Each one of us has come across the term stock market or share market a couple of times through various sources like the internet, media, newspaper, etc.
But how many of us have understood the real meaning of it or how many of us know how the stock market works or what is its importance in our economy?
Before explaining about stock markets first let me tell you what is a stock?
A stock or a share in simple terms means, an equal portion of a company’s capital. A single share also represents the fractional ownership in proportion to the total number of shares.
For example if Tata Motors is having a capital of Rs100,000 and they are listing 1000 shares, then the price of one share would be Rs100.
And if a person is buying 1 share of Tata Motors in this case he could get a 1/1000th share of ownership in the total capital.
The stock market simply refers to a platform wherein buying and selling of shares happen. It is not as simple or casual like a normal market.
In India stock market is properly regulated and monitored by SEBI (Securities and exchange board of India.)
IMPORTANCE OR MAJOR FUNCTIONS OF STOCK MARKETS
HELPS IN ECONOMIC GROWTH
Stock markets help in bringing a lot of idle funds from various sources to the markets through the help of buying and selling of shares
TO MEASURE ECONOMY
A country’s economic condition can be measured by analyzing the stock markets. for example, in the present scenario of the Covid19 crisis we have seen the sudden crash of stock markets in all countries. this directly says that we are in an economic crisis.
PROMOTES HABIT OF SAVING AND INVESTING
In India our banks may give a maximum of 7.5% returns on fixed deposits. whereas longterm investing in fundamentally strong companies would give much higher returns. This encourages a lot of people to start saving and to make investments
In stock markets the level of transparency is pretty much higher, any individual can check the price of any share or the value of his investment any time by just a click
I would say stock market investments are the most liquid in nature. One can sell off his share anytime during the market hours. Even during these times of lockdown, we are able to buy or sell shares. Can you think about selling your land or building at the time of an emergency?
SAFETY OF TRANSACTIONS
All transactions in Indian stock markets are properly regulated and monitored by SEBI. they help in understanding the true value of a stock with the help of supply and demand