The Indian Stock Market is one of the most interesting and complex markets in the world. Indian financial markets are known for offering a wide range of financial assets, from stocks and bonds to commodities, derivatives, and other investment products.
Trading in these assets can be an exciting way to diversify your portfolio while taking advantage of India’s strong economic growth and stability. This article will provide an overview of some of the major financial instruments available for trading in India’s stock market.
Which Are the Main Stock Exchanges of India?
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are two of the largest exchanges in India. The BSE is the oldest stock exchange in India and has been around since 1875. The NSE was established in 1992 and has over the years become one of the largest stock exchanges globally.
The Indian government regulates all these markets, though the exchanges themselves are predominantly managed by private entities.
While crores of individual investors invest in the stock markets daily, institutional investors play a large role in the equity markets too. These institutions include insurance companies, banks, mutual funds, and Foreign Institutional investors.
Assets You Can Invest In:
- Shares (Equities): Shares (or equities) refer to the ownership of a company. When you buy shares of a company, you are buying a stake in that company. For example, if you purchase shares of Reliance Industries (RIL), you own a portion of that company. In this case, you would be considered an owner of the company.
You can buy shares of more than 5000 companies in BSE and NSE. After purchasing the shares, you can hold them till their prices go up. At that time, you can sell and earn a profit.
For example, say you buy 50 shares of Reliance at Rs 2600, and the price later goes up to Rs 2800. If you sell at that time, you will earn a profit of Rs 200 per share. Your total profit will be Rs 50 x 200 = Rs 10,000. - Equity Derivatives: A derivative is a financial security that derives its value from the price of a product or an asset. The underlying asset of an equity derivative can be an index like Nifty 50, or a share of a company (like Infosys). Futures and options are the two types of derivatives traded in the Indian Stock Markets.
- Bonds: A bond is a debt security. You buy a bond from an issuer and the issuer pays you interest over time and repays your principal when the bond matures. You can buy and sell bonds directly through an online trading platform or through a registered stock broker.
- Mutual funds: A mutual fund is a collection of securities that is managed by an investment company known as an Asset Management Company or Mutual Fund. The AMC creates an investment portfolio (known as a ‘Scheme’) and sells the scheme to various investors.This pool of funds is managed by an investment professional (known as a fund manager) who invests in the shares of different companies, debt instruments and various other assets like real estate and commodities. When the value of this portfolio goes up the fund manager books a profit and distributes it among the investors. If the value of the portfolio decreases, the investors can book a loss or hold on their mutual funds for a longer time.You can buy and sell some selected categories of mutual funds in the Indian stock markets.
- Exchange-traded funds (ETFs): An ETF is a basket of different investments, such as stocks or bonds. You buy and sell shares in the ETF through an online trading platform.
- Currency derivatives: Currency derivatives are financial contracts that let you profit from changes in exchange rates between different currencies. You can buy and sell currency derivatives directly through an online trading platform or through a registered stock broker. For example, if you think the U.S dollar will rise against the Indian Rupee, you can buy a contract that would profit if that happened.
- Interest derivatives: Interest derivatives are financial contracts that let you profit from changes in interest rates. You can buy and sell interest derivatives directly through an online trading platform or through a registered stock broker. For example, if you think interest rates on the 10-year government bond will rise, you can buy a contract that will earn you a profit if that happens.
- Commodity derivatives: Commodity derivatives are financial contracts that let you profit from changes in commodity prices. For example, if you think the price of gold will rise, you can buy a contract at a lower price and sell it at a higher price later.
How To Start Investing in The Indian Stock Markets
To start trading in the Indian stock exchange, you will need to open three accounts with a registered stock broker. These accounts are:
- Trading Account: This account is used to trade in the securities market. It is on this account that you will buy and sell shares and other related instruments.
- Demat Account: This account is used to hold your stock certificates, hence the name Demat. It is also used to get dividend and other related payments.
- Bank Account: You will need to hold a bank account to facilitate payments and withdrawal of money when you buy or sell stocks.
Your stock broker will help you to create these accounts. You will need to visit the website of the broker or visit its office, fill out a form and submit some mandatory documents like your Pan Card, address proof, etc. After the accounts are opened, you can submit some funds as margin to the broker and start investing or trading.
Hope you have by now have a clear idea of what the stock markets are, what are the assets available for trading and how you can start to invest in the stock markets.
Happy Investing!
This article is for education purpose only. Kindly consult with your financial advisor before doing any kind of investment.
