Beginners guide on how to invest in the share market

The next time you are at a pub or a party, try this – start an open discussion about the share market. Within minutes you will find yourself surrounded by “pro” investors (some of whom have never opened a DEMAT account) with oodles of information and advice about the market. In India, anywhere you go, from the regular chaiwala to the corporate employee, everyone knows something about the NIFTY and Sensex. So, how do you know what to heed and what to discard?

Image result for share market

Even for the highly trained veteran investor it is difficult to filter the fad from the facts. The best way is to not take the advice and information you hear on the move and follow a relevant blog written by experts. If you are genuine interested in investing in the Indian stock market, here’s what you should do.

What do you need to learn about stocks and prices?

You probably already know that stocks are nothing but a type of security that defines the state of ownership in an enterprise. Investors synonymously refer to them as equities.

There are two kinds of stocks –

Common stocks – The shareholders of the common stocks get their percentage of the company’s profit or loss. They can elect the Board of Directors of the company. That gives them the option of representing their interests in the corporation. The BoD can decide whether to share a part of the profit with the equity holders in terms of dividends, or reinvest the amount in business.

Preferred stocks – the shareholders of preferred stocks receive a pre-determined profit at regular (predefined) intervals. In the event of bankruptcy, the ones holder preferred stocks are more likely to get their dividends as compared to the common stock holders.

The prices of all stocks depend on the demand-and-supply method. In case the owner of any part of the company decides to sell his or her share of the ownership, the company can launch an IPO (initial public offering). According to the IPO, the ownership shares are then available to the public in the primary market as long as the company lists them on the stock exchanges.

What are the telltale signs of a good market intermediary?

Here are a few things you must always remember before going in further down the road of buying and selling shares, and making some sweet-sweet cash.

  1. You need to pick an agent or broker with a SEBI (securities and exchange board of India) registration.
  2. Your broker or agent should always be reachable. There should be uninterrupted communication between the two of you.
  3. Peruse the terms and conditions, risk documents and offer documents carefully before signing on the dotted line.
  4. Do not make emotional investments. Do not be tempted by the sudden ups and downs of the share market.
  5. You should be able to trust your agent completely, but do not give up your share of research and analysis before investment.
  6. Always check a company’s share market history, market value, credentials and management before placing your order.

What will you need to invest in the Indian stock market?

Now, we hope you remember the share market tips about the types of shares and the way to pick the correct market intermediary. It is time for you to take a plunge in investing. Here is a brief six-step guide that can inform you about all requisites of smart investment –

  1. You will need a PAN card

Your Permanent Account Number or PAN is a prerequisite for opening any transaction accounts in the country. In fact, you will need a PAN card for opening a basic bank account, filing IT returns and all your online transactions. It is a 10-digit alpha-numeric code that is unique to each citizen of India. So find your PAN card and get ready for making a fortune.

  1. Find an intermediary

With the guidance from the previous section you already know who will be a good broker and whom to avoid. It is obvious that you cannot go to the stock exchange directly; you will need an agent to do that for you. If you are more comfortable with completing your investment online, you can try the scores of online broking companies that operate in India. Always go with the reliable ones, check their URL more than twice and speak with a representative before creating an account.

  1. Create a DEMAT and trading account

Once you have a market intermediary, opening a trading account and a DEMAT account will be easy. The latter should hold the shares and stocks you own, and the trading account should take care of the buying-and-selling part. Your broker should take charge of your trading account. For investing in the Indian share market, having Dmat and trading accounts are mandatory, whether you pick online or offline broking services.

  1. Get to know about the depository participant

NSDL and CDSL are the two depositories in India. They stand for National Securities Depository Limited and Central Depository Services Limited, respectively. These depositories have representatives/agents known as Depository Participants, who provide accounts to the investors. You will get your account from a similar DP to store the shares you have. It is different from a DEMAT account and a trading account. Your broker will also take care of the new account with the Depository Participant.

  1. You will need a UIN for big investments

It is ideal for beginners to take it slow at first. However, the level of knowledge about the market and understanding of transactions can vary significantly between two amateur investors. Moreover, the confidence you have on your broker will also determine the amount you may want to invest in the market. In case you want to invest more than 1,00,000 INR, you will need a Unique Identification Number (UIN). As long as you decide to keep your investments below 1,00,000 INR, you should not require the UIN.

  1. It’s the time to buy and sell

It is the final step! Whether you want to buy 10 shares or sell 1 share, you need to speak with your broker. You have to mention the quantity and the price at which you want to buy or sell the share. For example – you want to buy 20 shares of Star Cement, when the prices hit 105 INR. You need to mention exactly those details to your intermediary. In addition to that you need to mention which exchange you would prefer, i.e., BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). It is true for online brokers as well. Most of these companies have chat systems and customer service that make note of their customer share buying-and-selling demands. However, you must remember that these orders come with a lifespan of about 24 hours. Your broker or agent should mention that to you in case he or she fails to make the transaction or the prices are not desirable.

Investing in stock markets can be tricky for anyone. Even the daily traders can get caught by one or two unpleasant surprises upon unprecedented rise or fall of the NIFTY index or the Sensex. It is always better to begin with baby steps holding the hands of a trusted market intermediary, who can guide you towards smart investment options and long-term profits.