What is Equity Market?
Understanding equity is paramount to beginning your investment journey across stock exchanges in India. A company requires funds for its businesses and to meet its working capital requirements. To receive funds, it can resort to both debt and equity instruments. It can provide its shares or stocks through Initial Public Offerings (IPOs) to investors as part of raising funds through equities or offer loan instruments with fixed interest rates, known as debentures.
Understanding Equity Market
An equity market is a platform for purchasing and selling stocks of various listed companies. Various traders conduct buying and selling of a company’s stocks with the help of a stockbroker. The first step for trading in stock exchanges is to have a Demat and trading account and select a trusting stockbroker to open a free online Demat Account.
What is Equity?
From the end of a listed company, equity means the funds that the shareholders have invested. whereas from an investor’s point of view, equity is a primary asset. As an investor, you can also choose to invest in derivatives – like currencies, commodities and bonds – which allow equities to diversify beyond stocks.
Benefits of investing in equities
- Investment in stocks provides the highest returns, especially over a long-term investment horizon.
- Investment in equities can also provide you income through dividend issuance. Issuing dividends is a corporate action, where listed companies share their profits with existing shareholders.
- Equities have greater exposure to market volatility. Hence, conducting market research is important before investing.
- You can minimize the associated risks by choosing to invest in equity instruments, like Futures and Options (F&O).
Types of Equity Markets
- Primary Equity Market: These are the shares offered to general investors through IPOs. Once the IPO is closed, the shares of a company are listed on the stock exchange. The two major stock exchanges facilitating trading in stocks are the NSE and BSE.
- Secondary Equity Market: If you do not purchase stocks of a company at the time of an IPO, you can purchase and sell the shares in the secondary market. Here, you plan your investment by deciding on an entry and exit point.
Equity Market Procedures
Here, the stock exchanges provide an open trade platform for buying and selling of stocks and securities. This is completely automatic and computerized, and traders can see the trades on a screen before placing orders.
2.Settlement and clearing:
Stock exchanges settle the trade during a day’s session in a process known as a settlement cycle. In India, stock exchanges have adopted the T+2 settlement cycle. This means that after completion of a day’s trading session, traders receive the credits or sale proceeds within two working days.
To prevent fraudulent activities and mitigate risk to investors, stock exchanges have a sound risk management system in place. Some of them include:
- Margin requirements
- Liquid assets
- Voluntary close-out
Thus, as an investor, you can trade in stocks and securities in equity markets to fulfil your investment objectives. Before starting investment in equities, choose a trusted and reliable stockbroker who can help you make wise investment decisions. An IIFL Demat and trading account can give you access to research reports and charting tools that can help you make informed decisions.