- Share Market Basics
- Investing in Mutual Funds
- Trading in ETFs
- Profit from Share Market
- Capital Gains in Share Market
- Risk Management in Share Market
- Diversification in Mutual Funds
- Liquidity in ETFs
The Share Market is a platform where buyers and sellers trade in publicly listed shares. It’s also known as the Stock Market. There are two types of share markets: Primary and Secondary.
In the Primary Share Market, a company registers itself for the first time at the stock exchange to raise funds through shares. This is called an Initial Public Offering (IPO). Once a company’s new securities have been sold in the primary market, they are then traded on the Secondary Stock Market.
The financial instruments traded on the stock exchange include Shares, Bonds, and Mutual Funds.
To invest in the share market, you need to follow these steps:
- Open a DEMAT account and ensure it is linked with a pre-existing bank account to carry out transactions smoothly.
- Sign in to the DEMAT account via the mobile-based application or web platform.
- Pick a Stock that you want to invest in.
- Make sure you have sufficient funds in your bank account to buy the shares you wish to purchase.
- Purchase the stock at its listed price and specify the number of units.
- Once a seller reciprocates that request, your purchase order will get executed.
You gain profit in the share market when you sell the shares at a higher price than the amount you invested buying them. The profit or gain that arises from the sale of shares is treated as Capital gains under Income Tax Act. Capital gains are further classified as short term or long term based on their holding period.
Short-Term Capital Gains (STCG): If equity shares listed on a stock exchange are sold within 12 months of purchase, the seller may make a short-term capital gain (STCG) or incur a short-term capital loss (STCL).
Long-Term Capital Gains (LTCG): If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller may make a long-term capital gain (LTCG) or incur a long-term capital loss (LTCL).
Please note that investing in the share market involves risks and it’s important to do thorough research and consider seeking advice from financial advisors before making any investment decisions. Also, the tax implications on the listed securities like listed equity shares, bonds, bonds and debentures listed on a recognized Indian stock exchange, units of UTI and Zero-coupon bonds should be considered.
Share Market for Beginners: What is the difference between shares and mutual funds?
Shares and Mutual Funds are two different types of investment avenues. Here are the key differences between them:
- Definition: Shares represent the ownership of a company. When you buy a share, you own a part of the company. On the other hand, a mutual fund is a collective investment scheme that pools money from various investors and invests it in a variety of assets, including shares of different companies.
- Management: Shares are managed by the individual investor. You are responsible for monitoring the price movement of shares and managing your investment2. Mutual funds, however, are managed by professional fund managers.
- Diversification: Investing in shares may not lead to diversification unless you choose to invest in different stocks. Mutual funds allow diversification as the pooled money gets invested across different shares or fixed income instruments as per the fund’s objective.
- Risk Mitigation: Mutual funds invest the pooled money into the securities of various companies, which helps to minimize the risk in case of any market volatility2. Shares are subject to market risk3.
- Flexibility: When you invest in shares, you have the flexibility to buy or sell as per your preference. In mutual funds, you don’t get to decide which securities should be in your portfolio.
- Tax Efficiencies: Equity-oriented mutual funds such as Equity Linked Savings Scheme (ELSS) allows deductions up to Rs. 1.5 lakh in a financial year under Section 80C of the Income Tax Act2. However, no such tax benefits are available in the case of shares.
Please note that both mutual funds and shares offer unique opportunities for investors to grow their wealth. The choice between the two depends on factors like risk tolerance, investment goals, and market understanding. It’s important to do thorough research and consider seeking advice from financial advisors before making any investment decisions.
Share Market for Beginners: What is the difference between a mutual fund and an ETF?
Investing in Mutual Funds and Exchange-Traded Funds (ETFs) can be done in a systematic and easy way. Here are some steps to guide you:
Investing in Mutual Funds:
- Set Your Financial Goals: Define your financial objectives. This could be saving for retirement, buying a house, funding your child’s education, etc.
- Research and Select Funds: Mutual fund categories vary depending on the return they can offer and carry different levels of risk. Choose the ones that align with your financial goals and risk tolerance.
- Open an Investment Account: You’ll need to open an investment account with a brokerage or a mutual fund company.
- Allocate Funds and Diversify: Decide how much money you want to invest and diversify your investments across different mutual funds to reduce risk.
- Invest: You can invest in lump sum or through Systematic Investment Plans (SIPs) or Systematic Transfer Plan (STPs) depending upon your specific financial situation and needs.
- Monitor and Rebalance: Regularly review your mutual fund investments and rebalance your portfolio if necessary.
Investing in ETFs:
- Open a Brokerage Account: To buy ETFs, you’ll need to open a brokerage account.
- Choose Your ETFs: Research and choose the ETFs that align with your investment goals.
- Buy ETFs: You can buy ETFs on the stock exchange like any other stock. You can place different types of orders like market order, limit order, stop order, etc.
- Monitor Your Investment: Regularly review your ETF investments and make adjustments as needed.
Remember, investing involves risks and it’s important to do thorough research and consider seeking advice from financial advisors before making any investment decisions. Also, consider the tax implications of your investments. Mutual funds and ETFs have different tax treatments. For example, in equity funds, short term capital gains (held for less than 12 months) are taxed at 15% and long term capital gains (held for more than 12 months) are tax exempt up to Rs 1 lakh in a FY and taxed at 10% thereafter1.
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