Share Market Investment for Beginners
To invest in stocks publicly listed on the market, you need to fulfil the following requirements:
1. Personal documents
- PAN Card
- Aadhaar Card
- Name on a cancelled cheque from your active bank account
- Proof of residence based on a list of documents that have been accepted by your stock broker, depository participant, or bank
- Account statements
- Passport-size photographs
2. Demat Account
A Demat account serves as an electronic house for your shares. Opening a Demat account is a hassle-free process conducted online or offline with the help of a depository participant. Many banks also offer Demat account services to their investors.
3. Trading Account
A Demat account and trading account go hand in hand. A trading account is used to buy and sell securities that you wish to trade on the stock market. Both Demat and trading account are mandatory for investing in the share market.
The Bombay Stock Exchange and the National Stock Exchange are primary exchanges where stocks are listed. However, some stocks may only be available on either one of these two exchanges. Hence, it is advisable to open your trading account with a depository participant who offers trading on both BSE and NSE.
4. Linked Bank Account
Linking a bank account to your trading account ensures a seamless flow of money in and out of your account as you trade. This is mandated by most brokers with whom you will choose to open a Demat and trading account.
Currently, you can find two-in-one accounts that serve as both a Demat account and a trading account. Some brokers also offer a three-in-one account where one can trade directly from their bank account and store their securities in the same location.
The Investment Process
The investment process differs when choosing to invest in the primary share market as compared to the secondary share market.
1.Investing In The Primary Share Market
A primary share market investment is made through an initial public offering (IPO). Once all applications for the IPO are received and counted by the company in consideration, the shares are allotted to investors based on demand and availability.
IPO application is made simple through your net banking account via Application Supported by Blocked Amount (ASBA). As an example of this process, if you have applied for shares that are worth ₹1 lakh, this amount will be blocked into your bank account instead of being sent directly to the company.
Once your shares are allotted, the exact amount is then debited with the balance being released. All IPO applications have to compulsorily follow this procedure. Once shares are allotted, they are listed on the stock exchange, and you can begin trading them within one week.
Risks and Benefits of Investing in Stocks
The possible advantages are as follows:
- Potential for Significant Returns: One of the most significant benefits of investing in stocks is the potential for high returns. Historically, stocks have consistently outperformed bonds, real estate, and other comparable asset classes over time. If you develop and adhere to a solid stock trading strategy, you might be able to accumulate an enormous amount of wealth.
- Ownership Rights: When you purchase shares, you’re obtaining a portion of a company. Shareholders may get dividends depending on the firm’s performance. Additionally, having stock may grant you a voice in significant corporate choices, giving you impact over the company’s future path.
- Liquidity: Equities are extremely liquid ventures. They are not at all like land or different resources, which may require some time to be sold. You can easily purchase or sell stocks quickly without difficulty. This liquidity permits financial specialists to react to market conditions and oversee their portfolios all the more emphatically.
- Diversification Opportunities: You can spread your capital across several different industries, geographies, and sectors by investing in stocks. Doing so will reduce the overall risk in your investment portfolio and help ensure that a significant loss in one investment will not affect your entire portfolio.
The different risks associated with investing in stocks are as follows:
- Stock Price Fluctuations: The price of a given stock may be highly volatile for a variety of reasons, including economic conditions, political events, and changes in investor sentiment. This can lead to significant short-term losses, making stocks a risky investment for investors with a low-risk tolerance level.
- No Guarantee of Returns: There is no guarantee that you will receive a return on your investments because stocks do not provide the same level of risk-free returns as bonds or savings accounts. The value of your stock market investment may fluctuate, resulting in a significant loss of capital. This risk is even more pronounced with individual stocks, as the value of a specific company may drop sharply and result in a substantial loss when the company experiences financial difficulties.
- No Guaranteed Dividends: Some companies pay investors a percentage of their profits as dividends, but this is not guaranteed. With a decrease in company performance, the company can reduce or eliminate dividend payments to its shareholders.
- Complexity of Stock Investing: In order to invest effectively in stocks, constantly reading and analysing a variety of different financial reports, market trends, and other economic indicators is essential. Investing in stocks is not only complex but also time-consuming. Many investors may not be prepared for the intense amount of time and energy it takes, which could mean they may lack the ability to handle the issue with the resources and capabilities they have and need to submit to professional advice.
Steps to Invest in the Stock Market in India for Beginners
The investment process differs when choosing to invest in the primary share market as compared to the secondary share market.
1.Investing In The Primary Share Market
A primary share market investment is made through an initial public offering (IPO). Once all applications for the IPO are received and counted by the company in consideration, the shares are allotted to investors based on demand and availability.
IPO application is made simple through your net banking account via Application Supported by Blocked Amount (ASBA). As an example of this process, if you have applied for shares that are worth ₹1 lakh, this amount will be blocked into your bank account instead of being sent directly to the company.
Once your shares are allotted, the exact amount is then debited with the balance being released. All IPO applications have to compulsorily follow this procedure. Once shares are allotted, they are listed on the stock exchange, and you can begin trading them within one week.
2.Investing In The Secondary Share Market
The secondary share market is where stock buying and selling action occurs between investors. Follow these steps to invest in the secondary share market:
- Open a Demat and trading account using your linked banking account.
- Log into that trading account.
- Select the shares that you wish to buy or sell.
- Ensure that you have the requisite amount of funds in your account to buy the shares.
- Next, decide the price at which you want to buy or sell a particular share.
- Wait for the buyer or seller to reciprocate that request.
- Complete your stock market transaction by paying for and receiving the shares or transferring the shares and receiving the money.
