As we know the stock market is the place where one can buy and sell shares of different companies and trade in various financial instruments. In recent years it become a very popular way of investing.
For those new to the stock market and want to invest some money in the stock market, this article A Complete Guide on How To Invest In Indian Stock Market is for you.
Here is a post on the Indian stock market, its primary function, and various other details.
How to Invest in Stocks: Basics
Buying stocks or shares of a particular company means purchasing partial ownership of the company hoping the company does well in the future.
If the company does well financially the value of its stock increases and other investors may be willing to buy that stock from you at a higher price or if not the company may provide a higher dividend as a reward.
Generally, stock market investment is a long-run game where you have to be patient with your investments and the basic rule to avoid or lower the risk is diversification.
To invest in the Indian stock market first you need to know about the type of share market where you can invest.
- Primary market
- Secondary market
When a company wants to get listed on the stock exchanges like NSE and BSE, to issue its shares and raise money from investors, they rely on the primary market.
A company after regulatory approval mainly enters the Primary Share Market to raise capital by offering its shares to the general public or institutions through an Initial Public Offering (IPO).
So in words in the primary market, new stocks, bonds, and ETFs are sold to the public or institutions for the very first time.
Once a company gets listed on the stock exchanges it can be traded in the secondary market. In the secondary market, the primary market investors can sell their stocks.
The transactions that occur in the secondary market are between the investors and stock prices are decided by the players. Generally, trades in the secondary market go through an intermediate agent called a stockbroker.
How to Start Investing in the Indian Stock Market
Well if you want to invest in the stock market that includes the primary as well as the secondary market you need a trading and DEMAT account from a SEBI registered stockbroker operating in India.
A stockbroker is an intermediary between investors and stock exchanges. Most of the stockbrokers provide online trading and DEMAT account. You place a buy or sell order online with the application or terminal provided by the broker.
So to open an online trading and DEMAT account from the top stock brokers you need several important basic documents like;
- Aadhar Card
- PAN Card (Mandatory)
- Bank Details (Cancelled Cheque or Statement)
- Live Photograph (In-person Verification)
- Income Proof (For Future and Options Derivative)
After opening a DEMAT and trading investors can easily invest in the Indian stock market that includes both primary and secondary markets.
To invest in the primary market you need to apply for the IPO with your desired lot size and depending upon the public response you will be allotted a certain number of shares.
In the secondary market, you can directly buy or sell any listed stock in the market using the trading account and after the settlement, the DEMAT account will be credited or debited concerning the certain share.
How to Invest in Indian stocks (5 Easy Steps)
Investing in the stock market is a good way to make money. It offers high returns on your investment and allows you to diversify across different sectors of the economy.
In India, there are various types of stocks that you can invest in. The following points will help you understand how to invest in Indian stocks:
1. Determine Your Risk Tolerance
To start investing, you need to determine your risk tolerance. This is the ability to withstand losses. You’ll need this information before you invest in the stock market because if your initial investments are not what they should be, then there will be no way for them to recover unless you have a high tolerance for risk and can withstand huge losses.
The first thing to consider is your age and how much time you have to invest. If you are young, then it might be best to invest in stocks that have a high risk but also a high growth potential. These types of stocks may not be the best choice if you are nearing retirement.
2. Check How Much You Can Afford
Net worth is the difference between your assets and liabilities. It’s calculated by adding up all of your assets like property, investments, cash, and other items to get a total value for you to then subtract from the total liabilities like credit card debt, car loan, personal loan, etc to get a net worth.
After determining your net worth, subtract your basic expanse and the remaining amount you can invest in the stock according to your risk profile.
3. How Many Stocks Should Your Portfolio Have
Again the answer to this question depends on your risk tolerance. If you are a conservative investor, then it is recommended that you have a portfolio that is diversified across sectors and has a mix of large, medium, and small companies.
If you are an aggressive investor then it would be better for you to invest in only one or two sectors (i.e., IT or Financial Services) rather than having multiple portfolios because this will help reduce the over-diversification and helps you earn more.
4. Build an Investment Portfolio
Investing is one of the best ways to make money. You don’t have to go out and find a job or do anything else but instead can invest your money in stocks, bonds, and other financial instruments that will grow in value over time.
The first step in building an investment portfolio is determining what kind of investments you want to make.
Then it’s time to start putting together an actual plan for how much each investment should be worth based on its risk level versus return potential; this helps determine what kind of diversification strategy should be used across all those different types of stocks, bonds, etc.
This helps you reduce risk while increasing return potentials over time by spreading out risk among various investments within different sectors or industries rather than just focusing solely on one single sector.
To keep a spread across sectors, you should invest in different companies. These companies can be from the same industry or they can be completely different.
For example, if your portfolio is made up of 100% in one sector and you want to diversify it further by investing some money in another sector then it will help reduce risk because chances are that both these sectors will have their own ups and downs at some point or another.
You could also invest in mutual funds where they invest in multiple stocks at once so that you don’t have to worry about selecting individual shares every time an opportunity arises but still get exposure across multiple sectors at once.
There are many options available out there when it comes down to choosing what kind of fund suits best for us since each one has its own pros & cons depending on our preferences.
5. Patience and Discipline are The keys
Investment in the stock market requires patience and discipline to enable you to ride the ups and downs of this market. It can be a rewarding experience if you have the right temperament for it.
You need to have an open mind, keep an eye on your investments, monitor them regularly, and make timely adjustments if necessary.
You must also be aware of your financial position at all times so that you know how much money is left in your bank account after making investments or withdrawals from time to time.
In India, the capital market is developed enough to make it possible for good retail trading. However, not every individual is aware of how the stock market works. The ultimate goal of this article was to make you aware of how you can invest in a stock market.
This is the end of our complete guide to gaining knowledge in the stock market and hopefully, you got your answers regarding how to invest in the Indian stock market.