We all have that friend or relative who boasts about having made big money in the Share Market .
Often wondered how you can do the same, but don’t know what the stock market is all about? This blog will give you an overview of how to invest in share market, what are the nuances of stock markets in India, and so on and so forth.
From the outside, share market may appear to be a tool to make some quick bucks. But let us remind you that it is not easy as it looks. Share market often punishes brash investors. That is why if you want to make money, you will have to follow a disciplined approach. And this blog will exactly teach you how to invest in stock market in the right manner. Let’s get started!
What is a Share Market?
A share market is a place where exchange (buying and selling) of shares takes place. Buyers, such as individual, retail, and institutional buyers, put money in other companies in return for a part ownership of that company. The company issuing those shares is known as the seller.
What can you buy in a Share Market?
Investing in the share market may mean different things to different investors. Some people invest in the equity market, which is the most common form of investment. Equity is issued when a company goes public, and becomes a public limited. They invite people to buy units of their company, and in return give them certificates of share ownership.
There is also another kind of investment that is known as debt. Unlike equity, which is determined by many factors and may diminish your investments, debt products offer guaranteed returns. Things like government bonds, fixed deposits, and PPF fall under debt. The returns may be slightly lesser, but at least your money will keep growing. There are brokerages that put your money in these instruments to shield it from market volatility.
Any portfolio must have a good balance of debt and equity.
Essentials for investing in share market of India
PAN, or Permanent Account Number, is a unique 10-digit combination of alphabets and numbers that identifies you for all tax, banking, and investment related purposes. It is mandatory to have a PAN Card for activities like opening a bank account, for trading, or investing in the share market.
Demat and Trading Account
Whenever you receive money in your bank, it is stored in your bank account. Similarly, whenever you buy shares, they are deposited in your account, and this account is known as a Demat account. Any number of shares that you have purchased or sold will eventually reflect in your demat account.
Earlier, shares were sold physically, in the form of paper records. But the old methodology has phased out, and you can only hold shared in their dematerialized form. Hence, the name Demat.
If you want to invest in a share market in India, you also need a trading account. A trading account, as the name suggests, is the account from where you can indulge in the sale-purchase of shares. Usually, your broker will open both the trading and the demat account together for you.
Check out : How to Invest In Futures and Options In India
Become a Member of a Broker
A broker is an entity (maybe a company or an individual) who is registered with the SEBI (Securities and Exchanges Board of India) and who facilitates the buying and selling of shares. Since you cannot directly visit a company or a stock market to purchase shares, it is the stock broker who will help you out with the same, whilst charging some commission.
These days, there are a lot of brokerages that offer free demat and trading account opening, and charge a flat commission when you purchase shares through them.
Get your DP ID
A DP ID is a Depository Participant Identification code, which is provided to you by your brokerage. They are the depository participants, and are registered with the two depositories that exist in India – the NSDL and the CDSL.
The DP ID is a combination of a personal ID number assigned to you by your brokerage, and their DP number. You should keep this handy if you are ever applying for IPOs etc. on your own. This will help the IPO issuing company to directly transfer the shares to your demat account in case you are allotted any shares in the offering.
Things to keep in mind while investing in Stock Markets in India
Never become a part of Mob Mentality
Very often you will notice that everyone around you is investing in the same company. The reality is that a lot of times, it may be just a scheme by that particular company to spread messages via social media platforms to make it seem like everyone is investing in them. That particular stock may show some growth also, due to a lot of people senselessly investing in them.
Never become a part of such a mentality. You may end up losing all your hard-earned money. Do your own research.
Invest in a line of business you are familiar with
Always ask yourself if you are familiar with the particular industry that you are investing in. Because tomorrow, if there are any new rules and regulation changes or innovations in that particular industry, you will know whether to pull your money out or invest more. Else, everything will be Greek to you, and you may neither be able to take advantage of the market situation nor save your money in case the market goes bad.
Become familiar with Financial Terms
Heard about EBIDTA, NPA, Debtor’s Turnover Ratio etc.? These are the financial terms that may reflect the health of a particular company, and their business. Knowing these terms will enable you to calculate these ratios and understand the reason behind the same. It will help you in making an informed decision regarding investments.
As a beginner, we would advice you to invest in the stock market only if you have some spare money, Also you should read books related stock market to understand how buying selling works. Never put your emergency savings in the stock market until you are familiar with it. Even then, invest only your spare money. Happy investing!