Stock market investing has grown in popularity among investors in India in the past two decades. People find the prospect of earning good returns from investing in the market tempting despite the high risks of investing. However, market trading might seem a little tricky for beginners, which makes it necessary to understand how to invest in the stock market first.
What is the Share Market?
A share market is a place where various companies issue shares, which are then bought and sold by buyers and sellers. Different types of securities, like shares, bonds, mutual funds, futures & options, and other financial instruments, are traded in the share market.
The most important component of the share market is the stock exchange. It is essentially a platform that allows, mediates, and regulates the issuance, purchase and sale of stocks and other securities. Stocks or other securities can be traded when listed on a stock exchange list.
Thus, a stock exchange is a platform that facilitates the meeting of buyers and sellers. India has two stock exchanges - the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
How to invest in the share market?
Investing in the Indian stock market can be a rewarding endeavour if approached with the right knowledge and strategy. Here are the essential steps to guide you through the process:
1. Select a reputable broker
Choosing a reputable broker is the first crucial step in your investment journey. Look for brokers with a solid reputation, reliable customer service, and user-friendly trading platforms. Evaluate their brokerage fees, trading tools, and the range of services they offer.
2. Open a Demat and trading account
To invest in stocks, you need to open both a Demat (dematerialised) and a trading account. The Demat account holds your shares in electronic form, while the trading account facilitates the buying and selling of shares. You can open these accounts through your chosen broker, who will guide you through the necessary documentation and KYC (Know Your Customer) process.
3. Add funds and log in to your trading account
Once your accounts are set up, you need to transfer funds into your trading account. This can typically be done via net banking, UPI, or other payment methods offered by your broker. After funding your account, log in to the trading platform provided by your broker to begin your investment activities.
4. Choose the stock to invest in
Research and select the stocks you want to invest in. Consider factors such as the company’s financial health, market position, growth prospects, and the overall economic environment. Utilise the research reports and analysis tools provided by your broker to make informed decisions.
5. Decide your investment amount
Determine how much you want to invest in a particular stock. This decision should align with your investment strategy, risk tolerance, and financial goals. It is prudent to diversify your investments to mitigate risk.
6. Purchase the stock at its listed price
Once you have selected the stock and decided the amount to invest, place a buy order at the current market price or set a limit order at your preferred price. A limit order will only execute when the stock reaches your specified price.
7. Execute the purchase order
Confirm and execute the purchase order through your trading account. Ensure all details are correct before finalising the transaction. The stocks you purchase will be credited to your Demat account.
8. Keep track of your investment's performance
Regularly monitor the performance of your investments. Use the tools and reports provided by your broker to track stock prices, company performance, and market trends. Staying informed will help you make timely decisions, such as selling underperforming stocks or buying more of high-performing ones.
By following these steps, you can navigate the stock market with confidence and aim for a profitable investment experience. Remember, investing in the stock market involves risks, so it's important to conduct thorough research and consider seeking advice from financial experts.
Investment process
A person can choose to invest in either the primary or the secondary market. In the primary market, investors can directly purchase company stocks issued via an Initial Public Offering (IPOs). In the secondary stock market, investments are made through the sale and purchase of securities between the buyers and sellers on the stock exchanges.
1. Investing in the primary market (IPOs)
For investing in IPOs, one will need a Demat and trading account. A trader can also apply for an IPO directly through their bank account. IPO application through net banking has become easier with the introduction of a process known as Application Supported by Blocked Amount (ASBA).
2. Investing in the secondary market
Here is the procedure for investing in the share market:
Step 1: Open a Demat and trading account.
Step 2: Log in to the trading account and choose the stocks to purchase.
Step 3: Decide the price point to buy or sell shares. Wait for the buyer or seller to accept the request.
Step 4:After completing the transaction, either money or shares get credited to the Demat account.
Things to keep in mind before investing
It is important for anyone interested in investing in the share market to keep in mind certain things before investing. Some of them are stated below:
Risk appetite
One major factor that an investor must consider before investing in the share market is whether the person is willing to take the necessary risks with investing. Typically, assets that offer high potential returns require investors to take high risks.
Furthermore, one would also need to consider his/her risk appetite before deciding which securities to invest in and what type of shares best fit their requirements.
Investment objectives
Before understanding how one can invest in the share market, an investor must consider his/her investment objectives and time horizon. By investment objectives, one has to consider the right asset and time required to reach one’s financial goals. Therefore, it’s necessary to pick the stocks that will give sufficient returns.
Diversification
Every investor would like to minimise the risks of losses from stock market investments. Thus, it is necessary to create a diversified portfolio when investing to reduce the risks of potential losses. Portfolio diversification means spreading the risk of investments across different sectors, securities and companies.
Investing in the stock market can be highly profitable for knowledgeable investors. However, it also has its share of risks. When learning how to invest in the stock market, a person should know the basics of fundamental and technical research. Before investing, it is also advisable to do proper research and choose a stock that fits his/her financial goals, time horizon, and risk appetite.
Conclusion
In conclusion, investing in the stock market offers exciting opportunities for financial growth, but it requires a thorough understanding of the market dynamics and careful consideration of individual risk tolerance and investment goals. Whether opting for IPOs in the primary market or trading in the secondary market, having the requisite accounts and documentation is essential. Additionally, investors should assess their risk appetite, define investment objectives, and ensure portfolio diversification to mitigate potential losses. By conducting diligent research and staying informed about market trends, investors can navigate the stock market with confidence and maximise their chances of achieving long-term financial success.
