Investing in the stock market isn’t rocket science. If you follow a few steps, you should be on your way to good returns. Read on to find out how.
Are you afraid of investing? Worried that you will lose money if you invest in the stock market? Do you think investing in the stock market is equivalent to gambling? Then you need to read this. This article is also for those who want to invest in the stock market but don’t know how to go about it. Here, we have simplified investing and tell you how rewarding it can be in the long term.
What? It isn’t gambling?
No, investing in the stock market isn’t gambling. It is all about investing in your economy. In our case, the Indian economy. How? Owning stock is like owning a company. By buying a company’s stock, you are actually funding the company’s activities. If Indian companies grow, the economy grows. Isn’t the stock market a good thing then?
Additional Reading: How To Ride Through Stock Market Volatility
How do you get returns?
If the company does well, it gives income to shareholders in the form of dividends. And if it does REALLY well, it is sought after and its share price goes up. This is called Capital Gains. The best part? If you hold a share for more than a year and you sell it for a profit, you needn’t pay any tax on the gains if the gains are less than Rs.1 lakh! Convinced already?
Steps to investing in the stock market
Choose a broker
You need someone to facilitate your investments in shares. Here’s where a broker comes in. So, you have to get a good broker to invest in the stock market. There are two types of brokers. One is the online broker and the other is, of course, the offline one. Usually, the online broker works on the discount model and their charges are way cheaper than the offline ones. But note that they may or may not provide the best of services. Also, offline brokers who have an established practice and have a wide network of offices might have an edge on newer online brokers when it comes to expertise.
If you are a novice investor, an online broker might be better for you as they will have experts that you can talk to. Don’t choose a broker blindly or based on advertisements. You need to read about brokers and their services. Get as much information as you can about them by talking to people. Ideally, talk to someone who is currently using the services of the broker.
Additional Reading: What Really Affects The Stock Market
Open a demat account
All listed shares in India are in the dematerialised format, that is, they are held electronically. So, to invest in shares, you need to open a demat account. Most brokers do not charge for opening a demat account. Even if they do, the charge is usually very nominal. Here are the general steps you need to follow:
- You will be given an account opening form. You need to fill it up and submit it along with documents such as copies of your PAN card and driving license.
- Go through the Know Your Customer (KYC) process. You can even opt for e-KYC if your broker offers the same.
- Your documents will be verified against the original identity proof provided.
- Once your application is processed, you will get an account number and/or customer ID. You can use these to access your account online.
- Note that you might need to pay annual maintenance charges for your demat account. This differs from one broker to another.
- Your trading account provided by the broker will get linked to your demat account and you can perform transactions through this account.
- You, of course, need to pay charges for your transactions. Some brokers charge a flat rate for transactions while some charge on a per transaction basis. Choose one based on how often you are planning to trade.
Take advice
Never start investing on your own. Take the advice of an expert. It is best to approach a financial planner who will tell you how you should invest based on your financial situation and risk appetite. Talk to friends and family members who invest. Read books, journals and newspapers for guidance. You can talk to your stockbroker for advice but don’t listen to everything he says. Always take a second opinion as brokers might have vested interests. When you start investing, it is best to go for known names and big firms that have a good business reputation. Still not sure? Try the next step.
Additional Reading: Best Equity Mutual Funds To Buy In 2019
Start by investing in Mutual Funds
Mutual Funds invest in stocks on your behalf. Investing in a Mutual Fund is the best way to start your journey into the stock market. Equity diversified funds are the ones you should start with. These invest across different companies so your risks are lowered. You can even opt for an Equity Linked Savings Scheme (ELSS). This will help you save tax.
Investing in the stock market is easy if you know how to start. But without knowledge, you may feel lost. So, take up Mutual Funds like we have suggested. Once you are comfortable with Mutual Funds, you can think about venturing into stocks. Happy investing!