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In this post, I will discuss Stocks(equity) and Bonds. These two terms will be basic blocks for Mutual fund and Equity /Bond Investing.

We will understand these by taking an example to suppose you started a small business with your own capital and your business become successful and now you want to expand your business but you don’t have money what will you do?
one option is to issue bond (paper) to persons wanting to lend you money, these bonds are sold to lenders in exchange of money and it promises the lenders that you will return the principal amount along with interests as agreed at the time of issuing the bond. The interest can be paid periodically or at the end of the loan term. So basically Bond represents debt.

another option is to split the company into no. of shares e.g. suppose your company is valued at 10 Lacs and you split it into 10000 shares each of value 100 Rs so now you can offer some part of your business/company to people interested to buy a part of your company in exchange of money, that money you can use in further expansion of your company. People who bought a share of your company will become part-owner of the company depending on no.of share they held, these people will benefit when company further grow and get more profit, but they also can get loss if the company doesn’t perform well. Shareholders will also get dividend i.e. some part of the profit from time to time if the company decides to give dividend and they can also benefit with gain in the stock prices of the company if the company does well in future.

How to buy bond /share:
Bond and Share can be bought in Primary market i.e. buying on initial offering from the bond/share original issuer.
Shares can be bought in the primary market through IPO -Initial Public Offer floated by company.

Later on Bond/Share can also be bought from Secondary market. After initial offering bond/shares get listed on stock exchanges – BSE,NSE are major stock exchanges. For example company after listing get a symbol and called stock e.g. HDFC bank listed on an exchange and has symbol HDFCBANK.
these bond/shares are traded at these exchanges between buyer and sellers at prices decided mainly on demand and supply. Bond prices can vary as per interest rates, maturity time, yield and many other factors.
Stock prices vary daily depending on future growth prospects of company, earnings, profits, any news by govt influencing that company, etc. Thousand and millions of shares of various companies/stocks are traded every day on exchanges.

For investing/trading in Equity /shares of stocks you need to have a trading account and Demat account.
Trading account /brokers account basically provides you platform for trading these shares in exchange of brokerage fees for every trade and Demat account is used to credit/debit these shares digitally into and from your account when you buy/sell. Demat account have annual and opening charges and also charges for the debit of any shares from your account.

Trading account is linked with your bank account to enable transfer of money in /out for doing transaction of shares.

Various brokers that offer the above services are available in India like – Zerodha, Upstox, Karvy, ICICI direct,HDFC securities, etc. Always remember to check their charges and platforms before opting for their services. Nowadays charges are lower compared to what they used to be earlier due to entry of discount brokers like Zerodha in the market which charges less brokerage.

TIPS:
1. Equity investing through buy/sell of shares is very risky for people who don’t have knowledge of the company whose shares are they are buying and selling. One must thoroughly understand that there is a risk of money and you can lose your capital very easily in the market. So people must understand all aspect of the company its expected performance, fair price, any adverse news, the general state of economy, govt policy, and another hundred factors. After only all this there are chances that you make money consistently in the market and all these require a lot of time, patience, and courage.

Disclaimer:

This blog /page is intended to provide you the only general information about personal finance topics. It is an awareness initiative and does not provide any investment advice and endorsement of any product or scheme. Please read and understand term and conditions of schemes/products carefully before any investment.