In this blog, we will explore the world of the share market, specifically targeting freshers who want to understand how to earn money from it. We will start by discussing why the share market exists and how it operates. Moving on, we will look into the concept of market indices, such as Nifty and Sensex, to understand how they work and impact trading.
The main focus will be on various ways to earn money from the share market. We will cover different investment strategies and trading techniques that people use to generate profits. Additionally, we will analyze the potential returns on investment in the share market, along with comparing it to other investment options.
An essential aspect we’ll explore is the capital requirement for investing in the share market. Understanding how much money is needed to begin trading will be crucial for freshers looking to enter this domain.
We aim to provide comprehensive insights into the share market, addressing the questions and concerns that freshers may have. By the end of this blog, readers will have a clearer understanding of the share market and how they can capitalize on its potential to grow their wealth.
Let’s say you are starting from a small cafe with a requirement of ₹10 lakhs to a larger company aiming for a capital of ₹100 crores. For the initial investment of ₹10 lakhs, one can seek financial support from family, friends, and potentially approach a bank for a business loan.
As the business grows and expands, the need for larger investments arises, such as opening cafes across the country or establishing a company manufacturing electric cars, requiring capital in the range of ₹100 crores or even more. In such cases, solely relying on personal funds or loans may not suffice.
To secure substantial capital, one can explore alternative routes, such as attracting investors or venture capitalists who are willing to invest in the business in exchange for equity. Additionally, companies can issue shares to the public through an initial public offering (IPO) to raise funds from the market.
It is essential to understand that scaling up a business significantly increases the complexity of funding, and careful consideration of available options is crucial. Whether through loans, investors, or IPOs, securing capital for large-scale ventures demands a well-thought-out strategy to ensure the business’s success and growth potential.
We’ll explore how large sums of money, such as ₹1000 crores, can be raised for significant business ventures. When funding requirements exceed what can be arranged from personal sources or loans, the concept of raising capital through shares comes into play.
Suppose an entrepreneur needs ₹10 lakhs for their cafe, and they have ₹3 lakhs available. To bridge the gap, they can seek investors willing to provide the remaining ₹7 lakhs in exchange for shares in the business. This process enables multiple individuals to invest in the business and become partial owners, commonly referred to as shareholders.
In the context of establishing an electric car company requiring ₹1000 crores, the same principle applies but on a larger scale. To gather such substantial capital, the company can go public through an Initial Public Offering (IPO). By doing so, the company offers its shares to the general public, allowing people from various backgrounds to invest in the company and become shareholders.
Once a company goes public, its shares get listed on stock exchanges, like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. Here, individuals can buy and sell shares, and the stock market becomes the platform where shares are exchanged for money.
Once a company’s shares are listed on the stock exchange, individuals from the public can purchase them. The money from these share purchases goes directly to the company, which can then use it for various purposes, such as investment in their plant or expansion.
The stock market acts as a platform where buyers and sellers come together. It operates based on the principles of supply and demand, determining the share prices. If more people want to buy a particular share, its price tends to rise due to high demand. Conversely, if more people want to sell a share, its price may fall.
The concept of circuit filters is crucial to understand. If the demand for a particular share exceeds the available supply, the share price may reach its upper circuit, where there are no more shares available for sale at that price. Conversely, if there are more sellers than buyers, the share price may reach its lower circuit, where there are no more buyers at that price.
With over 5000 companies listed in the Indian stock market, keeping track of their individual performances can be overwhelming. To simplify this process, indices like Sensex and Nifty were created.
The Sensex comprises the top 30 companies listed on the Bombay Stock Exchange (BSE), while Nifty includes the top 50 companies listed on the National Stock Exchange (NSE). These indices serve as indicators of the overall market movement, representing the collective performance of the selected companies.
When Sensex increases, it means the share prices of the top 30 companies have shown an overall rise. Conversely, if Sensex falls, it indicates a decline in their share prices. The same principle applies to Nifty, reflecting the performance of the top 50 companies listed on NSE.
These indices are essential for investors, analysts, and the general public to gauge the market’s overall direction and sentiment. By tracking the performance of these benchmark indices, stakeholders can better understand the stock market’s movements and make informed decisions regarding their investments.
The two major ways to earn money from the stock market: investing and trading. Investing involves buying shares of a company and holding them for an extended period, similar to holding onto gold as a long-term investment.
When investing in shares, the value of the investment grows over time, influenced by various factors. The performance of the company plays a significant role in determining the share price. A company with good financials and consistent growth is likely to see an increase in its share price, providing a return on investment to its shareholders.
Another factor that can impact share prices is inflation. Continuous printing of currency by the government can lead to inflation, causing prices of goods and services to rise. This, in turn, can lead to an increase in share prices, but it also means the value of the currency depreciates.
On the other hand, trading involves buying and selling shares frequently within short periods to profit from short-term price movements. Traders aim to take advantage of fluctuations in share prices to make quick gains. Trading requires a deeper understanding of market dynamics and technical analysis.
Both investing and trading offer different strategies for earning money in the stock market. Investors aim for long-term growth, while traders seek short-term profits. Understanding the fundamentals and market trends is essential for success in either approach.
We draw comparisons to the past by asking readers to inquire about their parents’ expenses when they got married and how the prices of basic items have increased over time due to inflation.
Inflation is a phenomenon where the value of currency decreases over time, leading to a rise in the prices of goods and services. In the stock market, inflation can influence the share prices of companies. However, when investing in quality companies with good financial performance, the effects of inflation can be mitigated.
Over time, as companies grow and expand their share prices tend to increase exponentially. This means that investments made in certain companies can yield significant returns, sometimes multiplying the initial investment several times. Historical examples of companies like Wipro, Infosys, MRF, Titan, and others have demonstrated this potential for wealth multiplication.
The key to successful investing lies in identifying promising companies with long-term growth prospects. By making well-informed investment choices, one can benefit from the compounding effect and witness substantial growth in their investment over the years.
It is important to note that such exponential growth may not happen overnight; it requires patience and a long-term perspective. Identifying multi-bagger companies and holding onto their shares over extended periods can lead to significant wealth creation, turning a modest investment into a substantial amount.
The use of leverage is a fundamental aspect of trading, allowing traders to control larger positions with a smaller capital outlay. For example, with one lakh rupees, a trader can access five times leverage, effectively controlling a trading position of five lakh rupees. If the price of the shares goes in the trader’s favor, the profits are multiplied by the leverage amount, potentially resulting in significant gains.
However, leveraging comes with higher risks. If the trade goes against the trader, losses are also magnified by the same leverage factor. It is crucial to approach trading with caution and an understanding of the associated risks.
Swing trading and intraday trading are common trading strategies. Swing trading involves holding positions for a few days to weeks, while intraday trading involves buying and selling shares on the same day.
Trading in the stock market requires thorough knowledge, technical analysis, and discipline. Leverage can be a powerful tool for experienced traders, but it can also lead to substantial losses for those who lack expertise or risk management skills.
However, leveraging is a double-edged sword, as it magnifies both profits and losses. Without proper learning and understanding, trading can quickly turn into gambling, leading to significant financial losses.
To succeed in the stock market, one must invest time and effort in learning. For investment-based approaches, Fundamental Analysis is crucial, focusing on understanding a company’s financial performance and growth prospects. On the other hand, for trading-based strategies, learning Technical Analysis is vital, which involves studying price charts and market trends.
Intraday trading and derivatives like futures and options offer opportunities for quick profits but require a comprehensive understanding of market dynamics and various trading strategies. Uninformed and hasty decisions in trading can lead to substantial financial setbacks.
When we talk about Return on Investment (ROI) in the context of the Indian stock market, it becomes essential to consider the country’s growth prospects and its potential for progress. As India is witnessing rapid development, with a thriving young population and a flourishing business landscape, there are numerous opportunities for growth in various sectors. If one believes in India’s growth story and its potential for becoming a golden bird again, then investing in the stock market becomes an attractive option.
Investing in the stock market means buying shares of companies that are performing well and have the potential for future growth. Companies that consistently earn profits tend to see an increase in their share prices. As businesses prosper and profits grow, their share prices may also rise. Identifying such companies early on can lead to significant returns on investment.
A key factor to consider is the products and services that individuals use in their daily lives. Companies like Colgate, MRF, Pidilite, Asian Paints, Policy Bazaar, Zomato, UPI, Paytm, and others are part of people’s everyday lives. As consumers continue to use their products and services, these companies continue to earn profits, which in turn can lead to an increase in their share prices.
If one invests in the broader market, like the Nifty index, the overall returns can be impressive. In recent years, the Nifty has provided returns of around 15%, which is considered favorable in the stock market.
It is important to note that investing in the stock market carries inherent risks, and one must conduct thorough research and analysis before making investment decisions. Diversification of the portfolio is essential to manage risks effectively.
When we talk about achieving financial goals through investing, even moderate returns can lead to significant wealth accumulation over time. Let’s take a practical example to illustrate this point. Consider a common man who can comfortably save ₹1500 per month. If this individual consistently invests ₹1500 per month and earns an average annual return of 15%, the results can be remarkable.
Using a SIP (Systematic Investment Plan) calculator, you can estimate the potential wealth generated over time. Assuming a 30-year investment period with a 15% annual return, the final amount can surpass ₹1 crore. This substantial growth demonstrates the power of compounding and the benefits of long-term investment.
However, it is crucial to align your investment goals with your specific financial needs and timeframes. Each individual may have different aspirations, such as buying a car, funding a child’s education, planning a wedding, or buying a house. Clarifying your financial goals and determining the required timeframes is essential for effective goal planning.
Mutual funds can be an effective investment tool to achieve these goals. By exploring the available options and making informed investment decisions, individuals can work towards achieving their financial aspirations.
Achieving substantial wealth through long-term investments requires patience and consistent efforts. The power of compounding can lead to remarkable results over time. Consider the example of investing ₹1500 per month with an annual return of 15%. In 30 years, the investment of around ₹5.4 lakhs can potentially grow to more than ₹1 crore.
However, even a slight increase in annual returns can significantly impact the final amount. With an annual return of 18%, the investment of ₹5.4 lakhs can reach ₹2 crore, and at 20% returns, it can surpass ₹3.5 crores. These outcomes may seem incredible, but they are practical with disciplined investing and compounding.
To achieve such growth, it is essential to understand different investment options. Direct investment involves personally picking stocks and investing in them, while mutual funds offer professional management by investment experts. Mutual funds can be further classified into active funds, where fund managers continuously select stocks, and passive funds, such as index funds, which mimic the performance of specific indices like Nifty.
Whether you choose direct investment or mutual funds, it is crucial to have a Demat account to buy and sell stocks. For newcomers, mutual funds through SIP (Systematic Investment Planning) can be a suitable starting point due to professional management and ease of investment.
Earning money in the stock market does not require a specific educational background, and even those without a commerce background can succeed. Warren Buffett himself emphasized that one doesn’t need extensive education to make money in the stock market; instead, a basic understanding and common sense can be sufficient.
An interesting research study conducted in a foreign country revealed that nurses achieved the highest returns in the stock market. This is not about making millions, but rather about the fact that the money they invested multiplied significantly over time. The key is to let your investments grow over the years without actively managing them.
Investment in the stock market requires patience, discipline, and a long-term approach. It is not about quick gains or speculative trading based on tips and recommendations. People who trade without knowledge and on random advice often incur losses, leading to negative perceptions about the stock market.
Learning is essential before entering the market. For investing, understanding fundamental analysis can help in making informed decisions about the companies you want to invest in. For trading, learning technical analysis, chart patterns, candlestick patterns, and other strategies is crucial.
Investors should maintain a diversified portfolio and have a clear understanding of their financial goals and risk tolerance. Entering the stock market with the intention of gambling or getting rich quickly is not advisable. It is essential to have a well-thought-out plan and stick to it.
The stock market can provide significant returns over time, but it requires careful and disciplined approach. Blindly following tips and chasing quick gains is risky and may lead to losses. Instead, focus on learning and understanding the market, and make informed investment decisions based on solid research.
Starting in the stock market doesn’t require a specific educational background, and it is not about getting rich quickly. It’s essential to understand your goals and have a long-term approach. People who expect quick gains often end up disappointed. Instead, one must focus on learning and developing a strong foundation in the market.
The first step is to open a Demat account, which is essential for trading and investing. Once you have the account, take the plunge and buy your first share of a company you like or believe in. This will create interest and enthusiasm, and you will begin to learn more about the stock market.
Learning is crucial in the stock market, and it directly affects your earning potential. As you increase your knowledge, you’ll gain a better understanding of market concepts like market cap, PE ratio, and PB ratio.
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