Share market is a place where one can buy or sell company shares, subscribe to new issues (IPO), buy or sell mutual fund units, buy or sell many other financial instruments etc. For doing these operations seamlessly and in a continuous manner on a daily basis or on a time gap basis, one has to have a Demat account which can be opened in any bank or the financial entity which provide this online service on a fee basis. Whenever you do a transaction they will be deducting some small percentage from the proceedings which is called brokerage. Different banks/companies have different schemes of deducting brokerage and charging annual fees and one can select as where to open an Demat account on that basis.
Let us now go one by one to these investments in greater details to understand the modalities and subtleties of the subject. Companies raise money by issuing equity shares to the investors and many people apply for them at the time of IPO and at that time shares are available either on the face value or with some premium on it depending on the company profitability, reputation, and goodwill in the market. Once those shares are sold to the investors then they can sell them in the market depending on the price they are quoting in the share market. I have seen cases when people bought shares through IPO and within no time they started quoting very high and investors made profit by selling them. But it does not happen like that every time and many times shares quote at lower than the issue price and investor loses money or keeps them for a long time waiting for the rise. There are so many companies whose shares are quoted in the market and their prices change with time depending on the company performance as well as market sentiments. Market sentiments can drastically change with the political scenarios and war and peace like situations. Then the economic progress is also one factor which fuels the share market. Making money in share market is not an easy job as one has to study about a particular share and that company and speculate about its future based on that knowledge. It is generally believed that if one invests in good companies (known as blue chip companies also) then the chances of losing money are minimised and in long run, generally people make a handsome amount. This would require patience to hold them for a long time. These top companies generally reward the investors through bonus shares, right shares, good amount of dividend etc which adds to the return on investment.
Let us now come to the Mutual Fund (MF). We buy the Mutual Fund units from the Mutual Fund house either as a new issue or based on the market price. The Mutual Fund companies invest this amount in shares as well as debt instruments depending upon the type of scheme. An equity scheme will invest only in equity while a balanced scheme will invest say 60% in equity and 40% in debt instruments. What we mean by debt instrument is like company deposits, debentures etc where return is fixed and low but risk is also less. On the other hand shares are always a risky investment. So, many MF schemes will invest in a balanced way also. There are also some pure debt schemes which provide low return with less risk. Those people who cannot do the share trading directly go for the MF route as MF companies will be doing same thing for them in a more knowledgeable manner as per their experience. The effort of the MF scheme is to give the maximum return to the investor. One point to note is that if share market goes down then the MF unit value (known as NAV) also goes down and the MF investors suffer a loss.
Another type of investment is bonds, company deposits, PSU bonds, Govt bonds etc. Many of these also quote in the market and many times are available at a price at which one can buy them and later sell when there is rise in their prices or cash them at their maturity. Non taxable bonds issued by PSU are a popular option in this segment. Many traders go for Govt bonds also. This segment is generally targeted by the bulk investors who have a long time goal of making an average return with less risk involved.
The last thing that I want to mention is that there are daily level fluctuations in the share market and traders take advantage of every opportunity of making money out of it but everyone does not success as the calculations might go wrong at times and that is why it is called a high risk area. In such cases sometimes gains could be high but other times losses will also be high. So, one has to tread carefully and should take wise and prudent steps to safeguard ones investment. There is no magic to make quick money in the share market and hurried attempts would prove disastrous. It is a meticulous game of study, speculation, and patience.
Knowledge is power.