Share market and stock market are frequently used interchangeably. However, the main distinction between the two is that, whilst the latter enables you to trade a variety of financial products, such as bonds, derivatives, currencies, etc., the former is only used to trade shares.
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two main stock exchanges in India.
Types of Share Markets
Stock markets can be further classified into two parts:
Primary Share Markets
A company enters the primary market when it registers for the first time at the stock exchange to raise money through shares. This is known as an Initial Public Offering (IPO), and it allows the company to become publicly registered and allow market participants to trade its shares.
Secondary Share Markets
Once a company’s new securities have been sold in the primary market, they are then traded on the secondary stock market. Here, investors get the opportunity to buy and sell the shares among themselves at the prevailing market prices. Typically investors conduct these transactions through a broker or other such intermediary who can facilitate this process.
What Is Traded On The Share Market?
The four categories of financial instruments traded on the stock market are as follows. These consist of:
Shares
An equity ownership stake in a corporation is represented by a share. Dividends from any earnings the company makes are owed to the shareholders. They also bear the brunt of any losses the business may sustain.
Bonds
A business needs a sizable amount of capital to start long-term, lucrative endeavors. Bond issuance to the general public is one method of raising finance. These bonds signify a “loan” that the corporation has taken out. Bondholders receive prompt interest payments in the form of coupons and are treated as the company’s creditors. The bondholders view these securities as fixed-income investments, and at the conclusion of the specified period, they receive interest on their investment in addition to the principal they initially deposited.
Mutual Funds
Mutual funds are well managed investments that combine the capital of many individuals and place it in a variety of financial assets. Mutual funds are available for a range of financial instruments, including, but not limited to, equities, debt, and hybrid funds.
Each mutual fund scheme issues units with a set value that are comparable to shares. You acquire a unit in that mutual fund scheme when you invest in such funds. When assets included in that mutual fund scheme generate income over time, the unit holder receives that income in the form of dividend payouts or as part of the fund’s net asset value.
Derivatives
A security that derives its value from an underlying security is referred to as a derivative. This can include a vast range of things, including shares, bonds, money, commodities, and more! Derivatives buyers and sellers enter into a “betting contract” over the price of an asset because they have divergent estimates for how much it will cost in the future.
Conclusion
Today, stock investing is regarded as one of the best methods for building long-term wealth. Any investor can use the stock market to help them reach their long-term financial objectives with a planned investment plan.
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