Many shy away from investing in the share market because they think that it is a complex and risky process. While we do not rule out this belief entirely, we believe that equipped with the right amount of knowledge about the field, anyone can begin their investment journey as a retail investor and maneuver their way through the share market.
If you are a beginner in search of a comprehensive understanding of how to invest in the share market, we are here to guide you. In this section, you will learn all that you need to know before starting your share market investment venture.
Let’s begin at the basics by answering a few questions:
Why should you invest?
You should consider investing because it is a quick way of making money, a habit that provides you with a long-term, sustainable source of income. Through wise investments, you increase the probability of earning big money, growing your wealth and fulfilling your financial goals.
Why should you invest in the share market?
A share market is a platform to facilitate the public purchasing and selling of shares, the units of company ownership. While investing in the share market can be risky, it is a good way of building your wealth. Good returns obtained through regular and wise investing in stocks compound into huge amounts over a period of time.
How to invest in the share market?
Investing in the stock market may not be as difficult as you think it is. Let’s guide you through share market investing by breaking the process into simple steps.
Step 1: Know what you need to start investing
To invest in a stock, it is mandatory that you have a trading and a demat account, both linked to your bank account. While a demat account facilitates electronically storing your shares and securities, with a trading account, you will be able to buy or sell these shares in the market.
A demat account can be opened with any bank. For a trading account, you need a stockbroker who has registered with the stock exchanges such as BSE and NSE. This is mandatory per Securities and Exchange Board of India, the regulatory body of the share market. Both accounts can be created online or offline by providing details of your PAN card, email address and bank account.
As a beginner, you’ll also require your aadhaar card, proof of your address and income, a cancelled cheque leaf from your bank account and photographs.
Step 2: Set your financial goals
Now that you have the required tools to begin investing, think about your financial goals. How much do you wish to invest? What is your risk appetite? What is your investment horizon? Having answers to these questions can help you decide where you want to invest your money among the variety of options available in the share market.
The share market is often divided into primary and secondary markets.
The primary market is wherein securities can be bought by a retail investor directly from the issuer. Initial Public Offerings (IPOs), the process through which a private company goes public and wherein the investors purchase the shares directly from the investors, are examples of a primary market. IPO shares can be bought online or offline through your bank account using Application Supported by Blocked Amount (ASBA) facility.
These IPO shares thus bought by the retail investors are then traded in the secondary markets, often known as stock exchanges. To trade in the secondary share market, simply log into your trading account, choose the number and the price at which you desire to buy or sell shares and wait for the transaction to be completed.
In the secondary market, you can invest in different types of stocks. Based on capitalisation, stocks can be largecap, midcap and small cap. Investing in shares of large cap stocks assures you higher dividends and longer preservation of your capital. Mid cap stock investment also comes with these benefits. Small cap stocks are usually highly volatile and are suitable for investors with high risk appetite.
Your decision to buy should take place after assessing the risk involved and the volatility of the stocks. Your financial goals may vary depending on various factors such as your age and risk appetite. Always set your goals before investing.
Plan your investment journey before making your decision to buy and sell shares. Determine how much you want to earn and at what point you wish to curb your losses.
Step 3: Always research before you invest
A good and successful investor never misses this step. Be well-informed about the company you wish to invest in. Do not be blinded by other people’s opinion, hype around a particular stock or be guided by your emotions while trading. Always be rational while making investment decisions.
Study the company, its fundamentals, the past performance of the industry sector and that of the general market as a whole. Do this diligently regardless of investing in the primary and secondary market.
Step 4: Track your investment regularly
Never invest and forget. A good investor always monitors their investments closely. Through this, you can easily cut your losses and lock in profits when the market trend changes from the very beginning of your share market investment journey. Regular tracking ensures that you protect your investment capital.
Reconstitute your portfolio whenever you feel it necessary. Never hesitate. By reconstituting you protect your capital and limit losses.
Step 5: A diversified portfolio, a better portfolio
Diversification increases the probability of safeguarding your portfolio. Investing all your money in a single stock or in stocks of a particular sector or industry group will escalate your risk. With a larger and more diversified portfolio the chances of your loss will be offset by those of your gains.
FAQ:
1.How do I begin to invest in the stock market?
You can begin investing in the stock market once you have trading and demat accounts linked to your bank accounts. Remember that before investing, it is wise that you research as much as possible about the company, set your financial goals and hire a reputed and trustworthy stock broker to assist you through your investment journey.
2.What should a beginner invest in?
Beginners are often advised to invest in secondary markets.
3.How can I grow my money fast?
Investing is a way of making money but you need to be patient in learning to make right investment choices. By gaining knowledge and investing in the right stocks at the right time, you can build your wealth faster.
4.Where can I get the company’s financial report and other information?
You can obtain the information about the company’s financial report and other information from the company website. SEBI website also provides this information through the company prospectus.
5.How much returns can I expect from the market?
Returns from the share market investment vary greatly. On an average, about 10% return is obtained over a decade.
What do you think? Please email us any questions or comments.
Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.For more information, see our Legal disclosures here.