Stock market which is also known as the equity market is an entity where people trade in stock, shares, bonds and securities. Sellers get money from the market which means they can expand their business and get more returns from their business. Buyers who invest get income in the form of dividend income or interest depending in what they have invested. To know more about, how to make money in the stock market, let’s go ahead and read this article. Before investing in the stock market one should have an idea about the concepts and also the common myths of the equity market.
Stock is nothing but a proof of part ownership of a company. When someone holds the stock of the company they have a claim on the assets as well as the earnings of the company to the extent of the stock that they have held. The stake in the company is more when a person holds more number of shares. Shares, securities, equity all mean stock.
How one gets return from stocks?
When one holds the equity of the company it means that you are a shareholder. There will be a lot of shareholders for the company. Every shareholder can have a claim on the returns as well as the assets of the company. This means right from small furniture to even big trademarks you own in that company. Same way the income is also yours. Of course, all this to the extent of the stock that you have held.
The income that the company makes that is the profit will be distributed now and then by the company. Such kind of income is called as dividend. Ever shareholder is entitled for dividend income.
However how does one know that you hold the share of the company? The company will give stock certificates for those who have purchased. Those certificates are the ownership proof for the shareholders. Initially these certificates are physical papers given to the shareholders. These days with advancement in the technology people have started buying and selling online using the demat account. Now there are no physical papers called stock certificates. But then there is a track in the demat account with which the shareholder can claim ownership in the company. All the buying and also the selling is possible through this demat account.
If you are a shareholder in a public company it does not mean that you have control or access to the day to day working of the company. The daily affairs will not be under your control. But then you can elect a director who will have a control on the day to day affairs of the company. One vote per share is the right that every shareholder holds. They can elect with this right.
Anytime when the shareholders are not happy with the performance of the management they can call for change by voting. But then so much control cannot be gained by an individual investor. Only institutional investors who hold a real huge amount of shares of the company will have such influence over the affairs of the company. But then the individual investor is interested only in the assets and income of the company and not the manner or the way in which it is managed.
Shareholders would get a dividend regularly. Claim can be made on the assets only when the company becomes penniless. However the shareholders will be paid only after the creditors are paid. Another vital aspect is that the shareholders liability is limited. This means as owner you are not personally liable for the debts of the company. Normally in any other form of ownership the owner is personally liable which means when the funds of the business is not enough to pay off the creditors the owners are expected to pay out of their own pocket. So when you hold shares of the company the utmost that you can lose is the value of the stock. This means the risk is very minimal and also m limited. Hence by investing wisely one can make money with limited risk in the equity market.