ALL YOU WANT TO KNOW ABOUT STOCK MARKETS AND HOW TO START INVESTING FROM SCRATCH

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💻CONTENTS :

INTRODUCTION
1. Prerequisite Documents For Starting Investment In Stocks
2. Demat Account
3. Trading Account
4. Linking of Bank Account

HOW TO START

STARTING FROM THE PRIMARY SHARE MARKET

MOVING TO THE SECONDARY SHARE MARKET

TRY TO DIVERSIFY AND REDUCE YOUR RISKS

CONCLUSION

INTRODUCTION

First of all, let’s have a basic understanding about what a stock market actually is. A stock market or a share market is a place where shares are publicly bought and sold (also called exchange of shares). A share is a document that indicates the part of your ownership in the company, and you have an option sell this document to others. A share market is known as a place where buyers and sellers meet for this exchange of documents. Earlier in time, the shares were issued physically to the public in the form of a signed document. But now in the modern world where the technology is so advanced and manual intervention is negligible, shares are issued, stored and traded in electronic form only. To facilitate the exchange publicly, a proper market place has been developed for investors to purchase and sell their shares on. Now let's address investing in stocks for beginners.

HOW TO START

A key element inside a share market guide for beginners is actually the alternative ways by which one can invest money in stocks publicly listed on the market. For this, the following requirements are necessary:

1. Prerequisite Documents For Starting Investment In Stocks

  • Your PAN Card
  • Your Aadhaar Card
  • Your name on a canceled cheque from your active bank account
  • A proof of your residence based on a list of documents that have been accepted by your broker, depository participant, or bank
  • Documents detailing that you earn an income
  • Passport-sized photographs of you

2. Demat Account

A demat account is that account which can hold one’s shares in the name of the account holder. A demat account is actually an electronic house for your shares. It is opened online with the assistance of a depository participant. There are many banks who have now started providing investment services to its customers. They also offer the services of opening and maintaining Demat account of their customers. Opening a Demat account is actually a hassle-free process that may be addressed from the comfort of one’s home within a matter of minutes.

3. Trading Account

A trading account and demat account  are of made for each other kind. Demat refers to ‘dematerialized’ which indicates that it's a storehouse for your shares. A trading account, on the other hand, is that the account with which you purchase and sell securities that you simply wish to trade on the stock exchange . When it comes down to investing in stocks for beginners, you can't do so without having both a Demat and a trading account. The Bombay Stock Exchange (BSE) and The National Stock Exchange (NSE) are the primary exchanges in india where all the best quality stocks are listed. These companies whose stocks are listed are also called “Listed Companies”. However, there may be some stocks which are available on only one of these two exchanges. Hence, as an advice, investor should open trading account with a depository participant who offers services of trading on both the stock exchanges.

4. Linking of Bank Account

As you want to make investment in stocks, you'll be buying and selling them over the period of time. For this, you'll require a regular bank account that is linked to your trading account. This ensures that the money flows in and out of your account seamlessly while you trade. This is mandated by most brokers with whom you'll open a demat and trading account.

These days you can find two in one account that serve as both a Demat account and a trading account. Some brokers also combo kind of account where one can trade directly from their bank account and store their shares and securities within the same location.

STARTING FROM THE PRIMARY SHARE MARKET

If you choose to invest in the primary share market, you can do so through an initial public offering or IPO. For that you will require a Demat account to hold your  shares in electronic form as well as a trading account so that you can apply online. In some of the cases, you can also apply through your bank account. Based on the response of market to the IPO, a selected number of shares will be allotted to you as decided by the company. After all the IPO applications are received, the company counts the applications, shares are allotted to the subscribers based on demand and availability.

It's quite simple to easily apply for an IPO through your net banking account via a process that is called Application Supported by Blocked Amount (ASBA). As per this process, if you have applied for shares of ₹1 lakh, this amount will be blocked into your bank account rather than being sent on directly to the company. Once your shares are allotted, the same amount is then debited from your bank account with the balance being released. All IPO applications need to compulsorily follow this procedure. Once shares are allotted, they're listed on the recognized stock exchange, and you'll be able to begin trading them within one week.

MOVING TO THE SECONDARY SHARE MARKET

The secondary market is what's typically named as a a share market or a stock market. This is the market where all the action among investors of purchasing and selling stocks is. To invest inside the secondary share market, you need a Demat account which should be linked to your regular bank account.

  1. When it comes down to investing in stocks for beginners on the secondary market, it’s crucial to open a demat and trading account using one’s linked banking account.
  2. Second step is to log into that trading account.
  3. Then to move forward and choose the shares that you simply wish to sell or buy.
  4. You should make sure that you've got the requisite amount of funds in your account which helps you to buy the shares. Alternatively, if you want to sell, you must ensure that you have the right amount of shares before you select to sell.
  5. Next, decide the price at which you want to buy a share versus sell it.
  6. You have to wait for the buyer or seller to reciprocate the same request. Complete your exchange transaction by transferring the money/shares and you will receive money/shares.
  7. Although it can appear somewhat complicated to newbies, but as detailed above, the process of investing in stocks for beginners is sort of simple. Further it's very important to keep in mind the investment horizon and financial goals before they jump into stock market investing.

TRY TO DIVERSIFY AND REDUCE YOUR RISKS

Diversification is considered to be very important part of investing. In a nutshell, by investing in many assets, you reduce the risk of one bad investment hurting the return of your overall investment. For example if I invest all my capital in single stock or stocks from same industry and that does not perform well, I am bound to suffer losses. On the other hand if I invest my capital proportionately in many different types of shares, My capital will be more secure as, if one stock’s bad performance will get compensated by other good performing stock. There is a popular saying that "don't put all of your eggs in one basket." In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks. As mentioned earlier, the costs of investing in a large number of stocks could be detrimental to the portfolio. With a Rs 10,000 ($133) deposit, it is difficult to have a well-diversified portfolio, hence you may need to invest in one or two companies (at the most) to start with. This will also increase your risk in starting. This is where the mutual funds or exchange-traded funds (ETFs) come into picture. Both types of securities have a large number of stocks and other investments within the fund, which makes them more diversified than a single stock. As per the functionality of Mutual funds, every single rupee added by you gets invested into the range of companies which the Mutual fund scheme proposes. Hence you can start with very small amount as low as Rs 500 ($6) for instance. 

CONCLUSION

It is possible to make investment even if you are just starting out with a small amount of money. But It's more complicated than just selecting a right investment and you have to be aware of the limitations that you face as a newbie investor. Since there are many companies providing investment and broking services, you will need to decide on which broker you would like to open an account with. You'll have to do your homework to find the minimum deposit requirements and then compare the brokerage/commission charges of various brokers. There are chances that you are not able to cost-effectively buy individual stocks but still be diversified with a small amount of money.

Thanks a lot for reading till the end. I hope this article was very helpful!

 


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