Investing can be explained as sowing the seeds today to reap the fruits in the future. We invest in a lot of things in our daily lives; our family, relationships, our personalities, etc. But the investment we are here to talk about is investing in the stock market. Over the past few years, there has been a surge in the number of new investors in the market thanks to the introduction of investment apps and a general rise in interest in the topic (Scam 1992, anyone?). Here, we’ll look at all the basic requirements needed to help you learn how to invest in the stock market for beginners in India. To begin with, let’s answer the obvious first question: What is a share market, and what are stocks?
What is a stock and how does the stock market work?
A stock market is a platform where you can invest in various financial instruments using your funds, for example, by trading bonds and securities. Stocks are defined as a collection of the ownership certificates of a company. When you buy stock in a particular company, you buy a part of its ownership. Stocks consist of smaller units called “shares.”
The stock market is where the transactions for these trades are made. In India, there are two top stock exchanges that you might have heard about:
- Bombay Stock Exchange (BSE)
- National Stock Exchange (NSE)
Primary Market vs. Secondary Market
There are primarily two types of markets that make the stock market work. They are the Primary Market and the Secondary Market. The Primary Market is where a company that wants to go public offers new securities to potential buyers. This helps to bring in funds for the company. Whereas in a secondary market, investors get to trade the shares that they have already bought with other investors.
Key features of a Primary Market:
- The securities, or shares, are sold for the first time by the company.
- The value of the securities is decided by an underwriter and put on sale to the investors.
- It enables the company to get listed on the exchanges.
- The securities can be debt or equity.
- Examples: IPO, NCD, etc.
Key features of a Secondary Market:
- The securities and bonds bought earlier can be sold, traded, and new ones can be bought.
- When you buy a share, the fund goes to the seller who previously owned it.
- The company is not involved and merely involves the buyer, seller, and broker who mediates the trade.
- Examples: BSE, NSE, etc.
The market is chosen dependent on the requirements of the company and the investors involved. It caters on the basis of the investment, whether it is short-term or long-term. Companies looking for long-term investments opt for IPOs, which is a function of the primary market. Whereas, for short-term capital use and trade, companies prefer to use the secondary market, such as the stock exchanges.
Starting to invest in the stock market? Here are five steps to get you started
Now, we will go over five simple steps to investing in the stock market. These are the most important steps for you as a beginner.
Open a Demat account
A Demat account, or Dematerialized account, is a digital place where investors can hold their securities, bonds, stocks, etc. in an electronic format. This gives you the option of storing your stocks in a single place where you can access them easily and saves you the hassle of going through tiresome paperwork. Here are a few popular Demat account providers in India: Upstox, Zerodha, Groww, Angel Brokering, 5Paisa, Motilal Oswal, etc.
Do your research
Before getting into any field, it would be wise to do a minimal amount of research just to get a grasp of what you are getting into. It applies here too. Do not fall for the short-term tips and tricks available in abundance. Take legal advice from a trusted source and decide if it is the right place and time to get into it. To help you with this, we’ll be coming up with content based on the recent news and make it easier for you.
Stay up to date with the recent developments. As you are aware, the market is a volatile place that is subjected to changes frequently. Keep a tab on it by going through the local news or financial sites like Money Control, which gives a good insight into the pulse of the market.
Get the funds ready
Now you need the primary material, funds. Set an amount that you would like to invest in. Note that you shouldn’t go all out; take a small part and set it aside after your basic needs have been covered. Baby steps at first, but they will lead to good strides in the future.
Buy the stocks
Finally, you’ve got all the basics covered, and now there’s nothing more left to do than start investing. Hold your horses though, we can’t jump straight into the boiling pot. Pick a stock and look into its fundamentals before making a decision. This is a skill that needs to be developed. Therefore, we’ll help you on this journey, so stay tuned for more.
Contrary to popular belief, you don’t have to be 18 to start investing. There’s no minimum or maximum age limit in this regard. A minor can invest in stocks, but it should be supervised by a guardian. A Demat, trading, or bank account can be opened under the minor’s name but with the guardian’s proof (PAN, Aadhar, etc.).
The answer to this common question is that you can start investing with an amount as low as Rs. 10. There’s no minimum balance requirement to buy stocks; as long as you have the funds to cover the price of a stock, you can go ahead and purchase it. It would be wise to start small and get used to the curves and turns of the market. Once you have acquainted yourself, you can shell out the big bucks and rake in the rewards (depending on how well you manage your investments).
Yes, investors will have to pay a fee when they wish to trade. This is called a brokerage fee, and it is taken by the broker who provides the trading platform for you to trade. This varies from broker to broker.
Not at all. There are many ways and opportunities for you to invest. The stock market is just one of the proven and time-tested ways. Other potential investment options include Real estate, Fixed Deposits, Mutual Funds, Gold, Cryptocurrency, NFT, etc.
In this article, we go through what the stock market is and also the criteria needed for you to invest in it. We’ve also discussed the rookie mistakes you should avoid if you want to have a successful stint.