What is it?
The capital market is where companies and governments raise long-term money. In the primary market, companies sell new shares through an Initial Public Offering (IPO) or later issues. In the secondary market, investors trade those shares with each other on the National Stock Exchange (NSE) and BSE.
Owning a share makes you a part-owner of the company. You benefit if the business grows and the share price rises, and you may receive dividends. You also share the risk: if the business struggles, the share price can fall a long way.
How it works
- Open a demat account (holds your shares, with NSDL or CDSL) and a trading account (places orders) with a broker.
- Place a buy order through your broker; the exchange matches it with a seller.
- Shares arrive in your demat account on the next trading day (T+1).
- For IPOs, apply through ASBA in net banking or with a UPI mandate; money is blocked, not debited, until allotment.
Types
Benefits and risks
Benefits
- Historically the highest long-term growth of any mainstream asset in India.
- Full control over what you own.
- Highly liquid for large, frequently traded companies.
- No fund management fee, only brokerage and statutory charges.
Risks and drawbacks
- Concentrated risk: a few bad picks can hurt the whole portfolio.
- Needs time and skill to research and monitor companies.
- Emotional decisions, such as panic selling or chasing tips, often cost investors more than the market itself.
- Trading charges, STT and short-term tax reduce returns if you trade often.
How it is taxed
- Listed shares held over 12 months: gains above ₹1.25 lakh a year (shared with equity funds) are taxed at 12.5%.
- Held 12 months or less: gains taxed at 20%.
- Dividends are added to your income and taxed at your slab rate.
- Securities Transaction Tax (STT) is charged on every trade; intraday and F&O income is treated as business income.
Who it may suit
Investors with a long horizon, a tolerance for large price swings and the time to research businesses, or who use diversified funds for the core and hold a few stocks alongside.
Getting started
- Open a demat and trading account with a SEBI-registered broker and complete KYC.
- Learn to read an annual report: revenue growth, profit, debt and cash flow.
- Start with a few well-understood businesses and keep each to a small share of your portfolio.
- Check every trade confirmation, and ignore tips on social media or messaging apps.
Common questions
How do I check whether a stock tip is genuine?
Assume unsolicited tips are not. Only SEBI-registered research analysts and investment advisers may give buy or sell recommendations. Check registrations on the SEBI website.
What happens if my broker shuts down?
Your shares are held in your demat account with a depository, not with the broker, so they stay yours. Exchanges also run investor protection funds for eligible claims.
Are IPOs a quick way to make money?
Some IPOs list at a gain and many do not. An IPO is a company selling shares at a price it sets; read the offer document and judge the business as you would any other stock.
This guide is general education, not investment, tax or legal advice, and does not recommend any product. Investments in securities markets are subject to market risks; read all related documents carefully before investing.