Equities

Q  What are Equities/shares?
Shares, stocks or equities are basically one and the same thing. Buying a share in a company means buying a fraction of the capital of a publically listed company. When an investor buys shares of a company, he practically owns a part of the business of the company. Share prices tend to fluctuate constantly in response to the company’s performance, market scenario and economic environment. Investors buy shares in expectation of an increase in their price in the future.
Q  Where are Equities Traded?
In India, there are two primary exchanges; the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Q  Why should I Invest in Equities?
Shares or equities are an extremely popular asset class for investors around the world. Equity markets have historically outperformed every other type of investment and are generally held as an attractive way of creating long term wealth by investing in shares of good companies. Share prices of a company tend to increase following the consistent revenue and profit generation and investors who had bought these shares earlier at a lower value tend to benefit as a result. In addition to this capital gain, well performing companies also tend to give dividends to the shareholders out of the profit they make.
Q  How to Invest In Equities?
Investors can buy or sell shares through an agent, commonly referred to as “stock broker”. Investors can simply open an account with the broker and buy/sell shares in a publicly listed company which is listed on any of the major stock exchanges in the country. Opening an account with a broker is a straightforward process and it can be done quickly by submitting documents like ID proof, resistance proof and bank details etc. Once an account is opened, an investor can transfer funds according to his convenience and start transacting in shares and other securities like commodities, equity derivatives etc.
Q  What is Day Trading?
Day Trading which is also referred to as intra-day trading involves buying and selling of stocks within the same trading day or squaring-off your trade on the same day. Stocks are purchased, not with an intention to invest, but for the purpose of earning profits by harnessing the movement of stock indices.However, intraday trading is riskier than investing in the regular stock market.
Q  What is the difference between Primary Markets and Secondary Markets?
When a company comes out with an initial public offer (IPO) it is called the primary market. The normal purpose of an IPO is to list the stock in the share market. Once the share gets listed it starts trading in the secondary market. The difference between the primary capital market and the secondary capital market is that in the primary market, investors buy securities directly from the company issuing them, while in the secondary market, investors’ trade securities already issued. In secondary market, an investor can buy shares directly from a seller and the stock exchange or broker acts as an intermediary between two parties.
Q  What is Fundamental and Technical Analysis?
Fundamental analysis is about understanding the business of the company, its growth prospects, its profitability, its debt etc. Technical analysis focuses more on charts and patterns and tries to find out past patterns to apply for the future. Fundamentals are used more by investors while technicals are used more by traders.
Q What are Sectors?
A sector is a group of securities that share similar characteristics, such as building materials, transport and engineering companies. It is an area of the economy in which businesses share the same or a related product or service. Dividing an economy into different sectors allows for more in-depth analysis of the economy as a whole.
Q What Makes Stock Prices Go Up and Down?
If there are more sellers than buyers, stock prices will tend to fall. Conversely, when there are more buyers than sellers, stock prices tend to rise. However, there’s a compilation of factors that determine whether stock prices rise or fall. These include the media, the opinions of well-known investors, natural disasters, political and social unrest, risk, supply and demand, etc.
Q What is Dividend?
Companies distribute a small portion of a company's earnings to its shareholders. This becomes an important source of earnings for investors who stay involved in the share market for a longer period of time. However, the size of this dividend is not known to investors as it depends on company profits and is at the discretion of the company's directors. Companies can either pay fixed rate, referred to as preferred dividends, or they can pay variable dividends based on the earnings, known as common dividends.
Q What is the role of a Broker in the Share Market?
The broker helps you execute buy and sell trades. Brokers typically help buyers find sellers and sellers find buyers. Most brokers will also advise on what stocks to buy, what stocks to sell and how to invest money in share markets for beginners. They will also assist in how to trade in stock market. For that service, the broker is paid brokerage.
Q What is D-MAT Account?
The full-form of DEMAT A/C is dematerialization account. It’s an account where your bought shares will be deposited in electronic format like how your money is kept in your savings account as electronic format after deposit. There is a term called DP(depository participant) who has a right to open up demat accounts & most of the brokers have got this DP license to open up a demat account for you.
Q What are the charges applicable on Stock Trading?
Statutory charges like GST, stamp duty and STT are imposed by either the central or the state government. The broker does not get these payments. The broker just collects these on your behalf and deposits it with the government.
Q What is SEBI?
SEBI refers to Securities and Exchange Board of India. Because the bourses (stock market) have inherent risks, a market regulator is required. The SEBI is provided with this power and has the responsibility of developing as well as regulating the markets. The basic objectives include protecting investor interest, developing the share market, and regulating it’s working.
Q How does Equity Market work?
ABC Limited is a privately owned company that is currently worth Rs10,000,000. The owners want to raise some money so that they can expand the business overseas. To do this, they sell a portion of the business by issuing stock at Rs2 per share. This means ABC becomes publically listed. You decide it looks like shrewd investment so you buy Rs10,000 worth of stock. At Rs2 per share that gives you 5000 shares, or a 0.1% stake in the company.Your investment turns out to be a good one. By the time ABC releases its first annual earnings report, its share price has risen to Rs3 and your investment has grown to a value of Rs15,000. You can now either sell your shares, or hold onto them in the hope of future profits.However, share prices can go down as well as up and if ABC plc had gone down in value you could have lost money. For that reason, it is incredibly important to research both the company you are thinking of investing in and their wider industry before you buy any shares.
Q What are the risks involved in Equity Trading?
Since equities don’t pay a fixed interest rate, they don’t offer guaranteed income. Hence, with equities comes the risk factor. There are various risks involved in equity investment that affects your returns such as changes in economic environment namely, changes in interest rates, inflation, market risks to name a few. While investment in equities is not risk-free because of various risk factors, being regulated by Securities and Exchange Board of India (SEBI) you can be sure that there is no counterparty risk.
Q How can an Investor manage risk efficiently?
As an age old saying goes,'not putting all eggs in one basket’, your equity portfolio should not be concentrated to one particular investment style or a particular sector. Most risks associated with investments in shares can be reduced by using the tool of diversification. To reduce the risk, diversify your portfolio pyramid and make sure that your portfolio consists of shares across various sectors and industries like automotive, engineering, financial services, information technology. Also make sure the companies are all located in different regions and that the companies you have invested in belong to large-cap, mid-cap and small-cap clan.
Q How to build a Portfolio of Stocks?
A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their funds counterparts, including mutual, exchange-traded and closed funds. Portfolios are mostly held directly by investors and/or managed by financial professionals. The first step towards building a portfolio is to have a clear goal. Once you have that, then it's relatively easy to build the rest of the portfolio in a way that's suitable for meeting your goals. Secondly, a focused and disciplined approach with limited number of stocks can help improve performance of the portfolio. Thirdly, diversifying your investment portfolio can help by spreading around your money to a number of stocks.A well-diversified portfolio is important because in the event that one or more sectors of the economy start to decline, it will remain strong over time and reduce the likelihood of taking a significant hit as the market fluctuates.
Q What is Economic Environment?
The economic environment refers to the state of the economy in a country or region. Economic conditions are considered to be sound or positive when an economy is expanding and are considered to be adverse or negative when an economy is contracting. Economic indicators which can be used to define the state of the economy or economic conditions are the unemployment rate, levels of current account and budget surpluses or deficits, GDP growth rates, and inflation rates. An improvement in economic conditions would lead investors to be more optimistic about the future and potentially invest more as they expect positive returns. The opposite could be true if economic conditions worsen.
Q What are Company Earnings?
A Company’s Earnings is an official public statement of a company's profitability during a specific period, which is usually defined as a quarter (three calendar months) or a year. It is often evaluated in terms of earnings per share (EPS) - this is the most important indicator of a company's financial health. When the company has been profitable leading up to the announcement, their share price will usually increase after the information is released.
Q What are PE ratios and how they impact investing decisions?
The price to earning ratio (P/E Ratio) is a valuation ratio of a company’s current share price compared to its per-share earnings. P/E is one of the most important and interesting ratios used to compare the price and value of a particular stock. Usually higher the P/E ratio, the more premium is the stock and vice versa. A high P/E ratio doesn’t necessarily mean that a stock is expensive and should be sold. It simply means that investors are willing to pay a premium to hold the stock.
Q What is Dividend Yield?
The dividend yield is a financial ratio that measures the amount of cash dividends distributed to common shareholders relative to the market value per share. Dividend yield is the relation between a stock's annual dividend payout and its current stock price.A security's dividend yield can also be a sign of the stability of a company and often supports a firm's share price. Normally, only profitable companies pay out dividends. Therefore, investors often view companies that have paid out significant dividends for an extended period of time as "safer" investments.
Q What is the Tax treatment for Equity Investing?
Service Tax (ST) and Swachh Bharat Cess (SBC) - Service Tax (ST) @14% and Swachh Bharat Cess (SBC) @0.50% are payable as a percentage of brokerage due to the broker. ST and SBC together are presently levied at the rate of 14.50%. This is payable to the government by the broker. Capital Gains Tax – The Union Budget 2018-18 proposes a Long-term capital Gains tax on sale of Equity shares / units of Equity oriented Fund if more than Rs 1 lakh at @ 10% without the benefit of indexation from i.e. from 1st April 2018. Securities Transaction Tax - STT is levied by government on every transaction done on stock exchange (NSE or BSE). The STT is applicable at different rates on the value of the "taxable securities transaction". This tax amount is included in the amount you pay to your stockbroker for any purchases or sales you make. The stock broker collects this amount and pays to the stock exchange on your behalf.
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