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FAQ

1.    What is a Stock?
It is a piece of ownership of a company. When a company needs extra money to help grow their business (like maybe they want to go from 1 store to 100 stores), they can sell some or all of the ownership of the company in the form of a offering. They may want to raise $100,000,000 and if the hire an investment banking firm on Wall Street to help value the company, set the initial price, and then sell the shares to the public. So if you were to buy 100% of a company’s stock, you would own the whole company. If you own a stock then you also get to vote on major decisions of the company. Keep in mind though that each gets one vote so if you only own 100 shares and the company has 100,000,000 shares outstanding your vote is only worth so much. Over the last 100 years, despite the ups and downs, this has been the best way to invest your money over the long term.

 

2.    What is a share?
A share is one individual piece of stock. Most companies have millions and some of the larger companies have billions of shares issued. So if you only own 100 shares you would own a very tiny percentage of ownership of a company. It is, nonetheless ownership of the company.

 

3.    What is a bull market?
A bull occurs when prices are rising faster than their historical averages. It can last months or even years. It is the opposite of a bear.

 

4.    What is a bear market?
A bear occurs when prices are falling faster than their historical averages. It can last months or even years. It is the opposite of a bull.

 

5.    What is a market crash?
The “crash” happens when prices have dropped dramatically. One of the worst crashes was Black Tuesday, which occurred on October 29, 1929 and led to the Great Depression.

 

6.    What is insider trading?
Insider trading occurs (1) when an insider to a company, such as an officer or someone who owns a large percentage of the company, trades the company’s shares. This is legal and acceptable, as long as that person is not trading based upon non-public company information.

          Insider trading also occurs (2) when anyone, including employees, trades using non-public company information. This is considered illegal.

7.    How much money do I need to get started?
These days, you can open an online account with a brokerage with as little as Rs 1000. When you purchase shares, your brokerage will generally charge you a commission fee depending on the type of brokerage and type of order you place.

 

8.    What is the Bid price? What is the Ask price?
When you request a quote, you will receive the bid price and the ask price. The bid price is the best (highest) price you might receive if you sell your shares back. The ask price is the best (lowest) price you might receive if you buy.

You are not guaranteed to get these prices because of constant fluctuations and prices changing quickly. Also, if you buy (or sell) shares of low-volume, you run the risk of affecting the price due to excess demand (or supply).

9.    Will somebody always buy my shares when I sell them?
No. If you try to sell more shares than people are willing to buy or if your price is unreasonable, it may take a long time for them to sell, if at all. However, if you use orders on medium or high volume you should not have any problems selling them immediately.

 

10.    What is day trading?
Day trading is the process of buying and selling the same stock during one day. Professional day traders commonly trade many times per day.

 

11.  When is the market open?
In the India, they are usually open 9:15am-3:30pm IST, except on holidays.

 

12.  How much return can I expect?
Historically, the exchange has advanced roughly 20 %( not necessarily) per year. Of course this rate fluctuates constantly. For instance, it may grow up 30% one year, then fall 20% the next year.

13.  How do I know which to buy?
That is a great question. With over 8,000 different stocks to choose from, it can be overwhelming to pick some possible winners.

Many people simply buy what is recommended to them by their brokerages, their friends, or experts from TV, magazines, and newspapers.
Some people buy shares from companies they think are big, stable, and successful. This may seem like a safe route, but there are no guarantees.
Other people buy shares based on rumors that the price will rise/fall sharply soon.
Many experienced traders watch financial news on TV, read the relevant newspaper stories, and investigate companies that are in the news. They also use “technical indicators,” which are numbers or graphs which may help indicate whether shares will rise, fall, or stay the same.

14.  What is a mutual fund?
A mutual fund is a fund created by an investment company which combines money from many investors and invests it in a group of shares, bonds, or other investment vehicles. The investment company actively manages the portfolio to meet a desired goal, such as long-term growth or steady dividends. One major benefit is diversification. Many mutual funds also charge a fee when someone buys or sells shares.

When someone buys shares of a mutual fund, they are not directly buying shares of the underlying companies. Instead, they are entitled to a proportional amount of the fund’s profits, which are usually distributed two or three times per year.

 

15.  What is a mutual fund’s N.A.V.?
The Net Asset Value (NAV) is the current price of a mutual fund, which is calculated at the end of each business day. It is the total value of the fund’s assets minus its liabilities and divided by the total number of shares outstanding. It is similar to a share’s closing price for the day.

16.  What are the main ways to make money with shares?
Buy Low, Sell High (traditional long trading)
Sell High, Buy Low (short selling)
Dividends
Options trading
Futures

 

17.  What is short selling?
Short selling is the act of selling shares that you don’t own at a high price by borrowing it from a brokerage and then buying it back at a lower price in the future. The hope is that the price will drop in value and a profit can be made. This is an advanced technique that has strict requirements and higher risks.

 

18.  What is a dividend?
A dividend is money that a company gives to its shareholders when it has extra profit. Since the shareholders own the company, they deserve its profits. However, sometimes companies want to use these profits to help grow their business and decide not to distribute dividends, at least for a while.

 

19.  What is the P.E. ratio?
The Price to Earnings ratio is simply the price of a company’s stock divided by its Earnings Per Share. It is often used as an indicator of whether shares are overpriced, under-priced, or on par. The PE ratio by itself is not always enough to make a good determination but it can be helpful to compare it with other companies in the same industry.

 

20.  What is a split and a reverse split?
A split is an increase in the number of outstanding shares. The price is immediately adjusted so that the total equity remains the same. For instance, if a Rs100/share splits 2 for 1, there will be twice as many shares but they only be worth Rs50 each now. This is usually done to make it more affordable to the public.

A reverse split is a decrease in the number of shares. This is usually done to raise the price per share to meet exchange requirements or simply to look more “healthy.”

21.  What is an IPO?
When a company issues shares to the general public for the first time, it is called an Initial Public Offering. The SEBI has strict guidelines on how this is carried out. The company can issue more in the future, which is called a Secondary IPO.

 

22.  What is a penny stock?
Penny stocks are shares of companies that have market capitalization (market capitalization-the total value or worth of the company) less than Rs.100 crore and each share trading below Rs.10.

 

 

23.  What is a small-cap? Mid-cap? Large-cap?
Market capitalization is the aggregate valuation of the company based on its current share price and the total number of outstanding stocks. It is calculated by multiplying the current market price of the company's share with the total outstanding shares of the company.

 

Stocks of companies are of three types.

a)    The stocks with a market cap of Rs 10,000 crore or more are large cap stocks.

b)    Company stocks with a market cap between Rs 2 crore and 10 crore are mid cap stocks and

c)    those less than Rs 2 crore market cap are small cap stocks.

 

24.  What is a Blue Chip?
It is the stock of a large company that has a long history of stable operation and solid performance. A great example is State Bank Of India (SBIN).

 

25.  What is the SEBI?
The Securities and Exchange Board of India (SEBI) is the government agency responsible for protecting investors by monitoring and regulating brokers, dealers, and the bonds in the India. They also make sure publicly-traded companies disclose the required business details to the public.

 

26.  What is a Margin Account?
A margin account allows you to quickly and easily borrow money from your brokerage to purchase additional shares. In other words, it provides leverage for your account. It also allows you to do short selling. Of course interest is charged interest on any borrowed money and the SEC has very strict regulations on these accounts.

 

27.  What is the difference between trading account and demat account in share market?

Trading account helps you to buy and sell stocks and demat account is like a bank account it safely keeps the stocks bought and an account of stocks sold.

 

28.  What is derivatives in stock market,how it is diffrent from equity shares?

Put simply, a derivative is something that derives its value based on some other asset. E.g. In equities, derivatives are specialised contracts / agreements to buy or sell the underlying asset (equity shares) up to a certain time in the future at a price, which is called the 'exercise price'. These contracts have a fixed expiry period, unlike equity shares, usually a month. The value (price) of the contract depends on the expiry period and also on the price of the underlying asset. Thus, derivatives are based on the underlying asset (equity) and are not equity shares by themselves.

29.  What is a dividend?

Dividend is the portion of company's earnings distributed to its shareholders.

 

30.  What is stop loss in sharemarket?

Stop loss in sharemarket means a level of share price at which an investor limits its loss on a stock. This level has to be specified in advance and if a stock falls to that price level the stock automatically gets sold so as to reduce any further losses.

 

31.  Tax benefits of share market invesments?

One can avail tax benefits through Rajiv Gandhi Equity Savings Scheme if they are first time investors in share market. First time investors can make an investment upto Rs 50,000 and can enjoy a tax deduction of 50 percent of such investment. Also, one can also invest in Equity Linked Savings Scheme (ELSS) of mutual funds for availing tax benefit. Moreover, long term capital gains (sale of shares held for more than one year) are tax free, if shares are sold through stock exchanges.

 

32.  What is the settlement period?

It depends upon segments generally its T+2 for Cash and t+1 for Derivative. But same may get impacted due to banks holiday, Such changes takes place post exchange confirmation only.