A guide to the stock market for beginners is incomplete without addressing what a share market is, to begin with. A share market is a place where shares are publicly issued and traded. A share serves as a document that validates your ownership in a company, and you can sell this document to others. A share market is a place where buyers and sellers meet for this exchange of documents. To facilitate the exchange publicly, a formal market place has been developed for investors to buy and sell their shares on. Now let's address investing in stocks for beginners.
A key element in a stock market guide for beginners is the different ways in which one can invest money in stocks publicly listed on the market. For this, the following requirements are necessary:
A demat account is that which will hold one’s shares in the name of the account holder. A demat account serves as an electronic house for your shares. It is opened online with the help of a depository participant. Many banks also offer Demat account services to their investors. Opening a Demat account is a hassle-free process that can be carried out from the comfort of one’s home within a matter of minutes.
A demat account and trading account go hand in hand. Demat refers to ‘dematerialized’ which indicates that it is a storehouse for your shares. A trading account, on the other hand, is the account with which you buy and sell securities that you wish to trade on the stock market. When it comes to investing in stocks for beginners, you cannot do so without having both a Demat and a trading account. The Bombay Stock Exchange and the National Stock Exchange are both primary exchanges where most good quality stocks are listed. However, some stocks may only be available on either one of these two exchanges. Hence, a general tip is to open your trading account with a depository participant who offers trading on both BSE and NSE.
As you are choosing to invest in stocks, you will be buying and selling them over time. For this, you will require a bank account that is linked to your trading account. This ensures that money flows in and out of your account seamlessly while you trade. This is mandated by most brokers with whom you will choose to open a demat and trading account.
These days you can find two in one accounts that serve as both a Demat account and a trading account. Some brokers also offer three in one account where one can trade directly from their bank account and store their securities in the same location.
So what does the investing process look like? As a guide to investing in the share market for beginners, the following will cover the investment process for investing in both types of markets: both primary and secondary.
When one chooses to invest in the primary share market, they can do so through an initial public offering or IPO. To do so one will require a Demat account to hold electronic copies of their shares as well as a trading account so they can apply online. In some cases, one can also apply through their bank account. Based on the market’s response to the IPO, a select number of shares will be allotted to you. Once all the IPO applications are received and counted by the company, those shares are allotted based on demand and availability.
It's quite simple to apply for an IPO through your net banking account via a process that is known as Application Supported by Blocked Amount (ASBA). In this process, assuming 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.
The secondary market is what is typically referred to as a stock market. This is the market where all the action among investors of buying and selling stocks is. To invest in the secondary share market, you require a Demat account which should be linked to your bank account.
Although it can appear complicated to newbies, as detailed above, the process of investing in stocks for beginners is quite simple. Keep in mind that it's crucial to be aware of one’s investment horizon and financial goals before they jump into stock market investing.