The place where you can invest in shares, mutual funds, bonds, and various other securities is called the Stock Exchange. It is the marketplace that enables you to invest in stocks, bonds, government securities, and other financial instruments. Different countries have different stock exchanges. They provide a legal way of investing to the investors and contribute significantly to the economic growth of their respective countries.
NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are the two major stock exchanges in India. Brokers, traders, investors, NSE, BSE, and SEBI (Securities Exchange Board of India) are the key entities that participate in the stock market. The duty of the Stock Exchange is to safeguard the interest of the investors and earn their trust by controlling any unlawful activities. Some of their critical functions are discussed below:
Provides Liquidity
Numerous shareholders buy and sell securities every day. The Stock Exchange provides the required liquidity whenever you sell funds to earn profits or due to financial reasons. The transactions are completed instantly, and the funds are available for withdrawal in T+2 days.
Protects the capital of investors
Each entity that participates in the stock market transactions has to adhere to the regulations and rules set by SEBI. Through SEBI, the Stock Exchange protects your capital during transactions and ensures that you get a fair-trading platform.
Supports Economic Growth
The money you invest by buying shares and other securities gets further invested into high-growth instruments. The Stock Exchange creates a platform through which these investments are channelized to build capital and boost the economic growth of individuals and businesses.
Helps business to raise capital
Businesses can raise capital by introducing their IPO (Initial Public Offering) in the stock market. Before an IPO is listed in the stock market, the investors bid for it to acquire a bulk quantity of shares. They hope to make a profit by selling the stocks once they get listed. Once the IPO gets listed, the investors who don’t get selected in the bidding process analyze its fundamentals and company standings and tend to buy it. This helps the company to raise capital for expanding its business.
Security Pricing
The Stock Exchange decides the prices of the securities based on their current demand and supply. It provides real-time data of the stock prices to investors through their demat accounts. This helps them to buy the stocks or sell the stocks as per their requirements.
Brings in foreign direct investment
Stock market not only enables business and individual investors to grow their capital but also allows foreign investors to invest. Therefore, it plays an important role in bringing FDI i.e. Foreign Direct Investment in a country. A higher FDI improves the economic condition of a country and pushes its GDP (Gross Domestic Product) higher.
Increases awareness about equities
The details of all the listed companies are available on the Stock Exchange. This information is easily accessible to investors. You can analyze the strength of the stocks based on this information. This ultimately helps you to make a well-informed decision regarding whether you should invest in them or not.
To invest in the share market online, you need to open a demat account. A demat account is also provided by the DP who also happens to be the provider of all the demat services that you require to carry out the transactions. In exchange, the DP will charge a commission or brokerage. The demat account holds your securities electronically and you can use it to track the movement of the stocks.
These are some of the key functions performed by the Stock Exchange which is also known as the share market. If you want to invest in the share market, you need to approach a DP (Depository Participant) who is registered with CDSL or NDSL, the two main depositories in India.
