We mostly consider stock Market as a way of making money and mostly in a way of gambling, so today I am going to open your eyes and help you understand Stock Market and why it also helps to build the nation.
And I will try to wrap this all in under 15 minutes...
What is stock Market - Stock Market is a place where companies are listed and these are all companies which are in existence and some of them have been there for decades like Tata's, Reliance and Aditya Birla group.
Now, they are listed - So that common people, Institutional investors and banks can be part of their journey(in form of shares of their company) and they can have the money for their expansion.
Thus, the most basic definition of Stock Market i.e. It's actually a lending platform where the big houses lend money from common people, keeping a part of their organisation as security.
Now there are few ways to take part in stock Market:-
Day trading - This is the most riskier way in which people participate in the stock market and it, in reality, doesn't benefit the companies as well(i.e. How many times have you taken a loan for a single day) though it benefits the most to the stock broker (Due to the transaction charges) and thus they are the most commonly misinterpreted and abused way of trading.
Long term trading:- In this form of trading, you take a stock considering it's basic fundamentals and then you stick with it for a long time until you are in some dire need of money, you feel there is a better investing opportunity out there or you feel the value of this share has gone too high and will fall in future.
We will be talking about the Long term trading!
Nation building Exercise & your interest in it:-
Let's consider for a moment there is no stock Market and Tata's want to expand their business by 100 Crore, so where they can lend this money - It will be either banks or individual or some group of investors. If they are going to go to any of these, they will be required to keep some form of security and also pay some lending rate i.e. 10% considering the F.D. rate is 7%.
So, this company definitely has to make progress and also worry about earning 10% extra income on the money.
Now, let's bring the stock Market in the picture & let's consider that TATA's are evaluated to be a 1000 Crore organisation and now they want to lend 100 Crore so they put their 10% of company on Stock bourse and distribute 90% shares in various proportion to various people in TATA's group.
From Tata's perspective, two good things happened
- The shares got divided among a lot of people, which reduces the changes of taking over the company.
- They got the required money while not actually being worried about generating 10% extra income.
From Common Man Perspective:-
The options in front of you for your idle money is either keeping your money in the bank account or keep with yourself and which will give you best interest of 7% (Assumption -that's the highest rate available currently).
Now, if it's a sound company with good management they will try their best to earn more than the bank F.D. else they could have also put that money in a bank and sit nicely at home and there was no need of so much effort.
So, in a way you as a common person is helping an organisation grow its business which in turn is surely going to create a lot of employment, make the place viable for people to live and also help to spread some smile of kids faces.
Happy investing and happy growing your money.
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