Has the fancy world of stocks and shares caught your attention? Are you planning to invest your precious money but are not sure about where to start? Fret not, for we have a detailed process for you on how to start investing in stocks and shares in India.
Indians were primarily concerned with investing in gold but now have significantly shifted towards shares. With the growing market returns, at around 30%, the Indian share market has gained momentum and is sure to carry it for years to come.
Gather all the information
The stock market is a risky affair where one careless step can lead to huge losses. Therefore it is always better to be thoroughly informed about it if you are planning to test the deep waters. Start by gathering the essential information about the stock exchanges, the registered companies, and their volatile stocks. Dig deeper into the price fluctuations and their particular reasons to get to know about the way the market works. It will immensely help you while managing your own stocks.
Collect all necessary documents
Indian stock market is regulated by the apex body called the Security Exchange Board of India or SEBI. SEBI has stringent guidelines relating to the documents that need to be submitted to the authorities. Make sure that all these necessary documents have identical name and signature, so as to avoid any complication. To register with a stockbroker, you will need:
- Identity proof
- PAN card
- Canceled Cheque
- Bank statement of the last 6 months
Find a broker
In order to deal in securities, a broker is a must. A broker is a professional intermediary who is registered with the concerned authorities and executes the dealing of stocks on behalf of the clients. A stockbroker can be either; an individual or a company, that are registered and even licensed under SEBI.
Choosing the right broker is a crucial task. They can help you tap in the live trading and facilitate higher returns. There are many full-time stockbrokers like ICICI Direct, Indiabulls, Kotak Securities and discount brokers like Freys and Zerodha.
Open a Demat account
A Demat or Dematerialized account opened in your name can hold your stocks or shares that are ultimately reflected in your portfolio. Shares are not traded in physical form and hence are digitally transferred through a dematerialized account. All the dealing of stocks is eventually reflected in the Demat account.
Although a trading account is also required for buying and selling of shares, the broker that you avail can take care of creating your Demat and Trading account. In India, these accounts are opened simultaneously as the absence of one renders the other useless.
In India, there are two depositories, namely National Securities Depository Limited and Central Securities Depository Limited. Although the role of a Depository Participant looks quite similar to that of Demat and Trading account, it is different. A depository participant is responsible for holding the shares that you buy and releasing the shares that you are selling. A stockbroker also manages this account.
Unique identification number
Unique Identification Number or UIN is an identification mark given to big traders. It is mandatory for traders or investors who are looking forward to dealing in shares above the value of Rs. 1,00,000 at one time. If you are a regular investor, it is not required but if you are willing to make it big, it is safe to get UIN.
Screening the stocks
There are hundreds of stocks that are registered on Bombay Stock Exchange and National Stock Exchanging, making it impossible to study them all. There are a few online platforms that can help you compare and choose the right stocks.
Compare a few parameters which are of utmost importance:
- Earnings per share
- Debt to equity ratio
- Return on equity
- Growth of sales and profit
- Current ratio
Choosing the right company
After you have filtered the good stocks out of the lot, the next step is to decide the company that you can invest in. For that, you can visit their website, read the history and workings of the firm as the safety of your money depends majorly on it. It is always wiser to go for the companies that you understand and are well aware of. Having the required knowledge will make it relatively easier for you to keep a check on the workings and hence be assured of the returns on your investment.
Buying and selling
Once you have decided regarding the stock and company, the only thing left to do is purchasing it. In India, all the shares and commodities are traded openly on BSE and NSE only. So, to buy it, you just have to contact your broker to make the purchase on your behalf.
Track the performance
If you think the work is done once you have invested your money, then you are wrong. The risk of loss always hangs over your head. So, to carefully evaluate the performance, it is essential to keep a regular check on it. This way you can monitor your investment and identify the reasons for the fluctuations of the price as well. It is going to benefit you for future investments as well.
Although the working and the risk associated with the market feels intimidating, there is nothing to be scared of. Even if you are an amateur, who is not aware of the technical terms or working of the market, you can quickly master it. It is always better to be an informed buyer and make a careful decision to keep your investment safe. Rather than getting influenced by your friends and relatives and falling prey to the herd mentality, research yourself and do not let your emotions cloud your decision when it pertains to money matters.