In Lesson 1, you learned that the stock market is about ownership in companies.
In this lesson, we will break that ownership into clear building blocks and answer questions like:
- What exactly is a share?
- How do companies first sell shares to the public?
- Where does buying and selling actually happen?
- Who makes sure the system is fair and safe?
This lesson removes confusion and builds structural clarity.
What You’ll Learn in This Lesson
By the end of this lesson, you will understand:
- What a share represents
- How IPOs work (without technical jargon)
- What stock exchanges do
- Why SEBI exists and why it matters to you
What Is a Share?
A share represents a unit of ownership in a company.
When you buy a share, you:
- Become a part-owner of the company
- Share in the company’s success and failure
- Do not receive fixed returns
📌 Important: A share is not a loan. It is ownership.
How Shareholders Can Benefit
Shareholders may benefit in two main ways:
1️⃣ Price Appreciation
If the company performs well, its share price may rise.
2️⃣ Dividends
Some companies share a portion of their profits with shareholders.
📌 Dividends are not guaranteed and depend on company decisions.
What Is an IPO?
IPO stands for Initial Public Offering.
An IPO is the process through which a private company becomes a public company by offering its shares to the public for the first time.
📌 In simple words: An IPO is a company saying:
“We want to raise money by sharing ownership with the public.”
Why Companies Launch IPOs
Companies may go public to:
- Raise money for expansion
- Reduce debt
- Increase visibility and credibility
- Provide exit to early investors
IPO vs Stock Market Trading (Very Important)
| IPO | Stock Market Trading |
|---|---|
| First sale of shares | Buying & selling between investors |
| Company receives money | Company does NOT receive money |
| Happens only once | Happens daily |
📌 This distinction helps you understand where your money goes.
What Is a Stock Exchange?
A stock exchange is an organized, electronic platform where shares are bought and sold.
It ensures:
- Transparency
- Fair price discovery
- Proper record-keeping
Major Stock Exchanges in India
- NSE (National Stock Exchange)
- BSE (Bombay Stock Exchange)
📌 You cannot trade directly on exchanges. You need a broker (covered later).
What Is SEBI and Why It Matters
SEBI stands for Securities and Exchange Board of India.
SEBI is the regulator of the Indian stock market.
Role of SEBI
SEBI:
- Protects investor interests
- Regulates brokers and companies
- Prevents fraud and manipulation
- Ensures transparency and fairness
📌 Thanks to SEBI, the stock market is regulated, not a free-for-all.
Common Beginner Misunderstandings
Let’s clear a few myths:
❌ IPOs guarantee profits
❌ Shares always give dividends
❌ Exchanges control prices
❌ SEBI ensures no losses
✅ Reality: Markets involve risk, but regulation ensures fairness — not profits.
How This Knowledge Helps You as a Beginner
Understanding these basics helps you:
- Know what you are buying
- Avoid blind IPO investing
- Trust the system without unrealistic expectations
- Invest with clarity, not fear
📌 Knowledge reduces mistakes, not risk.
Key Takeaways
- A share represents ownership in a company
- IPO is how companies first offer shares to the public
- Stock exchanges provide a platform for trading
- SEBI regulates and protects the market ecosystem
- Understanding structure is essential before investing