Buying Shares:Fundamentals

How can one acquire equity shares?
You may subscribe to issues made by corporates in the primary market. In
the primary market, resources are mobilised by the corporates through fresh
public issues (IPOs) or through private placements. Alternately, you may
purchase shares from the secondary market. To buy and sell securities you
should approach a SEBI registered trading member (broker) of a recognized
stock exchange.

What is Bid and Ask price?
The ‘Bid’ is the buyer’s price. It is this price that you need to know when you
have to sell a stock. Bid is the rate/price at which there is a ready buyer for
the stock, which you intend to sell.
The ‘Ask’ (or offer) is what you need to know when you're buying i.e. this is
the rate/ price at which there is seller ready to sell his stock. The seller will
sell his stock if he gets the quoted “Ask’ price.
If an investor looks at a computer screen for a quote on the stock of say
XYZ Ltd, it might look something like this:
Bid (Buy side) Ask (Se ll side)
______________________________________________________
Qty. Price (Rs.) Qty. Price (Rs.)
_____________________________________________________________
1000 50.25 50.35 2000
500 50.10 50.40 1000
550 50.05 50.50 1500
2500 50.00 50.55 3000
1300 49.85 50.65 1450
_____________________________________________________________
Total 5850 8950
_____________________________________________________________
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Here, on the left-hand side after the Bid quantity and price, whereas on the
right hand side we find the Ask quantity and prices. The best Buy (Bid) order
is the order with the highest price and therefore sits on the first line of the
Bid side (1000 shares @ Rs. 50.25). The best Sell (Ask) order is the order
with the lowest sell price (2000 shares @ Rs. 50.35). The difference in the
price of the best bid and ask is called as the Bid-Ask spread and often is an
indicator of liquidity in a stock. The narrower the difference the more liquid
or highly traded is the stock.

What is a Portfolio?
A Portfolio is a combination of different investment assets mixed and
matched for the purpose of achieving an investor's goal(s). Items that are
considered a part of your portfolio can include any asset you own-from
shares, debentures, bonds, mutual fund units to items such as gold, art and
even real estate etc. However, for most investors a portfolio has come to
signify an investment in financial instruments like shares, debentures, fixed
deposits, mutual fund units.

What is Diversification?
It is a risk management technique that mixes a wide variety of investments
within a portfolio. It is designed to minimize the impact of any one security
on overall portfolio performance. Diversification is possibly the best way to
reduce the risk in a portfolio.

What are the advantages of having a diversified portfolio?
A good investment portfolio is a mix of a wide range of asset class. Different
securities perform differently at any point in time, so with a mix of asset
types, your entire portfolio does not suffer the impact of a decline of any
one security. When your stocks go down, you may still have the stability of
the bonds in your portfolio. There have been all sorts of academic studies
and formulas that demonstrate why diversification is important, but it's
really just the simple practice of "not putting all your eggs in one basket." If
you spread your investments across various types of assets and markets,
you'll reduce the risk of your entire portfolio getting affected by the adverse
returns of any single asset class.