With all the buzz of emerging equity markets, everyone wants to make money. Everyone wants to becomeWarren Buffett[One of Earth’s most successful investors] and more basically everyone wants to become RICH. Well thats not so bad or evil. Everyone can make money if they plan properly in investing their money.
One way to make money and to contribute to the economy is investing in stock market.
The market in which shares are issued and traded. It gives companies to access capital and investors a slice of ownership in the company.
Business Man X wants to open a company which produces XX thing. And X does not have entire capital to open the company. X needs a partner. Either he can go with Partnership with another person Or He can go partnership with people. X decides to go partnership with people. Thus X company gets listed in Stock market.
A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.
If you have X company stock; you are a part owner of X Company.
Having said all that…lets see how to become a part owner of the company X. In olden days, in order to purchase a stock one needs to spend lots of time. Knowing / Researching about the company was another big challenge. Then atlast if someone needs to buy then need to contact the broker and instruct about how much they want to buy. And then everything lies with the broker. And you will be issued a paper bond which will act like a receipt of your purchase. Believe me … It indeed is a big hell of time.
Here comes the WEB.
With WEB comes the DEMAT Accounts which will take out most of the complex part of the olden day investment.
Open a Bank Account, Demat Account & Online Trading Account. You can contact a broker firm to get these accounts opened.
Brokerage firms: Sharekhan, Geojit, Religare, Reliance Money, HDFC, ICICIDirect, etc.
Funds from your bank will be transferred to the trading account. Then shares can be brought using that money. The shares you brought will be held on your demat account.
While buying a share: Bank account -> (cash) Trading Account -> (shares) Demat Account
While selling a share: Demat Account (shares) -> Trading Account (cash) -> Bank Account
Well there is no such thing which comes for FREE. Yes…you need to pay some commissions for making trading transactions known as brokerages. Brokerages are fees for the brokerage firms who faciliates easy way of trading for you. Do you need to pay something for the government. Yes indeed. [You have guessed correct]. We need to pay some taxes for these transactions and also for the gain we make.
Brokerage: For the whole buy and sell value,
STT(Security Transaction Tax): Calculated on the Weighted Average Price of the client for a particular days turnover,
This doesn’t include income tax. You need to pay a particular % of income tax for all your Gains only, Also you can deduct your losses from the Gains for the calculation of income tax.
I will post a real life example of a transaction.
Share: UNITECH LTD
No of Shares brought: 200
Buy Price: 147.85
Total Amount: Rs: 29570
Brokerage: Rs: 15
Service Tax: Rs:1.86
NET COST OF BUY: Rs: 29586.86
Now you have a Trading Account ready to buy and sell shares.