Are you having trouble understanding all of those technical stock market terms? You’re not alone, so don’t worry! This is an issue for all new investors. You’ve probably heard phrases like “IPO,” “bull market,” or “portfolio” and asked yourself, “What the hell do these mean?” if you’re new to investing.
I’ll explain share market basic terms to you in this guide using simple, everyday language; there won’t be any technical jargon or definitions straight out of a textbook. Only the information you truly need to know when you first begin investing in India. Imagine having a knowledgeable friend who has been in the business for a while explain things to you while sipping chai.
By the end, you’ll understand the meaning of the most widely used stock market terms and be comfortable using them in everyday situations or when making investment choices.
1. Equity
Hook: “The phrase “own equity” refers to ownership in a business.
Definition: Equity is simply the ownership of a business. You own a portion of a business when you purchase shares; this ownership is known as equity.
Why It Is Important: When the business expands, you as an equity holder profit because your share price and possible dividends may rise.
For instance, if you own 100 shares of Tata Motors, you own a very small portion of the business and are therefore exposed to both its risks and its profits.
2. Share
Hook: “A share is like a slice of a pizza—each slice represents a share, and the entire pizza is the company.”
Definition: A share is a single ownership unit in a business.
Why It Is Important: You can benefit from the company’s success by receiving dividends or price increases if you own shares.
For instance, if you own 10 of a company’s 1,000 shares, you own 1% of the business.
3. Dividend
Hook: “Dividends are a company’s way of saying “thank you for sticking with us,” much like bonus payments.”
Definition::A dividend is defined as a percentage of a business’s earnings that are given to shareholders, typically in the form of cash.
Why It Is Important: Even if the stock price doesn’t fluctuate much, dividends can provide investors with a consistent source of income.
As an illustration, Infosys frequently distributes dividends to its shareholders from its profits.
4. Initial Public Offering (IPO)
Hook: “You’ve probably seen IPO news all over the place, but what does it mean?”
Definition: An initial public offering (IPO) is the first time a private company sells its shares to the general public in order to raise funds.
Why It Is Important: The Significance of It Investors can buy stock in a company before it starts trading on the exchange through initial public offerings (IPOs), usually at a predetermined price.
For example, Zomato’s initial public offering (IPO) in 2021 allowed lakhs of investors to buy its shares for the first time.
Investors are encouraged to participate by buying shares, much like at the company’s first significant public celebration.
5. Demat Account
Hook: “If shares are your property, a Demat account is your digital locker.”
Definition: A Demat account, short for Dematerialized account, is where your shares and securities are stored in an electronic format.
The Significance of It By eliminating the need for physical share certificates, it simplifies and secures the process of buying, selling, and holding investment.
Benefits of Demat Accounts
Safety: There is no chance that paper certificates will be lost or damaged.
Convenience: Making quick purchases or sales with a few clicks.
Variety: Keep all of your exchange-traded funds, mutual funds, stocks, and bonds in one place.
Do you want to know? Check out our in-depth guide to the benefits of a Demat account for beginners.
6. Portfolio
Hook: “Your investment wardrobe is essentially your portfolio.”
Definition:The assembly of all your investments – stocks, bonds, mutual funds, gold, etc. – is called a portfolio.
Why It Matters: A diversified portfolio has the potential to deliver a more consistent return over time, by minimizing risk.
For example, your portfolio may be allocated as follows: 10% fixed deposits, 20% gold, 30% mutual funds, and 40% stocks.
7. Stock Exchange
Hook: “Consider the stock exchange as a massive online marketplace, but for shares.”
Definition: Shares are traded between buyers and sellers on a stock exchange. The two primary ones in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Why It Is Important: It would be slow, risky, and unregulated to buy and sell shares without exchanges.
For instance, the NSE or BSE handles the transaction when you purchase Reliance shares.
8. The Bull and Bear Markets
Hook: “The market is like an animal; sometimes it hides in its cave, and other times it charges ahead.”
Bull market: investor confidence is high and prices are rising.
Bear Market: Investors are gloomy and prices are declining.
Why It Matters: Knowing these words enables you to gauge market sentiment and modify your approach to investing.
For instance, the early months of COVID-19 in 2020 saw a bear market, which was followed by a robust bull run in 2021.
9. Price-to-Earnings Ratio, or P/E Ratio
Hook: “A stock’s price tag in relation to its earnings is similar to the P/E ratio.”
Definition: It displays the price that investors are prepared to pay for every rupee of profits made by a company.
Why It Is Important: It assists investors in determining whether a stock is cheap or expensive in relation to other stocks in the same industry.
For instance: Investors are willing to pay ₹25 for every ₹1 of the company’s earnings when the P/E ratio is 25.
10. Intraday Trading
Hook: “In a nutshell, intraday trading is buying in the morning and selling before the market closes.”
Defination : Buying and selling stocks within the same trading day in order to generate rapid profits is known as intraday trading.
Why It Is Important: It’s risky and necessitates ongoing market observation.
For instance, a trader may purchase Infosys stock at 10 a.m. and sell it by 2 p.m. for a modest profit.
11. Systematic Investment Plan, or SIP
Hook: “SIP is similar to setting your savings to grow automatically over time.”
Definition: SIP enables you to make monthly or quarterly investments in mutual funds with a set amount.
Why It Is Important: Through cost averaging, it lessens the impact of market volatility and promotes disciplined investing.
Example: Using SIP to invest ₹2,000 per month in an equity mutual fund.
12. Index (such as the Nifty 50)
Hook: “An index functions similarly to a stock market scoreboard.”
Definition: An index monitors the performance of a collection of carefully chosen stocks. For instance, the Nifty 50 tracks 50 of the best companies that are listed on the NSE.
Why It Is Important: Indexes help compare the performance of individual stocks and display the general market trend.
For instance, a 2% increase in the Nifty 50 over the course of a day indicates that the average of its 50 stocks increased by that amount.
Finding Cheap Stocks with These Terms
Finding the best stocks for novices with limited funds is made much simpler once you comprehend these fundamental share market terms. You will be able to determine whether a company is worth purchasing based on its dividend history, P/E ratio, and whether it is included in a robust index. 📌 Check out our comprehensive beginner’s guide to selecting inexpensive stocks with strong growth potential!
In conclusion
The first step to becoming a confident investor is to learn the fundamentals of the share market. These terms will soon feel as familiar to you as your favorite Netflix series if you keep this list close at hand. You don’t have to learn everything at once.
Recall that language is the first step towards comprehending the market.
You can read news, evaluate opportunities, and make better decisions if you have a firm understanding of these terms.
Save this page to your bookmarks and come back to it whenever you need a refresher. 💬 What was the most helpful term for you today? Leave a comment below with your thoughts, and forward this article to a friend who is new to the stock market.
SEBI Disclaimer:
Investments in the securities market are subject to market risks. Read all scheme and investment-related documents carefully before investing.
Disclaimer
The information on this website is intended solely for educational and informational purposes. I am not a SEBI-registered financial counselor, and the information provided here should not be interpreted as investment advice or stock recommendations.
Always conduct your own research or consult with a SEBI-registered advisor before making any financial decisions. Investing in the stock market entails risk, including the potential loss of principal.