Investment Basics – FAQs

Q. What is Investments ?

The act of investing money or capital in order to gain profit in form of interests, rentals, dividends and appreciation over the long term is known as an investment.

Q. Why should I Invest ?

You should invest so that your money grows and shields you against rising inflation. The rate of inflation should be much lesser than the rate of return on your investments. You invest in stocks, bonds, mutual funds or certificates of deposit in order to create wealth to meet expenses for retirement, marriage, college fees, vacations and/or better standard of living.

Q. What is Financial Market ?

Financial markets have been established to allow people to invest in financial instruments.

The Financial Market comprises of –

  • Capital Market: This includes the stock market and the bond market.
  • Money Market: This provides short term debt financing and investment.
  • Derivatives Market: This provides instruments for the management of financial risk.
  • Foreign Exchange Market: This facilitates the trading of foreign exchange.
  • Insurance Market: This facilitates the redistribution of various risks.
  • Commodities Market: This facilitates the trading of commodities.

Financial Market helps in raising funds. Individuals, private companies, public corporations, government and other local authorities are some of the participants in financial markets.

Q. What is Stock Market/ Equity Market ?

A stock market or equity market is a place where stocks are bought and sold at prices goverened by demand and supply. It is one of the most vital areas of an economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.

This market can be split into two main segments: the primary and secondary market. The primary market is where a company issues a public offer to raise capital and the secondary market is where any subsequent trading of company stocks takes place.

Q. What is a Share ?

A share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company (through an Initial Public Offer (IPO) or Follow-on Public Offer( FPO)) or can be purchased from the stock market. Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues.

Q. What is Primary Market ?

The primary market is a part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue through this market. IPOs are floated in Primary market.