Equity Shares

Markets

Most companies that go public have been around for at least a little while. Going public gives the company an opportunity for a potentially huge capital infusion, since millions of investors can now easily purchase shares. It also exposes the corporation to stricter regulatory control by government regulators. When a corporation decides to go public, after filing the necessary paperwork with the government and with the exchange it has chosen, it makes an initial public offering (IPO). The company will decide how many shares to issue on the public market and the price it wants to sell them for. When all the shares in the IPO are sold, the company can use the proceeds to invest in the business.

Stocks/Shares

Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your Money. A company's stock price reflects what investors think about the stock, not necessarily what the company is 'worth'. For example, companies that are growing quickly often trade at a higher price than the company might currently be 'worth'. Stock prices are also affected by all forms of company and market news. Publicly traded companies are required to report quarterly on their financial status and earnings. Market forces and general investor opinions can also affect share price.

Quick Facts on Stocks and Shares

Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues Over the long run, stocks have historically averaged about 10% annual returns However, stocks offer no guarantee of any returns and can lose value, even in the long run Investments in stocks can generate returns through dividends, even if the price . How does one trade in shares? Every transaction in the stock exchange is carried out through licensed members called brokers. To trade in shares, you have to approach a broker or a sub-broker.

Benefits of Shares

• Earn Dividents
  Dividends are nothing but a part of company's profits distributed to its share holders. The company's management may declare dividends either in between a financial year (called interim dividends) or at the end of the financial year (called final dividends). However, it is not mandatory for the companies to pay dividends. It can use the profits for alternative uses like expansion. The decision to pay or not to pay dividends is taken at the annual meeting by the majority voting of the shareholders. Blue-chip companies (large companies) generally are consistent dividend payers.


• Capital Appreciation
  As the company expands and grows, it acquires more assets and makes more profit. As a result, the value of its business increases. This, in turn, drives up the value of the stock. So when you sell, you will receive a premium over what you paid. This is known as capital gain and this is the main reason why people invest in stocks. They aim capital appreciation.


• Receive Bonus Shares
  For the time being, let us understand that bonus shares are - Free shares are given to you. Later on we will discuss about bonus shares in detail.


• Right Issue
  A company may require more funds to expand it's business and for that, it may need more funds. I such cases, the company can issue further shares to the public. However, before approaching the public, the existing shareholders will be given a chance to subscribe to more shares if they want. That's called a rights issue. This is done in order to ensure that the existing shareholders maintain the same degree of control in the company. Thus you can maintain the participation in the company profits.


• Shares can be pledged
  Shares are considered as assets and hence, banks accept shares as security for raising loans. Should there be an an emergency, shares can quickly pledged to raise funds. Apart from that, Brokerage firms allow you to borrow money from their account based on the current share holding you have in your demat account maintained with them. If you want to utilize a sudden surprise opportunity in markets, but if you don't have the cash right now, you can adopt this route.


• Hight Liquidity
  Shares are highly liquid. It can be converted into cash in no time. With online trading, all it takes is the click of button to sell you holdings. You can receive your cash in two days


• Capital Appreciation
  The above mentioned income sources may not be present in every company you buy. For example- if you're buying company that has a huge potential to grow, it may not pay it's surplus as dividends. Instead, it will be used for further growth. In such cases, huge capital appreciation may happen. So depending upon your investment strategy, you'll have to choose what you want. It's always wise to go for capital appreciation rather than dividends.


• Tax benefits
  Today, any gains on shares held and sold beyond one year is Tax Free.

Risks

• Share prices for a company can fall dramatically, even to zero.
• If the company goes broke, you are the last in line to be paid, so you may not get your money back.
• The value of your shares will go up and down from day to day, and the dividend may vary.

What is a Demat Account ?

Demat refers to a dematerialized account. Nowadays, you need to open a demat account if you want to buy or sell stocks.

How to open a Demat Account in India ?

To open a demat account, you need to get in touch with a registered depository participant (DP)/Brokers. It is just like opening a Bank account. It usually takes a week or two to open your account. It is important to add nominee while applying for demat account. Mostly it is Free now a day. Other types of fee charged are annual maintenance fee, custodian fee and transaction fee.

1. What is depository?

A depository is an organization which holds securities like shares, debentures, bonds, government securities, mutual fund units etc. of investors in an electronic form. The securities are held at the request of the investors through a registered Depository Participant. The depository also provides services related to transactions in securities.

2. What is dematerialization?

Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in an electronic form and are credited into the beneficiary's account with his DP.

3. Can multiple demat accounts be opened?

Yes, you can open more than one account at the same name either with same or different Depository Participants (DP). An investor has to fill the KYC form every time he opens a new account. The KYC norms include Proof of Identity, Proof of Address requirements as stipulated by SEBI and PAN number. The investor has to show the original PAN card at the time of opening of demat account.

4. What is rematerialisation?

The process to convert shares back to the physical holding is called as rematerialisation. He needs to fill remat request form (RRF) and request his DP to rematerialize the shares in his account.

5. Can an investor operate a joint account?

No, an investor cannot operate a joint account on 'either or survivor' basis like a normal bank account. But if the beneficial owner authorizes any person to operate his account by executing a power of attorney and submitting it to the DP, that person can operate the account on behalf of the beneficial owner.

6. Is there any rule to keep minimum balance of securities in demat account?

No, there is no such rule to keep any minimum balance in demat account

7. Who is the registered depository in India?

Depository registered with SEBI are called as registered depository and currently there are two registered depositories - National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL).

8. What are the benefits of dematerializing securities?

There are various benefits of dematerializing securities such as a) It is a convenient and safe to hold securities in demat form b) Smooth and immediate transfer of securities c) You don't need to pay any stamp duty on transfer of securities d) Minimizes your paper work e) Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. f) There is no odd lot problem (you can even trade single share) g) Reduction in transaction cost

9. What are the KYC norms to open a demat account?

KYC (Know Your Customer) is a customer identification process, which is done to prevent any criminal activity. SEBI has made it mandatory to fulfill the KYC norms in order to open a demat account. These norms include a) Proof of identity: PAN card with photograph, voter id card, passport, Aadhar card b) Proof of address: This includes your ration card/ passport/bank account statement, driving license, utility bills like electricity bill, telephone bill. (PAN card is compulsory) c) You need to give your bank account number to open a DP account.