How to Invest in the Share Market in 2023 – A Beginner’s Guide
A share market is a platform where buyers and sellers trade shares of publicly-listed companies. Countless investors enter the share market to make profits by buying shares or stocks of companies and selling them when their prices appreciate. The share market operates during specific hours (9:30 am to 3:30 pm) on weekdays (except public holidays) during which transactions occur.
If you want to know how to invest in the share market, read on for some helpful tips!
There are mainly two types of investments in the share market. Understanding these two market investments will further guide you on how to invest in the share market:
1. Primary Market Investment
A primary market is where securities are created to be traded. This is where companies sell new shares to investors. This process is alternatively called getting listed on a stock exchange. The term for a company selling its shares to the public for the first time is called an IPO (Initial Public Offering).
2. Secondary Market Investment
Also known as the stock market, the secondary market is where an investor can buy and sell securities. Once securities are sold in the primary market, they can be traded in the secondary market. Trades take place in the secondary market, where an investor can buy shares from another investor by paying him/her the agreed-upon price.
To start investing in the share market, you must have some knowledge about the various aspects of a share market. Individuals who are already trading in the share market must also keep themselves updated about the market trends to be able to make informed investment decisions.
You can invest in the primary market via an IPO. Here are two ways through which you can invest in an IPO (step-by-step guidelines):
Investing through Application Supported by Blocked Amount (ASBA):
- Open a Demat Account
To invest in an IPO through ASBA, you need to have a Demat account with a registered stockbroker.
- Link your Bank Account
Link your bank account with your Demat account to participate in the IPO through ASBA.
- Choose the IPO
Select the IPO that you want to invest in and check the bidding details, such as the price band, minimum lot size, and bid amount.
- Submit the Application
Fill in the ASBA application form and submit it to your bank or broker. Make sure to provide accurate information, such as your bank account number, Demat account number, and bid price.
- Block the Amount
Once you submit the application, the bid amount will be blocked in your bank account, ensuring that you have the necessary funds to make the payment in case you are allotted the shares.
- Wait for Allotment
After the IPO closes, you need to wait for the allotment of shares, which is typically done within a few days.
- Receive Shares
If you are allotted the shares, the blocked amount will be debited from your bank account, and the shares will be credited to your Demat account.
Investing in an IPO without ASBA:
Step 1: Open a Demat Account
To invest in an IPO, you need to have a Demat account, which is a digital account used to hold securities. You can open a Demat account with a registered stockbroker.
Step 2: Apply for the IPO
Once you have identified a company that you want to invest in, you can apply for their IPO. You can apply for an IPO through your broker’s website or through the online platform of the stock exchange.
Step 3: Select the Bid Price
You need to decide on the price at which you want to bid for the IPO. You can choose to bid at the cut-off price, or you can bid at a specific price.
Step 4: Wait for Allotment
After you have submitted your application, you need to wait for the allotment of shares. This can take a few days to a few weeks, depending on the demand for the IPO.
Step 5: Make Payment
If you have been allotted shares, you need to make payment for the shares within the stipulated timeframe.
Step 6: Receive Shares
Once you have made the payment, you will receive the shares in your Demat account.
To learn how to trade in the stock market, follow the steps mentioned below:
Step 1: Open a Demat and a trading account
Step 2: Ensure both these accounts are linked to a bank account
Step 3: Log in to your trading account, and select shares you want to trade (i.e. buy or sell). If you’re planning to buy shares, ensure you have the necessary funds in the linked bank account
Step 4: Select the price point at which you want to buy or sell the chosen shares. Wait for a buyer or seller to respond
Step 5: Complete the transaction
Step 6: Receive shares in your demat account or money in your bank account for the shares you’ve bought or sold, respectively
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You need to open a Demat and a trading account to buy or sell shares online. The former holds the shares you purchase in an electronic form, while the latter allows you to buy and sell shares. To have a seamless experience, the Demat/Trading accounts are linked to a pre-existing bank account, using which you can transfer funds to your brokerage account and buy stocks. Similarly, you can transfer the funds received from the sale of stocks from your brokerage account to the linked bank account.
If you are a beginner, you may also consider opening a 2-in-1 account. This account allows you to trade in equities, currencies, derivatives, etc., easily. There are a few banks like Axis Bank, HDFC Bank, Kotak Mahindra Bank, ICICI Bank, IndusInd Bank, and State Bank of India where you can open this 2-in-1 trading account and link it with the bank account.
Note
The shares are credited into your Demat account in T+2 days, i.e. two days after the trade was carried out
Things to Keep in Mind Before Investing
Here are a few things you need to keep in mind before you begin investing in the stock market:
1. Assess Investor Profile and Create Investment Plan
Each investor has their own financial goals that should be met at the right time. The risk and expected returns can be adjusted to meet the financial objectives after a particular tenure. The risk and expected returns can be adjusted to meet the financial objectives after a particular tenure. Hence, invest accordingly.
2. Diversification is a Must
Not all investments should go into volatile asset classes, nor do they concentrate on fixed-income generating products. For example, volatile equities are combated with investments in bonds. There must always be a balance between the two to maintain a good ratio of risk and returns.
Documents Required For Opening a Demat/Trading Account
As a part of the stock investment process, it is mandatory to open a Demat account, for which the following documents are required:
- Aadhar Card
- PAN Card
- A cancelled cheque (for IFSC Code, account number, Account holder’s name)
- Address Proof
- Applicant’s passport-sized photograph.
The Demat account is opened with a broker upon submission and successful verification of documents
Share market trading is a straightforward process that you can execute on your mobile phone. Here are a few steps on how to learn to trade in the share market:
- Educate yourself by reading regular newspaper updates regarding financial and economic news, including reports about the companies you have/want to invest in. Learn about the pricing of the shares and the movement of the market and shares on a daily basis.
- You can also learn how to invest in the stock market by signing up for an online course from a reputed organisation
- When you study the markets and habitually track them, you can develop a deeper understanding of what investment tactics to employ, which business metrics to track and how to make investment decisions based on independent analytical research
Equity shares represent ownership in a company and give shareholders the right to vote on company decisions and receive a portion of profits through dividends or capital gains when sold.
2. Bonds
Bonds are a type of investment security that represents a loan made by an investor to a borrower, typically a corporation or government entity. Bonds typically have a fixed interest rate and a specific maturity date, upon which the investor receives their principal investment back. They are often seen as a relatively safe investment option compared to stocks.
3. Derivatives
Derivatives are financial contracts that derive their value from an underlying asset or index. Examples include futures, options, and swaps. They are used to manage risk, speculate on price movements, and provide liquidity to financial markets. There could be derivatives based on currencies, stocks, commodities, bonds, interest rates, etc.
4. Mutual Funds
Mutual funds are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, and other securities. They offer investors an affordable and convenient way to access a range of investment options and professional management.
5. ETFs
Exchange-traded funds (ETFs) are investment vehicles traded on stock exchanges that are made up of a basket of stocks, bonds, or other assets, and offer investors exposure to a diverse range of securities in a single investment.
1. Transaction Costs
Stock brokers charge a brokerage fee to facilitate a stock trade for you which could be 0.05% of the total turnover or a flat price. However, you could be charged 0.10% for buying and selling a stock. Discount brokers, as the name suggests, could offer discounts on the brokerage fees. That said, brokers could also collect a few other types of charges per transaction like Securities Transaction Tax (STT), SEBI charges, GST, etc.
2. Demat Charges
Demat accounts are operated by central depositories like the National Securities Depository Limited (NSDL) and Central Depository Services (CDSL), and hence, involve annual maintenance charges typically ranging from ₹100 to ₹750. These charges are also collected by brokers or brokerage platforms
3. Capital Gains Tax
If the holding period of your stock investments is more than 1 year, any returns above ₹1 lakh attract a 10% long term capital gains tax (LTCG) plus 4% cess. If the holding period is less than 1 year, your profits would attract a 15% short term capital gains (STCG) tax plus 4% cess.
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Investment Horizons – Short Term & Long Term
The investment horizon is the period an investor aims to hold on to a security. The investment horizon could range from a day to several years. It is essential to educate yourself about investment horizons if you want to understand how to invest in the share market.
The investment horizon depends mainly on your financial goals, which could be long term or short term.
1. Long Term
Long-term investments are meant for a target that needs to be achieved in a few years, usually over 5 years. Examples include preparing a down payment fund for your house in 5 years, building an adequate fund for your child’s higher education or wedding after 15 years, or building a retirement fund after 25 years.
2. Short Term
Short-term investments are made to achieve goals planned over 1-3 years via stocks and mutual funds. Examples include preparing a fund for an international trip after 1 year, buying a car after 2 years, renovating your house after 3 years, etc.
Navi could be the right choice if you want to invest in Mutual Funds. Navi offers a low-expense rate while being a highly reliable platform for your investments.
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Things You Need Before You Invest in the Stock Market
1. PAN Card
Your Permanent Account Number (PAN) is a must if you want to start investing in the stock market
2. Demat Account
You must have a Demat account to store the shares you buy
3. Trading Account
You’ll need a Trading Account to buy and sell shares. Check if your trading account broker is registered with both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)
4. Linked Bank Account
Your bank account must be linked to your Demat and trading accounts.
Who are Stock Brokers?
An individual investor cannot buy or sell shares on a stock exchange directly. They have to do it through the registered members of stock brokers. They are employed at a brokerage firm or acting as independent services providers. These individuals are known as stock brokers.
Here is what a stock broker does:
- Provides explicit investment advice
- Manages client portfolio
- Studies financial reports and gets up-to-date information regarding financial markets.
- Suggests the clients as per their investment objectives and market conditions. The portfolio of each client is communicated to them periodically.
Final Word
If you want to learn how to invest in the stock market, you’d be well-advised to make informed decisions based on independent research, and not hearsay or emotions. Stock trading could be incredibly lucrative; however, it’s also very risky and requires expertise and time, and shouldn’t be seen as a shortcut to become rich overnight.
If you’re unsure about direct stock trading, you can choose mutual funds instead so that your money could be handled by professional fund managers in a stock category of your choice. You can invest in a range of different low-cost mutual funds across market caps and geographies from Navi Mutual Fund. Start investing from as low as ₹10!
[Disclaimer: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully before investing.]
FAQs
Before making buying decisions, you should consider a few factors like how much capital is needed, diversification among different asset classes, and the number and type of shares you need to attain your financial objectives.
There is no difference between shares and stocks. It depends upon where it is used. Different countries use different terminologies. In India, it is called Shares, whereas, in the USA, it is known as Stocks.
It all depends upon how much return you expect from your investments, how much risk you want to take, and the time in which you want to achieve the targets. Choose from the best suitable options available in the market.
Many apps guide you on stock-related information. You can get information from several websites, companies’ annual reports, newspapers, channels, etc. However, you must stay vigilant and act on such tips wisely.
Brokers help you to carry out buying and selling transactions even when the markets are closed. Though the actual trade stays in the queue and gets executed once the market becomes functional.
