Functions of Stock Market

Priyanka Sharma

22 Sep 2017

Stocks and shares are collectively referred to as 'equities' or 'securities' and represent an ownership stake in a company. Stock markets are the place where buyers and sellers exchange these securities.

A stock market may be physical or entirely virtual. The Bombay Stock Exchange (BSE) is physically located on Dalal Street in Mumbai City. Trading was traditionally done in person, but the option to buy/sell most stocks electronically was added later. Earlier, trading was initially done by telephone but is now primarily done by computer.

The process of exchange is generally for buyers to name a price they are willing to pay for a particular stock and for sellers to name their selling price. In physical markets, brokers and specialists match buyers and sellers, but this can be done entirely by the computer in virtual markets. 

Following are some of the essential functions of a Stock Exchange:

 

  1. Providing liquidity and Marketability to Existing Securities:Stock Exchange provides a ready and continuous market for buying and selling securities. It provides a platform where shares can be sold and bought by buyers and sellers.
  2. Pricing of Securities:Based on the forces of demand & supply, Stock Exchange helps in putting a value on the securities which provide instant data to both buyers and sellers and thus helps in the pricing of securities.
  3. Safety of Transaction:All participants associated with a stock exchange are well regulated, and are required to work within the legal framework given by the regulator. Such a system ensures the safety of transactions. In India, all trading is regulated by SEBI.
  4. Contributes to Economic Growth: People get a chance to buy and sell their shares, letting them invest money. Stock exchange provides a platform by which savings get channelized into the most productive investment proposals, which leads to capital formation & economic growth.
  5. Spreading of Equity Culture: Stock exchanges have extensive information on the listed companies, which is further available to the public. This data helps in educating public about investments in securities which leads to spreading of wider ownership of shares.
  6. Providing Scope for Speculation: Securities, when purchased solely with a view of gaining profit through price movement to a target is called speculation. Stock exchanges provide scope within the provisions of law for speculating in a restricted and controlled manner.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Functions of Stock Market

Priyanka Sharma

22 Sep 2017

Stocks and shares are collectively referred to as 'equities' or 'securities' and represent an ownership stake in a company. Stock markets are the place where buyers and sellers exchange these securities.

A stock market may be physical or entirely virtual. The Bombay Stock Exchange (BSE) is physically located on Dalal Street in Mumbai City. Trading was traditionally done in person, but the option to buy/sell most stocks electronically was added later. Earlier, trading was initially done by telephone but is now primarily done by computer.

The process of exchange is generally for buyers to name a price they are willing to pay for a particular stock and for sellers to name their selling price. In physical markets, brokers and specialists match buyers and sellers, but this can be done entirely by the computer in virtual markets. 

Following are some of the essential functions of a Stock Exchange:

 

  1. Providing liquidity and Marketability to Existing Securities:Stock Exchange provides a ready and continuous market for buying and selling securities. It provides a platform where shares can be sold and bought by buyers and sellers.
  2. Pricing of Securities:Based on the forces of demand & supply, Stock Exchange helps in putting a value on the securities which provide instant data to both buyers and sellers and thus helps in the pricing of securities.
  3. Safety of Transaction:All participants associated with a stock exchange are well regulated, and are required to work within the legal framework given by the regulator. Such a system ensures the safety of transactions. In India, all trading is regulated by SEBI.
  4. Contributes to Economic Growth: People get a chance to buy and sell their shares, letting them invest money. Stock exchange provides a platform by which savings get channelized into the most productive investment proposals, which leads to capital formation & economic growth.
  5. Spreading of Equity Culture: Stock exchanges have extensive information on the listed companies, which is further available to the public. This data helps in educating public about investments in securities which leads to spreading of wider ownership of shares.
  6. Providing Scope for Speculation: Securities, when purchased solely with a view of gaining profit through price movement to a target is called speculation. Stock exchanges provide scope within the provisions of law for speculating in a restricted and controlled manner.

Have Referral Code?