Everyone wants to invest in stock markets to get a better return. However, it is a tough task for the beginners of the stock market as they don’t know from where and how they should start. At the same time, a beginner’s expectation is much more than a regular stock market investors because they actually do not have an idea of market moments and the associated risk.
In this article, we are going to cover all important steps which a beginner is required to follow before start investing in stocks:
Let’s start with the basics
Basics of investing in stock markets
The most important thing for a beginner is to build a strong relationship with the stock market. It needs proper attention and deep interest from your side. You must try to know and understand as much as you can relate to the stock market and always keep your eyes on market-sensitive information because any news can make a big change in the market.
It is not a big thing that you will feel very excited at the start of your stock investing career. No doubt, It will seem a tough task. Clearly, all you need is to keep the patience and understanding of taking the right step at the right time.
Basic advice if you want to invest in stock market
When you decide to invest your hard-earned money in the stock market, you might have a big dream of making huge money from the stock investing. There are many examples who have made a lot of wealth by investing in the stock market, but at the same time, there are many also who didn’t.
So, here are some important points for you if you are going to enter the world of stock investing.
- You should come out of your all debts: If you decide to invest in stocks. First of all, pay out your debts like home loan, credit cards, education loan, car loan, etc. It will be of no use if you pay your market returns as the interest of your loans.
- Invest your surplus money only: If you are planning to invest your savings of tuition fee, daughter’s marriage-saving which is in the next month then don’t do that.
Invest only that money, which would not affect your daily life and also never think to invest by taking loans, especially when you are going to start investing or new in the stock market.
Always keep sufficient cash in hand
Sufficient cash is very important to run your daily life smoothly. It gives freedom to take any important decision like changing your job, renovation of your home, shifting to a new flat, etc.
So, never put your total cash in the stock market, keep your key of freedom with you only.
All the above are the basic things you must keep in mind before giving your first step in the stock market. Now, we will discuss in detail the steps you should follow for investing in stocks.
Step 1: Get a PAN card
The very first step you are required to take to enter in the stock investing world is to get a PAN card. If you already have a PAN card, then it is good. If not, arrange the following documents and dispatch them to the PAN-service office:
- Address proof
- Identity proof
- Two passport size photos
- Date of birth proof
After processing your application, the PAN card will be delivered to your residential address.
Step 2: Choose a stockbroker
Secondly, you will have to take is the selection of a stockbroker. There are various criteria on the basis of which you can choose a stockbroker according to your requirement.
There are two types of stockbrokers, one is Discount broker, and another is a Full-service stockbroker.
Full-service stockbroker:
A full-service stockbroker is a traditional trader who offers full stockbroking services to their clients. They offer trading service, research and analysis, and advisory service for stocks, commodities, and currency. They also offer investment in Bond, FDs, Mutual fund, FOREX, Insurance, and IPOs.
E.g., ICICI Direct, Motilal Oswal, Kotak Securities, HDFC Sec, etc.
Discount broker:
Those brokers who provide the only trading facility to their clients come under discount broker category. They do not help their clients by offering them any advisory service. So, these brokers are like ‘do by yourself types.’
Consequently, the discount broker offers low brokerage facility with trading in stocks, currency, and commodities.
Some of the discount brokers are Trade smart, Zerodha, Pro stocks, etc.
Following are the main points which one should consider before the selection of a stockbroker.
- Brokerage charge
- Trading segments
- Trading platform/software
- Branches/Sub-brokers/Geographical coverage
- Customer support
- Research and analysis team
- Margin Limit
- Brand name of the company.
Step 3: Open a trading/Demat account
Once you decide the stockbroker, the next step is to apply for a trading account through which you can trade. For this, you can go directly to the company’s website and apply for a Demat account. Afterward, you just have to wait for the call from the company. Once you get an inquiry call from the stockbroker, you will be asked to submit all the required documents.
Following are the required documents you will have to submit with the stockbroker.
- PAN card
- Aadhar card
- Canceled cheque/Bank passbook
- Passport size photos
- One recent passport size photo
For NRI Investors, the documents required are his/her foreign address proof, copy of valid visa, passport copy, PIS permission copy.
One should have a saving account in a public or private bank also. Within 2-3 working days, your account will be opened, and now you are all set to start your trading.
Step 4: Start studying about stock investing
There are a number of books available on the internet and in the market for the beginners of stock market investors. Therefore, you can easily know the basics of stock investing if you don’t have any idea or you can brush up your knowledge also.
Here is the list of some stock investing books for the beginners:
- Common stocks and uncommon profit by Philip Fisher
- How to make money in stocks: William O Neil
- The intelligent investor: Benjamin Graham
- The little book that beats the market: Joel Greenblatt
Not only books but various types of other sources are also available to get knowledge about the stock market.
Trading Journals:
- Economic Times
- Business Standard
- Wall street journals (India)
Seminars:
- Stockbroking companies arrange trading seminars for traders and investors from time to time.
Video Tutorials:
- YouTube
Online contents:
- 5paisa School
- ADB School
- Varsity
It is very important to you that you should have a clear concept of stock investing. So, you need to go through all the above ways of getting knowledge about the stock market. Unless you don’t have a clear understanding of the stock market, it will be very difficult as well as risky to enter the stock market.
You must spend some hours of every day from your busy schedule in the study of stock market concepts. As always, there is no short cut of stock market investing. Hence, you will have to understand each concept one by one and at a steady pace.
It will take time, but by properly following this step, you will be able to make your stock investing base strong.
Step 5: Follow the stock market
After going through step 4, as a beginner of the stock market, you should make a list of stocks on the basis of your initial investigation let’s say a list of 20-30 stocks. Furthermore, try to follow the movement of each stock on the basis of every market-sensitive news, whether it is from the company itself or from the Indian economy.
You should try to understand why and how these stock’s price is changing. At the same time, you should also compare their movement with the last 1, 5, or 10 years with the present movement. In this way, you will be able to get a lump sum idea of the stock’s further movement.
Now, a day there are so many ways through which you can properly track the stock market like
- Television
- Newspaper
- Company’s announcements
- Online subscription (Paid service is very useful).
- Other online resources.
Once you start understanding the reason behind the movement of the stock, and the news type which makes a stock to move fast or slow, means you have understood the toughest part of stock investing — all you need to know how, why, and when a stock move.
So, if you pass this stage, it’s time for you to test your knowledge and observation practically. You can start dummy trade just to check your stock investing understanding.
Step 6: Create a plan/strategy
You know well about your investment objective. Now, move forward by taking your investment goal in mind. Try to figure out your investment goal, whether you want a long term, mid-term, or small-term investment.
What is your risk-bearing capacity? After deciding the investment objective and risk appetite, you can choose an investment plan/strategy for yourself.
If you want to get the return within a year or less, you should not invest in risky as well as a start-up company. A new company takes time to establish in the market, so the stock price also remains low for a long time. On the other hand, if you want a long term investment to say for your retirement, then you should choose a large-cap stock that gives a constant return to the investors with low risk.
After deciding the investment objective and risk appetite, you can choose an investment plan/strategy for yourself.
If you want to get the return within a year or less, you should not invest in risky as well as a start-up company. A new company takes time to establish in the market, so the stock price also remains low for a long time. On the other hand, if you want a long term investment to say for your retirement, then you should choose a large-cap stock that gives a constant return to the investors with low risk.
It is very common that while going with any strategy, you will feel under-confident and nervous in the beginning. But, you will have to take this step at any time whenever you want to start investing in stocks. It is very much possible that you will get nothing, you may lose your capital also. If it gives nothing to you, then also will learn a lot for your next investment plan.
And if your research and studies work, you will earn something. It means whatever the situation will be, you will get something.
Step 7: Track the performance of your portfolio and keep learning
Investing is not the last step, which requires to get the return. Proper tracking of your investment portfolio is very important. Unless you track your portfolio, you will not be able to adjust profitable stocks by removing a loss-making stock.
So, what you need is to open your eye for twenty-four hours if a company gives any market-sensitive announcement related to your stock, any threats arise in the market, new entrants, etc. All these will affect your portfolio (positive or negative).
One should never get too much worried if the portfolio shows a certain type of movements due to some fake news in the market.
Very soon, you will be able to analyze your portfolio performance with your own technical and fundamental analysis.
Step 8: Exit plan
It is very important that when you enter the stock market, you must have an exit plan. Then only you will be able to take out some profit from your investment or minimize the loss which arises from the investment.
You should know the time frame of your investment till which you can leave your money in the market.
Taking the decision to exit just after booking profit and before making huge a loss is an art of stock investing.
Hence, there is a total of eight steps which will help you to start investing in the stock market.
Some other important points which should be taken care of
- First to learn, then to earn. Invest a small portion of your hard-earned money first.
- Portfolio diversification.
- Try to invest in Large-cap/Blue-chip companies.
- Invest only on the basis of your knowledge and learning, not on tips or advice.
- Know your investment objective and invest accordingly.
- Continue your stock education.