The financial market is the melting pot for millions of investors across the world to come together and trade a gamut of financial instruments. In India, key financial instruments that are traded in the stock market include shares, mutual funds, derivatives and bonds.

The remainder of the article focuses on elaborating on the basics of these instruments in order to help you make an informed decision. Read on to know more:

Shares/stocks

A class of exceptional financial instruments, trading individual shares of companies grants you ownership over that particular public entity (proportionate to the number of stocks that you purchase). One of the reasons behind stocks being one of the more popular instruments is they attach increased levels of liquidity – a factor that should ideally determine your choice of instrument.

Volatilities, along with trading volumes, usually vary across a single day, thereby allowing you to cash in on the slightest change in prices. Bear in mind that a mix of factors usually affects stock prices – one of the more prominent ones being earnings. Earnings determine stock prices as it is indicative of a particular company’s financial health.

Mutual funds

Mutual fund investments are based on the principle that investors’ money would be pooled in and then invested in a range of financial instruments. An investor in mutual funds is referred to as a unit holder, and the total profits generated are distributed among every unit holder basis the number of units each holds.

Putting your money in mutual funds is one of the faster ways to multiply your wealth. This is also the reason that a fund manager’s expertise and skill set can play a decisive role in how your investment fares. All SEBI-registered mutual funds are listed and tradable on the stock exchange.

Derivatives

This refers to a financial contract, the value of which is imparted by an underlying asset. Primarily consisting of futures and options, these financial instruments can be used to negate a range of risks.
  • Options contract: This kind of a contract attaches the right (but no obligation) to buy or sell the underlying asset on a stated date and at a stated price.
  • Futures contract: This refers to a derivative contract between parties to either buy or sell particular quantities of the underlying asset on a specific date in the future and at an agreed upon price.

Bonds

These are fixed-income debt instruments that are issued by both government and private-sector companies with the objective to raise capital. Attaching a specific interest rate (mentioned during the issue), a bond serves as a loan that must be repaid in full at a specified date.

Bonds attach a particular maturity period, on completion of which, the borrower is liable to repay the money to the lender. Some of the more popular bonds in India are government bonds, corporate bonds, high-yield bonds, municipal bonds and public sector bonds.

In conclusion, abiding by this simple 3-tip checklist can help you make the most out of investing in the stock market:
  • Take help from experts and analysts before investing
  • Have patience. The simple rule to cash in on the stock market is to stay invested and look beyond short-term market fluctuations.
  • Keep a regular tab on your investments. This way, you’d be able to eliminate under-performing stocks from your portfolio.

Happy trading!

Click here to open an online trading account.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information



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