Last Updated on Aug 25, 2022 by Aradhana Gotur
The stock market is a very attractive space for investors to earn potentially handsome returns but at the cost of a higher risk profile. It can be a lucrative investment avenue that can help you grow your money and create a sufficient corpus to meet your financial goals. However, share market investment requires little research and knowledge-gaining on your part. You need to understand how investing in stock market works and how you can start investing in shares. Check out this article on how to invest money in the share market.
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How to invest in share market?
For investing in stock market in India, you need three basic things:
A trading account
As the name suggests, this account is needed to buy and sell shares. You, therefore, need to open a trading account with a stockbroker for share investment.
A demat account
It serves as storage or a locker for the shares that you buy. After you purchase shares using the trading account, your shares will be ‘delivered’ to you in the dematerialized form, or digital format, to your demat account and stored. At the time of selling, the shares are taken out from the demat account and sold.
A linked bank account
Though you use the trading account to buy and sell a stock, the money needed to buy and the money received on selling is routed from and to a bank account. So, you need a bank account and you need to link it with the trading and demat accounts to start investing in stock market.
Note that stock investment in India can be done only through a stockbroker. Therefore, opening a trading and a demat account can also be done only through a broker. You will need to complete your Know Your Customer (KYC) forms, upon approval of which your demat and trading accounts will be set up. There are different types of broker services too, such as a full-commission broker or a discount broker. The first step to stock market investing is to open the trading and demat account for investment in share market.
When it comes to the minimum investment in share market in India, there is no specific value. The minimum amount is the price of one share that you buy. Different shares are priced differently.
How to invest in stock market – the modes
Once you have set up your accounts, you may begin investing in the stock market by making your first purchase of the shares listed on the stock exchange. Note that when learning how to invest in share market for beginners, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) may be the preferred exchanges, even though there are a total of seven exchanges in India.
You can invest in the market through the online mode or the offline mode. To know how to invest in share market online, you need to access your stockbroker’s portal or mobile application. You can place your buy order online, monitor the progress of your investment and choose to sell it at your will through a simple click or swipe on the screen.
In the offline mode, however, you will need to visit your stockbroker personally and fill out a Purchase Order (PO) slip and submit it to them. Selling your holdings will also happen in a similar fashion where you will need to submit a Redemption Order application.
How to invest in stocks – beginning your journey
Now that you know the basic requirements of stock trading and how to start investing in shares, here are a few pointers to keep in mind before you begin your investment journey:
Understand how the market works
A stock market is a risky place. To learn stock market investments, understanding how the stocks are bought and sold, the timing of the market, how to place the buy and sell order, the charges involved, and other risks are important. Once you know how stock market works, you may begin your investment journey.
Picking the stocks
The next step in how to start share market investment is picking the right stocks to invest in. There are thousands of companies that participate in the stock market and their shares are priced differently. Moreover, each stock price changes by the second throughout the trading session. This can be a little daunting at first. Assess the risk-return profile and future potential of companies before you choose to invest in their shares. Create your investment strategy and pick the right stocks.
Have a healthy risk appetite
Stock investing is for those investors who have the capacity to bear the market risks. So, when you invest in the stock market, be prepared for the risks. While in an upswing you might earn attractive returns, in a downturn you might suffer capital erosion as well. Be patient in volatile markets and watch out for trends before you decide to act. However, as industry stalwarts say, timing the stock market is more about when you sell and less about when you buy.Stock investment is for those investors who can bear the market risks. Click To Tweet
Have a long-term horizon
For generating wealth from the stock market and creating a sizable corpus, you need a long-term investment horizon when you invest in share market. The volatility of price in stock investing generally smoothen out over a long-term investment horizon. The market recovers after a volatile bout and then grows with time. So, if you give your investments time, you can potentially earn good returns.
Don’t follow the herd mentality
Many investors tend to follow the herd. They believe what is good for others would be good for them too. This is a false notion. Every investor has a unique investment strategy and profile. You should develop your own style of investment.
Be patient with your investments
There is no magic wand in the stock market to make it give instantaneous returns. Being patient is the key to accumulating wealth over time. Whether the market is in an upswing or in a downswing, don’t get carried away with emotions. Invest practically and exercise patience.
In your quest to learn how to invest in share market in India, you may want to prioritize diversification and asset allocation strategies. When you diversify, you can spread the investment risks over a wide range of stocks. This way, if one stock doesn’t perform well, the loss can be compensated by the growth in other stocks. So, diversify across stocks of different industries for reducing the investment risk.It's a false notion to believe what is good for others would be good for you too. Instead of following the herd, develop your own style of investment. Click To Tweet
How to invest in shares
Now that you know how to invest in share market, know that stock investing is not rocket science. All you need is a basic understanding of the stock market and the three accounts, which are demat, trading, and bank account, to start your trading journey. Get in touch with a stockbroker for opening a trading and demat account and then you can invest in stock market. The stockbroker can help you pick out suitable stocks as you begin your journey. Keep the aforementioned investment tips in mind when learning how to start investing in share market so that your stock trading journey is smooth and hassle-free. Happy investing!