Everyone dreams of getting rich quickly…
Almost Everybody! even you, Do Dream it…
Generally, People think that getting Rich has to often do with Money.
But, there’s one more thing: Which is Beyond Money – “Wealth”
Understandably, amassing wealth is no cakewalk. However, in a vibrant economy like India, everyone has equal opportunities to get rich, provided they are willing to take some bold steps. Topmost among these is investing in share markets.
Several success stories of people have struck it big by investing in the share market.
Topmost among these successful investors is Rakesh Jhunjhunwala, an ordinary citizen who now ranks among the richest persons in India and the world.
By the end of 2021, his net worth was estimated at US$ 5.8 billion.
While Rakesh Jhunjhunwala can truly be called a genius of the stock trade, his biography proves that anyone can attempt to get rich and grow wealth by investing in the share market wisely.
If you want to earn money and grow wealth, then Check out this step-by-step guide on – How to Invest in Share Market.
Investing in Share Market
Before we discuss how to invest in the share market, it is essential to understand some common yet extremely important terms.
Basics of Stock Market – How to Invest in Share Market of India
What is the share market?
Shares are also called stocks. Whenever a company wants to raise huge capital for its expansion or other projects approved by the Indian government and its various authorities, it sells shares.
By buying a share or stock, you become an investor in the company.
In some countries, shareholders are also deemed as part owners of a company. Selling shares is a form of crowdfunding. It allows the general public to invest in a company.
Once these shares are sold to the public, they are listed on the two stock exchanges of the country. To invest money in the share market it is required to understand the stock exchanges of India.
Understanding Stock Exchange
There are two main stock exchanges in India: Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
Their functioning is regulated by a government body called the Securities and Exchange Board of India (SEBI).
BSE and NSE list shares of companies that have gone “public.”
You can buy and sell shares of companies at BSE and NSE through registered stockbrokers and stock traders.
To commence investment in the share market, you need to follow these steps.
What You Need
The first thing you will need to be able to invest in shares in India is to open a De-Materialized Account and Trading Account.
So, let us begin by understanding what is a De-Materialized Account, Trading Account and how to open them.
De-Materialized Account (Demat)
The first step towards investing in shares or share market is to open a Demat Account.
The Indian government passed the Depositories Act in 1996. Under this Act, shares can no longer be issued in the form of certificates.
The Act was passed for various reasons:
- To protect shareholders the hassle of maintaining share certificate documents and possible loss of investment if these papers get misplaced, damaged or stolen.
- To reduce the hassle of companies issuing shares to print large volumes of paper certificates and mail them to shareholders.
- Reducing the risk of share certificates being lost or damaged in transit after they are mailed to shareholders.
- To prevent any frauds and unlawful transactions that could occur if paper certificates of shareholding fall into wrong hands.
- To enable faster, Internet-based trading of shares on stock exchanges.
How to Open a Demat Account?
It is very easy to open a Demat Account. You can do so online by visiting the website of any bank, reputed stockbrokers or Asset Management Companies (AMCs)
- Any Indian citizen can open a Demat Account.
- Foreign nationals who hold Overseas Citizen of India (OCI) card printed on their passports can also open Demat Accounts in India, subject to various rules and regulations of the Reserve Bank of India.
- Non-Resident Indians can open Demat Accounts linked to their Non Resident accounts at banks in this country and are subject to RBI rules and regulations.
- You can open a Demat Account in your name, jointly with a spouse or parent, family or group and in the name of minors, provided an adult handles it.
- All Demat Accounts, regardless of where you open one, are maintained by National Depositories Services Ltd (NSDL) and Central Depository Services Ltd, which are Indian government organizations. Banks and stockbrokers only act as intermediaries to open a Demat Account.
- You have to pay four different fees to open a Demat Account. These include Account Opening Fee, Annual Maintenance Fee, Transaction Fee and Custodian Fee. Amounts charged for opening a Demat Account vary according to every bank, stockbroker, and
- Completing Know Your Customer (KYC) formalities is essential for opening a Demat Account. Without proper KYC, you will be unable to open a Demat Account.
Holding a Trading Account is optional. But Trading account also plays a vital role in share market investment.
You can open a Trading Account if you wish to trade in stocks daily.
As the term implies, you can use this account to buy and sell stocks on a daily basis. Additionally, you can also use it to trade in the Multi Commodities Exchange of India (MCX).
Should you wish to engage actively trading in stocks or equities, derivatives, commodities and futures, it is best also to open a Trading Account.
KYC for Demat Account & Trading Account
KYC is compulsory for opening a Demat Account. You can do KYC either physically or online.
- E-KYC- Should you opt to open a Demat Account and Trading Account online, you can do an e-KYC.
This means you have to submit your Aadhar card details and Permanent Account Number (PAN) along with other relevant details.
For e-KYC, the mobile number and e-mail ID you provided at the time of enrolling for an Aadhar card must match the ones you submit on a Demat Account and Trading Account opening form.
This is essential to receive the One Time Password (OTP) to complete e-KYC formalities.
If your mobile number and e-mail ID are different, we recommend you to update these at the nearest Aadhar card enrollment centre before doing e-KYC.
- Manual KYC:
You can also open a Demat Account and Trading Account by doing manual KYC. This means you have to visit a bank branch, stockbroker, or AMC office.
Fill out the Demat Account opening form mentioning your Aadhar card and PAN.
You will also need to undergo a biometric verification (fingerprint) to verify your Aadhar card.
Additionally, you may have to submit photocopies of your Aadhar card, PAN card and any other documents required by the Demat Account and Trading Account opening agency.
Generally, your Demat Account and Trading Account is linked to your main bank account through the Core Banking Solution, a platform on which the majority of banks in this country are connected.
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This is vital to ensure seamless funds transfer between your main account and the Demat Account and Trading Account.
After successfully opening a Demat Account and Trading Account, you are ready to invest in the share market. Therefore, let us study the various options of investing in the share market.
Initial Public Offering (IPO)
As a beginner, you can buy shares of a company through Initial Public Offering. This means a company announces it is selling its shares.
These announcements are made in the print media through banks and stockbrokers. These announcements are made in India and through authorized companies in foreign countries too.
- Investing in IPOs is possible through your Savings or Current Account. However, you need to have a Demat Account too.
- Buying a company’s shares during an IPO helps you build wealth faster. This is because a company offers shares at much cheaper rates in the ‘primary’ market- IPO.
- To buy shares during an IPO, you can click on the net banking link of your bank and access your Savings, Current or Demat Account.
- Click on the IPO in which you wish to participate and fill in your details such as name, number of shares you intend to buy, Demat Account number and Depository Participant (DP) number of the company which is handling the IPO.
- Buying shares online is easy since it follows the Application Supported by Blocked Amount (ABSA) system. The ABSA system allows you to bid for shares in an IPO, even if sufficient funds are not available in your account at the time of application.
- Should your bid be successful in an IPO, you will be alerted to deposit the required amount of money. If adequate funds are available, they will be debited as per your instructions, to get the number of allotted shares.
- Shares you buy during an IPO are automatically credited to your Demat Account.
NOTE: It is very important to read the prospectus issued by all companies issuing IPOs before subscribing to their shares. The prospectus contains all relevant information about the company, ranging from its leadership to nature of the business, future growth projections and above all, financial records.
- Once shares allotment is completed after an IPO, the company is listed on the country’s stock exchanges. This means the stocks are available for investing in the share market.
Investing in Share Market (Stock Market)
The share market is often called as “secondary market.” This is because you can buy shares here after the IPO is over.
Remember, buying stocks in the share market is often more expensive than through IPOs. However, this need not deter you as many successful investors and players in the field will testify.
To understand how the share market works, what is the minimum investment requirement in the share market in India, share market basics, stock trading basics, how to buy shares in India, and everything you want to know about stock market Investing.
You should undergo a Training program that will help you get a profound knowledge of the share market overview.
The First Step: Training Courses
To invest in the share market, you need very sound knowledge about how the BSE and NSE function and how stock prices fluctuate.
Also, you need to know when to invest in particular stocks and the right time to sell them.
Fortunately, some excellent training programs are conducted by people who have made millions of Rupees by investing in stock market.
Training courses on how to invest in stock markets are moderately priced. They teach you all the basics and advanced techniques that help you make money quickly from your investments in shares of various companies.
Stocks of all companies are subject to highs and lows. Hence, you may have bought shares at a low price but the price may slide even further.
Sometimes, a low performing share may suddenly witness a surge in prices.
Hence, getting this training is extremely important to invest in share market. It helps in preventing losses and deriving maximum profits from your investments.
Second Step: Stay Informed
Once you have undergone a great training course on investing in shares, the next step is to stay informed about stock movements and prices. There are several ways to do this.
- Subscribe to paid services offered by stock trading experts who conduct classes. They provide information on which shares to buy or sell as well as projections about their future performance. This analysis and advice are extremely important to prevent losses and make high profits.
- Read financial newspapers daily. They contain exhaustive information about the movement of stocks and indicate whether the prices have risen, stagnated or fallen, during the previous day’s trading session of BSE and NSE.
- Download apps provided by your bank, stockbroker or AMC that gives live updates of stock movements and prices to stay informed.
- Sign an agreement with a reputed stock trading company to buy and sell shares on your behalf on the stock exchange.
Importance of Stockbrokers
Under Indian laws, individuals cannot directly buy or sell stocks on BSE and NSE.
The facility is provided only to registered companies licensed by SEBI, including AMC and stockbrokers.
Hence, to invest in the secondary market- or share market- you need the services of a stockbroker. There are several reasons why stockbrokers are important.
- They can advise you on which stocks to buy, sell or retain to make profits.
- For working persons, stockbrokers help by trading shares on your behalf while you are busy.
- Stockbrokers handle stock portfolios for a multitude of investors. Hence, they aim for profits because their reputation depends on their profits.
- Responsible trading of your shares is possible only through stockbrokers since they are well-versed in the field.
- Stockbrokers also allot you a sub-broker to offer personalized services that best suit your financial needs and help you achieve your goals.
- You can also request stockbrokers to book, buy or sell shares based on your personal calculations and projections.
Generally, you have to sign an agreement with a stockbroker to trade in shares on your behalf.
Stockbrokers charge a nominal fee for their services which is based on transactions or sharing of profits, depending upon your mutual agreement.
Remember, this agreement has to be legalized by getting it attested by a Notary Public or Court of Law in India to prevent any disputes.
Trading in Shares
You can trade your shares directly through your stockbroker’s account number and passwords.
To do so, you need to log in to your Trading Account, which is linked to your Demat and Savings or Current Account.
Nowadays, most stockbrokers also offer apps that can be easily downloaded and used on your smart-phone for daily stock trading.
However, we do not recommend you directly trade in stocks unless you have undergone sufficient training and acquired the required expertise.
Without knowing tricks and tweaks, trading in shares yourself can wreak irreparable havoc on your investments.
The second option is to allow your stockbroker and sub-broker to advise you on buying, selling and holding. This is by far the best option since you get some sound advice on how to invest in shares.
However, it is also vital to remember that stockbrokers and sub-brokers cannot predict or project how any particular shares will perform on any given day or over a period of time.
Indian stock markets- like anywhere else in the world- are prone to fluctuations.
These ups and downs occur due to various reasons such as political scenarios, the situation in foreign stock markets and currency fluctuations, wars and natural disasters, economic policies and a plethora of other factors.
Minimum Investment in Share Market
Indian stock markets are very friendly on your pocket. India’s entire share market system is designed to benefit every ordinary citizen.
Understandably, the profits you make depend upon how much you invest. We offer no opinion on minimum investment you can make in share markets.
Some stockbrokers welcome investors in the share market with as low as Rs.10,000 while some expert traders aver a minimum investment of Rs. 100,000 is required to make any significant profits.
Therefore, we reiterate, the amount you wish to invest in the share market is at your sole discretion.
Risks of Investing in the Share Market
As mentioned earlier, share markets in every country are prone to highs and lows due to various reasons.
Hence, nobody can guarantee the money you invest in share markets will fetch you the desired returns. Unfortunately, financial scams that occur in India have an adverse impact on the country’s stock market.
For example, stocks of one of the country’s oldest and most reputed PSU lenders, Punjab National Bank took body blows in February 2018 after the Rs.140 billion scams perpetrated by some diamond jewellery majors was reported in the Indian media.
In October 2016, shares of companies held by India’s corporate major and respected business group Tata dipped when its chairman Cyrus Mistry was ousted.
Regardless, these dips and surges are very common in share prices of all companies worldwide. They need not deter you from investing in the share market.
Rakesh Jhunjhunwala says:
“Markets are like women- always commanding, mysterious, unpredictable and volatile.”
Though this legendary investor means no offence to women, he aptly describes the risks involved in a stock market.