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Rediff.com  » Getahead » Want to invest in stocks? 8 terms you must know

Want to invest in stocks? 8 terms you must know

May 04, 2014 15:42 IST

Want to invest in stocks? 8 terms you must know

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P V Subramanyam

While investing and trading in stocks has always been considered the sexiest way to make money, it always helps to know your basics before you start!

Here you go!

1. What are primary and secondary markets?

When a fresh set of shares are created -- that is when a new set of distinctive numbers of shares are created -- it is called a Primary market offering.

A prospectus about the company is issued, application forms are printed and the public is asked to subscribe to the shares being offered.

Secondary market is when the shares already issued are bought and sold in the markets -- like the National stock exchange and the Bombay stock exchange.

Secondary market is for shares already issued in the primary market and now are being traded.

2. What do bullish and bearish markets mean?

When the markets are gaining we call them ‘bull’ markets and when the markets are falling we call them ‘bear’ markets.

At a point in time we do not know whether market is in a bull mode or in a bear mode.

Only at a later date we are able to see a bull run or a bear run -- in retrospect.

So now we know that 2003 to 2007 was a bull market, 2008 was a bear market, …whether 2014 is a bull market or is it a bear market will be known sometime in 2016!

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Photographs: Uttam Ghosh/Rediff.com

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3. Book Closure

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It is that time period when a company will not make changes to its members’ register, or requests to transfer shares.

The book closure date is often used to identify the cut-off date determining which investors on record will be sent a given dividend payment.

The shares of listed companies change hands daily as investors buy and sell shares. Due to this, when a company declares it will pay a dividend, it must set a specific date when the company will ‘close’ its shareholder record book and commit to send the dividend to all investors holding shares as of that date.

4. Record Date

When shares of a listed company change hands during daily trades, identifying the owner of some shares becomes difficult. So how does a company pass on certain benefits (like bonus, splits and dividend payments) to shareholders?

So, when a listed company declares dividends or bonus issues, there has to be a cut-off date for such benefits to be transferred to the shareholders. This date is termed as ‘Book Closure’ date or Record Date.

It is the date after which the company will not handle any transfer of shares requests until the benefits are transferred.

Only shareholders whose name appears in the company’s register at the Book Closure Date or the Record Date would be entitled to receive these benefits.

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Photographs: Uttam Ghosh/Rediff.com
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5. Bonus shares

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Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns.

These are company’s accumulated earnings which are not given out in the form of shares instead of cash dividends.

This is more a feel good factor and not really a financial benefit in its truest sense.

6. Rights

A rights issue is an issue of rights to buy additional securities in a company made to the company’s existing security holders.

In normal circumstances it is for equity share holders that it applies.

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Photographs: Uttam Ghosh/Rediff.com
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7. What are blue chip shares /stocks?

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These are shares of a large, well-established and financially sound company that has operated for many years.

A blue chip stock typically has a market capitalisation in crores, is the market leader in its field and is generally a household name.

Most blue chips have a record of paying stable or rising dividends for years, if not decades.

The term is believed to have been derived from poker, where blue chips are the most expensive chips.

8. What is securities transaction tax?

Securities transaction tax (STT) is a tax payable on the value of securities transacted through a recognised stock exchange. The tax is not applicable on off-market transactions or on commodity or currency transactions.

The STT for delivery-based equity trading is 0.1 per cent on the turnover.

For Futures, the tax has been reduced to 0.01 per cent on the sell-side only.


Photographs: Uttam Ghosh/Rediff.com
Tags: STT

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