price of each share is Rs 8, where the price of this share is Rs 8, it is called the Face Value Of The Share. The face value is not necessarily just Rs.8, it can be more or less.

The shares issued above are Called Authorized Shares Of The Company. Some of this part is divided among these three, along with some shares are kept with the company, now the promoter gets 40 per cent shares, and both the angel investors get 5-5 per cent. 50% of the shares were held with the company.

Read This : Why To Invest In Stock Market In India

By the second year, the company's expenses and income are almost equal. The promoter is now quite experienced, so he wants to expand the business a little. He wants to open another store and he makes a business plan, after that he comes to know that this work will require at least Rs 10 crore capital.

When the business is earning money, the promoter goes to the investors who invest money in the new business. He talks to one such investor, who is ready to give him Rs 10 crore in return for 14% stake in the company, and the company allots 14% of the authorized capital to the VC,

After a few years of investment, the business of the company has grown tremendously. The company has added many products and has also established branches in many big cities of the country.

Income is also getting very good now, but the promoter is still not satisfied with it, and now he wants to spread business abroad also. This time the capex requirement is bigger than ever and the management estimates that it needs Rs 500 crore.

Read This : How To Make A Profit In The Stock Market

These are the paths in front of the company :-

1. Further loan from bank

2. Issue of Bonds

3. Internal Accruals - Internal Sources

4. Issue of Shares through IPO

5. Series D Funding from PE Fund

The company now decides to raise some part from internal sources and the rest from IPO to raise funds. And when the company brings IPO, it sells its shares to the general public. Now that the company is selling its shares to the public for the first time, hence It Is Called IPO. By the way, its full name is Initial Public Offer.

Now you must have understood What Is IPO and what is the need to bring it. In the next chapter we will know what happens after IPO and how public can participate or invest in it - thank you

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Must Read These Also:-

Technical Analysis Part -1

Technical Analysis Part -2

Technical Analysis Part - 3

Share Market Full Knowledge for Beginners

Why To Invest In Stock Market In India

Nutan Srivastava

Stock Market, Intraday, Fundamental, Candle Stick, Support-Resistance, IPO, Chart, Earn Money online, LIC IPO, Health & Life Insurance,World Market,

If you have any doubt pls. let me know or leave a comment ... इस ब्लॉग की सभी जानकारी Education purpose के लिए है, किसी निवेश से पहले अपने फाइनेंसियल सलाहकार से जरुर सलाह ले

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