Why Stock Market for Investment?

As we have studied in our previous module as to how there are different types of assets where you can invest.

Today I have come here to teach you, What is stock market investment? Before  also, I had discussed the stock market, it is a place where you can do investment.

 Then we also saw the different places where we can invest, now As we saw that there are different places like fixed deposit gold and lastly we talked about the stock market, So what is the reason that we should invest in the stock market itself? We will discuss this particular concept over here .

So today our topics will be what are the different benefits of investing in the stock market then what are the different types of markets that we have.  Okay so let us begin with a lecture today.

 Now the first topic that we have is Benefits of investing in stocks.

So the first point in this is high returns and with that risk is also an important thing that is associated, As it is always going to be there with most of the investment.

I will explain to you why this is so, supposingly you started a business, for example a pharmacy, So you know that this is a place which will always give you returns because it will never shut down. similar is the case with any grocery shop. But still there are always chances of a crisis that can affect it.

So same is the case with the stock market with its High return benefits there are always the chances of risks that are there with it. Let me give you an example for this, supposedly you bought a ₹500 shares, And you expect it to rise up to 600 700 or maybe to get ₹1000 profit, so you can imagine a great return from it, like ₹1000 . But there can also be the chances of that money reducing to 200 from 500 so there is always a chance of risk that is there.

So, there is always a risk that is associated with the stock market investment which I’ve always spoken about, Because if you’re buying a stock you are becoming a partner of that company.  So if a company undergoes profit or loss you are always associated with its ups and downs. It happens due to demand and supply,  Which is because if I’ve a company whose product demand has decreased, If the company loses its demand there is no fault in that company. It can happen because some other company bought a better product than theirs in the market. So the consumers will start looking forward to the products that the other companies manufacture.

 So here you have to  very carefully understand the business model before investing, where your primary goal is to choose a sector and in that,  such a company whose business model is good and  has high fundamentals. So normally, we have to take care of 2 things while selecting any company, that is Fundamentals and technical. In fundamentals you have to see 2 things that are qualitative analysis and quantitative. Meaning you have to see the  companies profit loss and sales.

 Second thing is that we have to look at the company's management.

 I will give you an example of management. You all must have watched cricket. When MS Dhoni was the captain of our Indian team, we never were worried until he was on the crease as we believed that he would take the team forward.

Because he is a captain and he is representing the entire company,  Same things happens inside a company where companies profit and loss is not just the things that matters but the companies management system is what matters the most, As to how the companies is viewing the commentaries,How the company is prepared for its weaknesses, Threats or changes, Will it be able to tackle all of that. What is the Long term view of that company? This is what is important: can you find this type of return and risks involved in the company. Then you should definitely invest in that particular company.

Second point is flexibility of amount,

Meaning it doesn’t matter whether you can invest 1,00,000, 2,00,000 or 10,00,000 rupees, what matters is even if you have ₹100 you can still invest in that company, How you can do that?,suppose that the company stock price was ₹20 and you know that this company is good enough,Then what will happen there that this 20 will become 40,50,60 and so on it will keep increasing, and it has the potential to reach up to ₹100, so you have ₹100 you can buy 5 shares, So in this way you purchased 5 stocks increase, now what will happen is that slowly and gradually this money will increase, with the company’s  growth, as the company started giving commentaries, so everybody will come to know that this company is nice, so even they will start buying the stocks of that company, This buying means that demand of the company is raised, Whenever such a demand increases everybody knows, that this results in the increase of price. So you bought the stock at 20 rupees that stock will increase and become 25, 35, 45 and so on, So you had invested ₹20 but you got ₹20 more in that which means the investment that you had done that money has become free now, that is you capital is free, Now there is no worry at all, because the investment that you had done you’ve got it back.

so this means that you can start with any amount that you have, in this case you had ₹100 and the stock price was of ₹20, and now it has become 40, so your amount is almost doubled, so you’ve got a complete 100 percent return, so you knew already that the maximum that you can loose from this is your 100 rupees, and even if you don’t want to make your 100 rupees zero, then as you will face 10 rupees loss, you will book your investment, so in this way you understood your return and risk very well, That means you were clever to judge that How much risk you can bear in the investment, and accordingly you made you executed in your investment.

Ok, so this much is clear,

Now, the third point is dividend, you all know that during the time of Diwali, one common thing that both private and government institutes give is bonus, so it’s written nowhere that you will receive bonus for sure, but still you get it, why? Because they want to make the employees happy, to promote the loyalty that the employees have been through all the years, dividend is also a same type of thing, that is announced timely,

Now, when do they announce dividend mostly? So, when the company generates profit in some quarter, then taking out all the expenses, taxes, still the company has 200 crores of profit, so the company will decide to give 50 crores of dividend, so per share we will give some xyz amount to our shareholder, Why did they want to give? Because, they want to appreciate the fact that the shareholder was with them for such a long period, so giving dividend is not compulsory, it depends upon the company whether they want to give it or not.

Still giving dividends is a good thing, that it utilises it’s money in a positive way, if the company does not give, then it represents a bad thing, because if the company has money, there should be some sort of expansion which is necessary.

Now, our fourth point is, Capital Growth, I have already discussed the example, so you invested 100 rupees, now your capital is doubled, so you capital is growing, and you also got dividend, so you know that you got a good amount of returns, which makes you assure that you can make the investment here.

Now, next point that is fifth is liquidity or also known as participation, which means that you have an instant population of buyer and sellers, supposedly if I have 20 rupees stock and now the cost of it is 25, so if I want to sell in 25, which requires people to buy also, so this is known as participation liquidity, that is there is an importance of participation liquidity which means the involvement of people or the volume which is necessary,

Ok!

So, in this way we saw the benefits as to Why we should make investment in stocks?

Now, we will talk about types of Market,

Normally, share market is known as Capital Market, now in capital market there are two different parts, first is primary market, there you should always keep in mind that is about fundraising, meaning you have to pick up the funds, second, along with that comes the secondary market, where it means after receiving money, now was the time to transfer shares to people and with that started the trading. So, this is our secondary market, we are going to discuss this ahead.

After this, the next type of market is Wholesale debt  Market, or also known as Money market, that we have discussed in the previous session also, here I will give you two examples, one is Debentures, and the other  bonds, rest also I have already given you the details.

Ok!

So, you already know about debt securities.

Then comes the derivatives market, now this derivatives word sounds a little difficult, let's see what it is, see below what else is written here, "futures" and "options", still you are unable to get an idea as to What it can be? Ok!

Now what is this future, I will give you a simple example for it

Suppose that you want to buy an activa, ok! So, you want to buy two wheeler moped, if you go to buy it in cash, then you will need 60 thousand or 70 thousand in hand cash, he will give you the activa, then you taught let me take on EMI s, he will ask you to pay some down payments,so the same vehicle that was going to cost 60-70 thousand will not cost around 80-90 thousand. So, why did it cost more? Because of Interest.

So, what is a derivative, it is the main underlying asset, which is derived from that asset.(didn't get the word).

Second example I will give you, milk everyone knows with that ghee, buttermilk, curd many things are made, now, suppose the prices increase of milk, ok!

So, what will happen is that prices for all other related products will also increase, or let's say the prices of milk decreased, so the prices of all other products will also decrease, if the price of milk remains constant then the rest of the products also remains constant.

So, what is a derivative, it is the same type of different things, so future and options, we will discuss about them in upcoming lectures.

If you have any doubts or queries,then you can post that in the comment section, and in this way your questions will reach us, and your comment will reach the other learners, the result of which, it will help in creating discussion of queries and solutions.

So, don't forget to post your comment in the discussion box.