What is Factoring?

Factoring is an accounting concept. When a customer uses a bank card (VISA or a Mastercard) to pay for an item or a service, the company doesn't carry the receivable on its balance sheet. The receivable is sold off to the finance company that issued the card. Under this arrangement the company simply debits the cash a/c and credits sales a/c.

What is the difference between a Primary and Secondary market?

A market is a place where trades take place. A stock market is a place where stocks are traded between people. Some people sell and some people buy. A person cannot sell if there are no buyers and vice versa. A stock market can further be broken down into Primary markets and Secondary Markets.

Primary Markets

If you read newspapers and watch business news channels, you would have probably heard of an IPO. An IPO is an initial public offering, through which a company raises capital to run its business. Think about a situation, where in you need to raise money for starting or doing a business. Either you could go to a bank or go to the people. When people lend, they buy shares in your company and become owners i.e equity(equal) shareholders in your company.

A company can do an IPO in the market with the help of a merchant or an investment bank. The investment bank has the expertise of architecting the IPO for a company. After an IPO the company gets listed in the stock market, and the company gets the required capital.

Secondary Markets

Once the company is listed in the market, the shares can be actively traded in the markets. If the company is doing well and has a bright future more and more people will be interested in owning the shares of the company(stock price goes up), and if the company is not doing well people will sell(price goes down). All this activity is done in the secondary market.

Example.

The most recent popular listing in the market was SKS Microfinance. The company already had a running business and needed more capital to expand its business. Thereofore, the company took the equity route to raise capital. Kotak Mahindra Bank, which is an investment bank helped the company list in the market. Now since the company has made a successful listing, the shares are actively traded in the market(secondary market).

What is a demat account and how to choose one?

Long ago when most of us were in liquid form, shares were traded in hard form i.e. when one bought some shares from the market, certificates were issued. Think about a portfolio with hundreds of shares of hundreds of company. You probably would have to buy a small office space to store all the certificates :-). In a nutshell shares in hard form were an headache. To expedite share trading and enhance the storage quality of information, SEBI and the stock exchanges decided to issue the shares in electronic form. What a relief?

In order to buy and sell shares electronically, one needs to have a demat account. Demat stands for de materialization of shares.

How to get started?

An earnest request, from one of my buddies, has inspired me to write an article on how to start investing? Treat this as a journey from the i to g of investing. I would probably narrate my story on how I got started and in the process formulate the do's and dont's in investing.

Dummies, please hard code these golden words into your brain "no knowledge - no investing". If you can strategize your investments along the lines of the above phrase, you will always make money in the markets. How much you make depends on your foresight, knowledge and risk appetite.

For starters please start reading economic times. This is the bible of the Indian economy. This is how I got started. Initially you will bump across a lot of jargon's. Please get each and every jargon clarified. How? Mail me, call me, sms me!!! Else, read the web or ask an expert.

Along with reading the economic times, start watching CNBC. A very good business channel, but I can rationalize with a very select analyst's on this channel.

When I started reading about the markets, I used to read the tutorials in sharekhan's website. For beginners this is a good read. Very simple and straight forward. bseindia.com is also a wonderful wonderful website.

Give yourself a months time, reading and watching. Once you start understanding the markets and the economy, you are ready to take the next step. The step to open a demat account.

I am reiterating again "an aware investor is a successful investor".