Where to Start
Stock investing is one of the most lucrative investment alternatives open to the general public. Aside from being the most popular investing option, it is also the most complex. A beginner’s guide to the stock market would be incomplete without first defining what a stock market is.
A Stock market is a site where stocks are publicly traded and issued. A Stock is a documentation that validates your ownership in a firm and how you can sell to others. A Stock exchange (e.g. NSE, BSE in India) is a location where buyers and sellers meet to ‘exchange’ paperwork. Though recently due to digitization, a stock exchange is usually referred as stock market where paperless buying and selling (exchange) can happen online (through brokers’ website/app). A formal market place has been established for investors to buy and sell their shares in order to make the exchange more public. Investing in the stock market is a complicated process since the investor must fulfill a number of requirements, including assessing market risks, calculating market highs and lows, and selecting the best time to invest.
However if you’re a beginner, by the end of this article you won’t find investing in stocks complex enough to make your first investment. Here’s how to master the process of this complex journey.
- Conduct your research – People fail to earn returns because they lack expertise about the business in which they invest their money. It is strongly recommended that you perform research on the stock market and learn how the market works as well as the basic jargon that you will encounter as you become an experienced investor. You can conduct your research either by reading blogs or watching videos or even reading the newspaper. It is advisable to acquire information about the best stocks and get guidance from professional investors who can assist you in determining which stocks to invest in.
- Understand your investment objectives – When determining how to invest your money in different shares on the market, you must be clear about the financial goals you want to achieve and when you want to achieve them. Set your goals, such as your child’s education, your daughter’s wedding, household necessities, and establishing a retirement fund, as well as a timeline for accomplishing them. Determine how much money is required to attain these objectives. All of this planning will help you make sensible investments that will reward you within your grace period.
- Understand your risk tolerance – When investing in the stock market, you should be well informed of the level of risk you are willing to take. You can afford to take chances if you have less financial commitments. If you have a family that depends on you, investing will be challenging. As a result, you must choose carefully based on your risk tolerance.
- When to buy or sell stocks – There is no such thing as a good or bad moment to buy or sell stocks. Investing in the stock market and withdrawing depends on your investment and planning approach. Your understanding of how you’ve interpreted market trends, as well as how much risk you’re willing to take.
The stock market may appear to be an intimidating place to begin one’s trading quest. With basic stock market knowledge, due diligence, and a sound trading plan, one can aim to make a significant return.
Intermediaries in the Stock Market
There are several things that can go wrong when purchasing a company’s stock from another stakeholder. However, each country has a regulatory agency in place to guarantee that stock transactions go smoothly and without fraud.
The Securities and Exchanges Board of India (SEBI) is this agency in India that has developed a method for share transfers that includes the following intermediaries to ensure maximum protection for all investors.
- Stock Broker – The SEBI has ordered that all transactions on a stock exchange be conducted via a stockbroker who is registered with the exchange.
- Depository and Depository Participant — Traditionally, shares were allotted in the form of physical share certificates; however, electronic or dematerialized shares have since taken their place. A Demat account is required for your dematerialized shares, just as a bank account is required for your dematerialized money. A depository participant provides this account.
- Bank – You’ll need money to acquire shares and a bank account to receive the revenues of the sale. As a result, a bank is a necessary middleman in share transactions.
- Clearing Corporation – This agency guarantees that all transactions are correctly cleared.
What Is The Best Way For A Beginner To Invest In The Stock Market?
The various ways in which one can invest money in publicly traded companies is a vital feature of a stock market tutorial for beginners. The following criteria must be met in order to do so:
a) Documents required
List of documents you need to prepare before investing in the stock market.
- Your PAN Card (Personal Identification Number)
- Your Aadhaar Card
- A cancelled check from your active bank account bearing your name
- A list of documents that have been accepted by your broker, depository participant, or bank as proof of residency.
- Documents proving that you have a source of income
- Photographs of yours (passport size)
b) Creating account
Demat account
This is the account where the buyer’s shares will be kept. Any depository participant can help you open a Demat account. Demat account services are available from the majority of banks. Creating a Demat account is easy, you can create one online from anywhere (like Upstox, Zerodha, Icici etc.), thanks to the newage investment platforms.
Trading account
A trading account is connected to a Demat account. Demat is an abbreviation for “dematerialized,” which implies it is a facility for holding your shares. A trading account, on the other hand, is the account used to purchase and sell stocks on the stock exchange. When it comes to stock investing for beginners, you must have both.
c) Linked bank accounts
You will need a bank account that is linked to your trading account for buying and selling stocks. This guarantees that money flows smoothly into and out of your account when you trade. If you open a demat and trading account with a broker, you will be required to do this.
Nowadays, you can discover two-in-one accounts that function as both a Demat and a trading account. Some brokers now provide three-in-one accounts, which allow you to trade straight from your bank account and keep your assets in the same place.
The Investing Procedure
So, how does the investment procedure work? The following will serve as a beginner’s tutorial to investing in the stock market, including the investment procedure for both primary and secondary markets
Investment in The Primary Share Market
You can invest in the primary stock market by investing in an initial public offering, also known as an IPO. You’ll need a Demat account to keep electronic copies of your shares, as well as a trading account to apply online. In some situations, applicants can use their bank account to apply. Based on the market reaction to the IPO, you will be assigned a specific number of shares. After receiving and counting all IPO applications, the business allots shares based on demand and availability.
Application Supported by Blocked Amount(ASBA) is a method that makes applying for an IPO using your net banking account very simple . For instance, if you applied for 1 lakh worth of shares, the money will be frozen in your bank account rather than being delivered straight to the firm. Following the allocation of your shares, the exact amount is deducted and the balance is released . Once assigned, shares are posted on the stock exchange and can be traded within one week.
[To know more about IPO, refer this article: https://fintrovert.com/blogs/what-is-an-ipo-ipo-meaning-types-allotment-process/]
Investment in The Secondary Share Market
What is commonly referred to as a stock market is the secondary market. This is where all of the buying and selling of stocks takes place among investors.To invest in the secondary share market, you must have a Demat account that is connected to your bank account.
When investing in the secondary market, it is essential for beginners to set up a demat and trading account using their linked banking account.
● Logging into the trading account is the next step.
● Then proceed to choose the shares you want to sell or buy.
[For detailed articles on ‘How to Place Orders’ on platforms of various brokers like Zerodha, Upstox, Astha, refer ‘Related Articles’ section at the bottom of this page]
● Ascertain that you have the necessary cash in your account to assist you in purchasing the shares. Alternatively, if you want to sell, be sure you have the appropriate number of shares before you do so.
● Next, select whether you want to purchase or sell a stock at a certain price.
● Allow time for the buyer or seller to respond to your request.
● You will receive money/shares when you complete your stock market transaction by transferring the money/shares.
Although it may look complex to newcomers, the procedure of investing in stocks for beginners is fairly easy, as described above. Before jumping into stock market investing, keep in mind that knowing your investment strategy and investment objectives is crucial.
To understand how to place orders on various brokers’ account (like Zerodha, Upstox, Astha you can refer these detailed articles:
https://fintrovert.com/blogs/how-to-place-orders-on-zerodha-kite/
https://fintrovert.com/blogs/how-to-place-orders-on-upstox-web-pro/
https://fintrovert.com/blogs/how-to-place-orders-on-astha-web/