How to invest in share market? An ultimate beginner’s guide
Open a Demat account and Trading account
Demat account will hold the stocks or shares in your name and the same will reflect in your stock portfolio.
The buying and selling of shares you wish to have or want to sell will require a trading account. Trading account will be like an intermediary which facilitates the buying and selling.
Define your investment goals
It’s important to start with defining your investment goals. If you are starting for Goal Based Investing, do remember that the time frame for different investment goals will be different. When you know your goals, you can decide how much you want and for how long you have to remain invested.
Create a plan/strategy
When you know your goals, you need to define your strategies. You might need to figure out whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan) approach. If you are planning small periodic investments, analyze how much you want to invest monthly. As a thumb rule, first, build an emergency fund and next start allocating a fixed amount of your monthly income to save and invest.
Decide your investing approach
1.Index Funds: this popular investment tracks a market index and can help balance your portfolio.
2.ETFs: Exchange traded funds provide broad market exposure and trade in a manner similar to stocks.
3.Mutual Funds: passive mutual funds with low fees can provide great exposure to a whole collection of stocks all at once.
4.Bonds: just as borrowing money is a part of life for most people, companies and municipalities also borrow money by using bonds.
Choose your stock broker
Deciding on an online broker is one of the biggest steps that you need to take. There are two types of stockbrokers in India:
1.Full service brokers
2.Discount brokers
Full service brokers (Traditional Brokers)
They are traditional brokers who provide trading, research and advisory facility for stocks, commodities and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds and Insurance.
Few examples of full time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal, etc.
Discount brokers (Budget Brokers)
Discount brokers just provide the training facility for their clients. They do not offer advisory and hence suitable for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives.
A few examples of discount brokers are Zerodha, Upstox, 5 Paisa, Trade Smart Online, Groww, etc.
Start researching common stocks
Start noticing the companies around you. If you like the product or services of any company, dig deeper to find out more about its parent company, like whether it is listed on the stock exchange or not, what is its current share price, etc. Start researching about them.
Choose your stocks
•Diversify your portfolio
•Invest only in businesses you understand
•Avoid high volatility stocks until you get the hang of investing
•Always avoid penny stocks
•Learn the basic metrics and concepts for evaluating stocks
Start small
Do not put all your money on the market in the beginning. Start small and test what you have learned. For beginners, it’s more important to learn than to earn. You can invest in a large amount once you have more confidence and experience.
Invest in blue-chip stocks
Blue chips are the stocks of those reputed companies who are in the market foe a very long time, financially strong and have a good track record of consistent growth and returns in the past many years. These companies have stable performance and are very less volatile. It’s recommendable for beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.
Continue investing
The most surefire way to make money in the stock market is to buy shares of great businesses at reasonable prices and hold on to the shares for as long as the businesses remain great (or until you need the money). If you do this, you will experiences some volatility along the way, but over time you will produce excellent investment returns.
Have an exit plan
It’s always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by cutting a loss. Basically, there are only four scenarios when you should sell a good stock in your portfolio:
1.When you badly need money
2.When the stock fundamentals have changed
3.When you find a better investment opportunity
4.When you have reached your investment goals
If your investment goals are met, then you can exit the stocks happily. Or at least, book a portion of the profit from your stock portfolio and shift it to other more safer investment options.