How to Start Investing in Stock Market? What are the Factors to Consider before Investing?
How to Start Investing in Stock Market: Introduction
There are various investment options available in the market and stock market investments is one of the most common terms everyone is aware of. Everyone wants to grow their wealth by investing in the stock market. And to invest in a market you should aware of the things like how markets work and then you will be able to know how to invest in the share market.
What is Stock Market?
A stock market is a financial market where the public can trade or invest in any kind of stock through recognised stock exchanges. Stock Exchanges such as National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Stocks are served as a tradeable document where we as a public can validate our ownership by investing in a company. The stock market is regulated by the governing authority known as SEBI (Securities and Exchange Board of India).
How to Invest in Stock Market: Various Ways of Investing
Investing in the stock market becomes easy when you decided on the ways to invest in the stock market. Ways to invest in the stock market are as follows :
- Stocks - We as an investor can go with different options in a stock market but among all stocks is one the common ways to invest in a company. After buying the stocks of a company, investors are entitled to ownership of a company. We can invest in stocks of the company through IPOs and FPOs. IPO is an Initial Public Offer by the company to its public whereas FPOs is a Follow on Public Offer by a current shareholder to other shareholders of the market.
For example - Nykaa need funds for their company due to this they come up with an IPO, and Pratik a stock market investor liked the business model of Nykaa and invested in their IPO. After holding it for a year, Pratik decided to sell it to another shareholder of the market named Amit. In this classic example, the transaction between Nykaa and Pratik is an IPO transaction, whereas the transaction between Pratik and Amit is considered an FPO transaction.
- Mutual funds - Mutual fund is a pool of funds managed by experienced professionals. The pool of funds included the money from a different investor and that money is invested in a recognised market or a sector.
- Debentures - This is again the interesting and safest way to invest in the stock market. In the case of debenture, the company doesn't give ownership to its debenture holders. Rather companies took a loan from individuals by issuing debentures to them. Debenture holders are entitled to fixed interest and dividends from the company and after 5-20 years holders of debenture also get their initial amount back from the company.
- Future and options - Future and Options are the types of derivatives in the market.
let's understand this with an example -
Future is a type of contract where you agrees to buy something at a future price. Let's say you entered into a future contract with a potato seller, where you agree to buy 10 kg of potatoes after 2 months for 50 per kg. And at the end of the contract, you will get all those 10 kg of potatoes for (10×50) = Rs 500. Here the benefit is even if the price goes up to 60 per kg, you will get the potatoes at 50 per kg because you have entered into a contract with a potato seller.
Options are also a type of contract but it is slightly different if compared to future contracts. Let's say you agree to buy 10kg of potatoes for 50 per kg after 2 months but unfortunately the price of potatoes goes up to 70 per kg then in this case you can exercise your option of not buying the potatoes at 70 per kg.
How to Invest in Stock Market: Key Factors Impacting
Investment in stock market is a good idea but before that do consider these 2 important factors :
- Risk Appetite - If you're someone you have a low-risk appetite you should consider investing in intensive stocks because it provides stable returns and these stocks are also not much impacted by the market volatility.
- Investments Objectives - You must plan your investment strategy before investing in any stocks or a company. If you are someone who prefers earning in a short term go for intraday trading whereas if you want to invest for a long period go for long-term investing.
How to invest in the stock market?
Till now we have discussed stock markets, ways to invest in stock markets, and factors to consider before investing. Moving forward to one of the important parts of how to invest online in the stock market in India.
Step 1: The first step to start your journey in the stock market is opening of Demat account by getting your KYC documents verified.
(Ensure that your Demat is linked with your existing Bank)
Step 2: After opening a Demat account through any platform you need to sign in to your Demat account via laptop or mobile device.
Step 3: After signing your account you can pick any stock that you want to start your investment journey with.
Step 4: Add your funds from your existing bank account to your Demat account to buy the selected stocks and add the number of units you want to buy.
Step 5: Once any sellers are ready to sell the same stock that you have selected, your purchase order will be executed.
What are the documents required?
Following are the documents required :
- Pan card
- Aadhar card
- Account holder's name on the cancelled cheque
- Proof of residence
The stock market is a great place to maximise your return but before investing you need to do a proper analysis and research so that you can reduce the risk attached to investments.
Important things to remember:
1. Do Not Blindly Follow Hot Tips
No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly.
2. Eliminate Loser Stocks from Portfolio
There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses.
3. Don't Exceed Your Investment Budget Abruptly
While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares.
How to invest in the share market?
You need to open a Demat account by getting your KYC documents verified.
How can I get more returns?
Do proper analysis before picking any stock. Don't just look after other people's tips. Do your research and invest where you believe your money will grow.