Amazing Facts About Share Market Trading
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The stock market is infinitely puzzling to be unfolded to its core. Ingenuity is the one quality to help spearhead into the stock market.
Many perceive the stock market as the quickest and easiest way to get wealthy. To an extent it is true but that is not all about how to invest in share market.
A thoughtful investor is more discerning than that. It is not as simple as prices going up, you gain and prices going down, you lose. Before you delve further into investing in stock market, we need to get to the nitty-gritty of it.
Let’s begin with the basics of stock investing for beginners.
Also Read: What Is Share Market and How it Works?
What is Share Market?
A stock is an investment in a particular company of your choice. When you buy a stock, you are actually buying a ‘share’ of the company’s earnings and assets.
The company sells shares of its stock to raise funds from the open market. ‘Market’ is an open space regulated by SEBI where investors can buy/sell shares among themselves.
Stock Market is a platform that performs trading of stocks, shares, and derivatives.
1. Nifty and Sensex Investing
There are 2 stock exchanges in India, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
Sensex is the stock market index for Bombay Stock Exchange Limited (BSE) and Nifty is the stock market index for National Stock Exchange (NSE). Sensex consists of 30 stocks whereas Nifty consists of 50 stocks.
The Meaning of nifty investing in shares is Nifty 50 is the index for the National Stock Exchange of India for the Indian equity market.
It represents 50 Indian company stocks is one of the two main stock indices used in India, the other being the BSE Sensex.
2. Types of share market
Primary Share Market
This is the market, companies register with to issue shares and raise money. This is the process called listing on the Stock Exchange.
Company list stocks for the first time using Initial Public Offering (IPO). Thereafter, the company becomes a public entity.
Here all the transactions take place, ordering shares, buying and selling. Shares are traded in the secondary market.
Here, investors from each other and sell shares among themselves. A broker is the intermediary who facilitates these trades or transactions.
In the next few sections we will focus on how to invest in share market for beginners.
Here we are going to explore something really imperative for every beginner to know. We will know about the stock market and the fascinating world around it.
Before you jump on to the bandwagon, ensure that you are not servicing high-interest loans or credit cards, car or any other short-term loan. If you are then the money that you would be earning here will go out as an interest to your debts.
The buying and selling of shares on stock exchanges including BSE and NSE is done via trading account or interface. When the share is bought, they are transferred to the Demat account for safekeeping or storage.
You need a bank account to be linked with your Demat account. You need a PAN card. Apply now if you do not have one. It is mandatory to be in the share market for beginners.
Next is, to hire a stock Broker. The stock market does not allow you to go directly to the market and pay cash to buy shares. There is a certain procedure that everyone has to follow.
All transactions here are accounted for and recorded. Moreover, it is regulated by SEBI. A broker, as an intermediary, will help you in buying and selling of stocks. They will also fulfil all the formalities required to enter the Indian stock market.
Go for a Broker that will charge you brokerage instead of a commission. Brokerage is comparatively less expensive than full-service commission charged by investment managers of large corporate brokerage houses.
Next important step is to open Demat Account. If you hire a broker, he will help you to open a Demat account. Demat is a Dematerialize account that will hold your shares in digital and dematerialize form.
Shares are not held in physical form. Whenever you transact, shares will be added or deducted from your Demat account.
Also, you need to open Trading Account. The trading account is the link between your Demat and bank. It takes the shares from your Demat account and sells them in the stock exchange.
You may also need an Unique Identification Number (UIN) if you doing a single transaction of Rs.100000 or more. If you do not have UIN, you will not be allowed to transact for 1 Lakh at one time.
If you have done all the above, you will be able to start trading in the Stock market for beginners in India.
Let’s now understand more about broker and the facilities they provide.
There are 2 types of brokers in India that include a Full-service broker and a Discount broker.
Full-service broker (traditional)
- Provide facilities that include:
- Trading Facility
- Advisory facility for stocks, commodities, and currency
- Charge commission on every transaction/trade that client undertakes
- Charge relatively high commission and brokerage
- Facilitate investing in Forex, mutual funds, IPOs. FDs. Bonds
- Some full-time brokers are Angel Broking, Edelweiss, etc.
Discount Broker (Budget broker)
- Trading Facility
- Do not offer advisory
- Do it yourself (DIY)
- Offer low brokerage
- High Speed
- Save a lot of brokerage charges
- Some examples of discount brokers are Zerodha, Upstox, 5paisa.
Another important aspect of an investment is to do thorough and extensive research before embarking on investment drive.
In this section we will talk about everything that you know for share marketing and investing in shares.
Reason to Invest in Share Market
You start investing in shares by setting a goal. Some very common goals set by people include buying a house or a car, Sister’s or own marriage, funding Holiday abroad with family or Higher education, Children’s marriage or education.
These required supporting funding as you may already have accumulated some funds towards this cause.
However, if you are planning to invest to build retirement corpus then this would call for bigger investment.
Setting up goals should be with the timeframe of investment in mind. Your goals and timeframe to achieve should be realistic, achievable.
Now, your next milestone in planning is to understand your goal.
Common goals to set before Share investment
- Grow your money by compounding interest that beats inflation
- Future income possibilities from the investments through dividends
- Or you just to enjoy by creating wealth source in addition to your mainstream earnings
Now that you have set up the goal and the time frame to be there, it is time for planning and strategizing. The ways you can start investing include:
- Lump-sum (Large amount / One-time premium)
- SIP (Systematic Investment Plan)
For more information you can download Stock market basics pdf.
Before you invest in share market, here are basic tips that you may follow in the beginning, till you master the trick of trade.
- Start Small
- Encourage Portfolio Diversification
- Beginners to investing in reliable blue-chip stocks
- Never invest by taking tips from friends or acquaintances with researching yourself
- Do not follow the crowd
- Invest in safe territory, not in uncharted ones
- Invest in what you know
- Do not invest in greed
- Be clear what you expect from the stock
- Discipline to follow your strategy
- Stay invest for a longer period
- Increase your invested amount periodically
- Keep learning and educating yourself
Share Market Tips for Beginners
- Before you begin, first step is to safeguard yourself from any financial exigencies.
- Before investing, create a pool of emergency fund to fall back on in case you need money badly so that you take out money that your investment pool.
- This additional pool of funds is over and above your regular savings.
- After doing the initial financial planning, if you think you still have the excess moolah to shell out in share market losing which will not be life and death issue, you are then poised to venture the enigmatic market of stocks and shares.
Recommended for Beginners to Start Investing in Share Market
Start with a fixed amount and invest regularly. No matter what happens, your investment cycle should not break. You can start investing from as low as Rs.100 to any amount that you are comfortable with.
You should be confident that you would be able to invest the amount regularly under any financial atrocities.
Last but not least, stay invested for a longer time horizon.
And keep gaining knowledge about investing; understand the basic Dos and Don’ts of share market investment, as you invest along.
People normally start out of curiosity. They do not set a goal initially. They set a goal later as they learn more and more about various facets of the share market.
They want to see how lucky they are or how lucky they could get. Share market is not about luck only; it requires knowledge power to succeed here.
Share Market Learning information
- Take baby steps initially. Make a habit of reading financial columns in magazines and newspapers to gain knowledge.
- Watch financial channels on TV to soak in as much as you can. Stay updated with happenings in the financial market and stay abreast of financial titbits.
- There is an information explosion. It is very difficult and at times tedious to keep up to all the news that is hitting the financial world.
- If you are still wondering about how to invest in shares share market, here is some headway to it.
How to Open Demat Account
To get started, the infrastructure that you would need is a savings account for your transactions, Trading and a Demat account, and a computer or a mobile phone with a high-speed data connection.
To open a Demat account; you would require having Pan Card, Aadhar Card, Cancelled cheque or bank passbook, and a passport size photo.
Recommended to ZERODHA Broker
Zerodha No.1 Stock broker in India
Investment options in India for beginners
Firstly, learn more about the different investment options and instruments that you can include in your portfolio. Instead of putting all money in one instrument, you can distribute your money in the following buckets. This will help you diversify.
You buy a share of a specific company. There are 4 types of stocks, Growth Stocks, Dividends or yield stocks, new issues and Defensive stocks.
It is a loan you make to a company or government. It is time-bound. Government or company, whom you have extended the loan, will return your invested money with a certain interest. It is a very safe option of investments, hence comes with low returns.
3. Mutual Funds
This instrument of investment is gaining a lot of popularity these days. Many banks, financial institutions, traders are promoting mutual funds. It is a combination of bonds and stocks that you pick for your investment kitty.
You can make money from mutual funds in 3 ways. You can earn income from Dividends, stocks, or Bonds. An increase in the price of securities in mutual funds called Capital Gain.
4. Index Funds
It is a type of mutual fund that passively tracks an index. It is a combination of stocks or bonds. It is a kind of mutual fund that copies the portfolio of an index.
Index fund incurs lesser fees as they are not actively managed funds by fund managers. They are passive investment methodology.
5. Exchange-traded funds
ETFs are a type of index fund. They are a collection of securities, such as stocks. An ETF can hold stocks, commodities, bonds. ETF is created by fund providers or managers.
A provider owns the asset combination that he/she has created. He designs and tracks the performance of the product and then sells shares in that fund to investors.
It is a contract to buy/sell a stock at a set price by a set date, It gives buyers the right but no obligation to buy or sell underlying asset or instrument at a stipulated price and on a specified date.
How does share market work?
A new company lists in Primary Market through IPO, where company details about itself, stock it is offering, etc. Investors who bid for the stocks during listing get their shares.
Once the share is listed, it can be bought or sold in the Secondary Market by investors. This is where buyers and sellers transact or trade and either book profit or incur losses.
Here stockbrokers and brokerage firms play a crucial role to manage the large pool of investors under one roof.
They have to first register with SEBI and stock exchange to operate. They are the middlemen between investors and the stock exchange.
You place an order or buy a share through your broker who further processes your order at the stock exchange. Needless to say, they don’t do it free. They charge a brokerage fee.
The order is passed to your broker, and in turn, the broker passes the order to the exchange where it is matched for sale. The exchange materializes when the seller and buyer agreed upon the price and confirm the same. The order then is confirmed.
Once the price is confirmed by both parties, the exchange then confirms the order. The exchange then facilitates the transfer of ownership of the share to the buyer which is called settlement.
We will know quickly summarize a few important facts on how to start share market that you must know.
1. Trading Mechanism
Trading in both exchanges takes place in an open electronic limit order book, in which order matching is done by trading computers.
The entire process is order-driven and no individual market makers or specialists exist or involved in the entire process.
Orders or transactions, placed by any investor, are matched automatically with the best limit order. The buyers and sellers remain anonymous. This brings up more transparency through an order-driven market.
However, with the absence of market makers, there is no assurance that the orders placed will be transacted or executed.
2. Settlement and Trading timings
The equity market follows a T+2 rolling settlement. In other words, any transaction or trade place on Monday gets settled by Wednesday. Stock exchange in India operates between 9:15 am to 3:30 pm, Monday through Friday. Weekends closed.
3. Market Indexes
BSE share market index Sensex and NSE share market index Nifty are the two most prominent ones in India. Sensex includes 30 firms listed on BSE and 50 shares listed on NSE.
4. Market Regulation
All stock markets in India are regulated by the Securities and Exchange Board of India (SEBI). It spells the best practices and enjoys the power to impose a penalty in case of the breach while participating in the market. SEBI act of 1992 regulates and monitors the market proceedings.
5. SEBI Rules
- Ensuring a fair and equitable market for investors
- Compliance of the exchange organization,
- Ensure implementation of the guidelines and directions issued by the SEBI
- Check if the exchange has complied with all the conditions
Right Decision To Buy Shares
Steps to buy or select a share in India.
- Do you like the product?
- Find more about the parent company
- Current share price
- Research about the company, its management, government policies around the industry
- Balance sheet if available
- Company’s future plans of expansion and growth
- Workforce Quality
- Past trends and future forecasts
Once you are done with all the above, next you should do is track your own performance. You can use a simple spreadsheet to do that.
Keep track of all stocks that you are interested in and need to study further, already studied and found a decent, miscellaneous stock that you want to track in the future.
Also, keep track of your money or opening capital, invested amount and stock names, return from your Investments (ROI), and balance fund in hand.
Always keep an exit plan handy if it is not working for you. You can exit after booking a profit or incurring a loss. Remember exit is not quitting or losing, It is wise and worth every penny.
You exit in situations when you are in a bad need for funds, stock fundamentals that you invested in have changed, got a better investment plan or opportunity, or reached your investment goals.
By buying shares you instantly share a part of the pie of existing and future profitability of the company. You can instantly buy/sell shares of the stock of the business. You are under no compulsion. You can take your time on when to buy, how much and when to sell. You will buy if you like it.
You can choose your own budget, as little or as much as you want, there is no min or max amount to qualify for the share. You can choose your own brokerage.
No hassles in selecting or negotiating, in fact, the brokerage is pretty low these days due to competition, the volume of business and market pressure auto-correction.
You cannot deny the possibility of a higher return than the traditional forms of investment, albeit, it comes with certain risk factors.
How to buy shares online in India
You can buy shares online with help of your broker, for instance Zerodha, a reputed broker with less brokerage fees.
You can invest online in 3 categories in decreasing order of risk, namely, stocks, bonds, and cash equivalents.
These broad categories are further bifurcated into several subcategories of investments.
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What goes wrong in investment?
At most, you lose money. What’s the big deal as long the amount is so small that you can choose to ignore. After every rise you book profit and after every fall you stop buying the stock and hold with an expectation to reduce the loss.
Some start buying more of the same stock when the price depreciates and sell when it holds when it rises but you do not buy more stocks. So what is the correct way?
When to buy, when to sell, when to hold, when to book profit? This clutters your mind and blocks your decision-making ability. So let’s go back to basics.
If you are investors, you need to do thorough homework before investing. You need to keep your emotions off the shelf. You need to have loads of perseverance and keep following up.
The above applies to investment in equity. Investment is a disciplined process that you must acknowledge. So before you select a stock we have outlined a process tailor-made for investors like you.
Factors that help select a share
The factors that must play the quintessential role while including a company in your portfolio include:
Management decides where the company is heading to. It is the ‘make or break’ factor. It is the architect of a company’s future fortune.
2. Competition in the industry
If the company, you are investing in is a market leader then you should keep a close watch on its closest competition.
3. Financial analysis
This called company fundamentals analysis. Do a detailed study of the company’s current financial status and performance over a long period of time.
4. Dividend yield
A dividend is the profit shared among its stakeholders. It is some form of income. Regular dividend-paying companies are preferred choice by most investors. Their income is stable enough to pay dividends each year.
This is called the valuation phase and plays an important role in deciding whether or not to buy the stock.
Even though the fundamentals, model, management, and market positioning is at the best, but if the stock valuation currently trades at is not optimum, then buying is deferred or rejected.
Where can you get this all important information from?
Many people around you will suggest shares based on assumptions, personal likings or tips received from friends or family.
is not the right way to go about investing your hard-earned money, knowing about company information is important, more than that it is important to get that information from reliable authentic and verifiable sources.
Sources of information about Companies
- Offer Documents
- Annual reports
- BSE/NSE Announcements
- Company Press Release
- Business Dailies and Other Media
- Equity Master Database
- Asset Allocation that is considered safe
- Your assets can be distributed under the following heads below
- Cash – 10 to 40% of the portfolio in cash
- Gold – Minimum 5% of your assets in gold
- Property – Around 30 to 40%
- Bond – Safe debt instruments up to 10 to 20%
- Safe Stocks – 20 to 30%
Safe Stocks – Types and Allocation
Safe stocks are categorized in every type of market capitalization. They include
- Large Caps
Every category has associated risks with it. Putting your money all in one category is risky. You need to diversify your investment to hedge yourself from the risk of market volatility. Here is a brief asset allocation of various categories of market capitalization.
- Large Caps (50 to 60%)
- Mid-Caps (25 to 30%)
- Small Caps (5 to 10%)
Now, this is the basics of investing for beginners. Let’s understand the asset allocation from an individual’s perspective. As it is believed, starting early will help you to gather large corpus for your goals and for your future and retirement.
Late you start; the funds would not match your expectations. Additionally, starting young, you need to invest a smaller amount as you will stay invested for a longer period, thus accumulate substantial wealth at the end of the day.
Starting late, to achieve the same level of wealth, since you have less time, the contribution from you would be larger and can stress your personal financial budget, to achieve similar or close to a substantially large wealth.
Another important aspect of your life is the transition from singlehood to the married state. When you are singleton, you are relatively carefree with fewer burdens.
Your risk appetite at this stage is much higher and you can take the risk by investing in equity and indulge yourself in high risk – high return investments. As you get married and have more responsibility on your shoulder, like kids’ education, housing, Wife’s demands, etc.
You become a risk aversive. As you grow further old, you play safe and avoid risk completely.
So, start early, when you are single, start with a smaller amount, be disciplined and systematic, increase the investment amount at a regular interval, and stay invested as long as you can.
30 years of age is the benchmark cut-off to decide if you are young or not in the financial market. Less than 30, you are young with a carefree attitude, high-risk appetite category.
Above 30, you are either married or going to. People will consider you like a slow mover in the stock market, a risk-averse.
Frequently Asked Questions (FAQs) on How to Invest In Share Market
Q1. What is Share Market in India?
Ans: The share market or stock exchange is particularly a platform designed for stock trading. You can use stock market for share trading, derivatives, cash, commodities, currencies, IPOs, and mutual funds.
Q2. What are mandatory docs required for beginners in share market?
Ans: You can start buy/sell shares if you have a bank account, demat and trading account, a PAN card, a broker, and a computer/Mobile with high speed data connection.
Q3. What are types of investment in share market?
Ans: You can invest Lump-sum (One-time investment) or you can do SIP (Systematic Investment Plan).You can invest in shares, bonds, mutual funds, ETFs, options among others.
Q4. How to decide which company share to buy?
Ans: Find out more about the parent company, current share price, about the company, its management, government policies around the industry, Balance sheet, Workforce Quality, past trends and future forecasts. If you still like the product, go ahead and buy in small quantity.
Q5. How to invest in share market for beginners?
Ans: As a beginner you go for small initial investment to test the water. Beginners are to investing in reliable blue-chip stocks. Never invest by taking tips from friends or acquaintances with researching yourself. Do not follow the crowd. You need to stay invest for a longer period, Increase your invested amount periodically. Keep learning and educating you.
Q6. What is nifty and Sensex investing in stock market?
Ans: There are 2 stock exchanges in India, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The difference between Sensex and Nifty is that Sensex is the stock market index for Bombay Stock Exchange Limited (BSE) and Nifty is the stock market index for National Stock Exchange (NSE). Sensex consists of 30 stocks whereas Nifty consists of 50 stocks.
Q7. What is the meaning of nifty investing in shares?
Ans: Nifty 50 is the index for the National Stock Exchange of India for the Indian equity market. It represents 50 Indian company stocks is one of the two main stock indices used in India, the other being the BSE Sensex.