Introduction
Who doesn’t love money? Everyone isn’t it? But how do you grow money? One of the most prominent ways to grow money is through the share market. But the question arises, How to invest in the share market? And is it safe?
While most of us have simply heard about the share market, there are only a few who have an idea of where and how to invest in shares. The share market is not as tricky as it sounds, but not as easy as regular investors suggest.
So how do we start investing in the share market? To invest, we first need to understand the concept of the share market, its working, and, investment strategies.
What is Share Market?
A share market is a place where companies offer their partial ownership of the company in the form of shares to the investors in return on investment.
To understand better, share markets are of two types,
- Primary Market – A market where the investor can directly buy the shares from the company by way of an Initial Public Offering (IPO) when these shares are listed for the first time on the stock exchange.
- Secondary Market – A market where buyers and sellers come together to trade shares and other instruments regularly to earn a return on their investments.
Types of Instruments in the Share Market
While Share Market is a specific term to use for shares only, the types of instruments available can be understood as a market offering various financial securities listed below.
- Equity shares
- Bonds
- Derivatives
- Mutual funds
- Future & Options
- Exchange-traded funds (ETFs)
Documents required to invest in the share market
Before you decide to invest in the share market, you need to have the documents listed here,
- PAN card
- Aadhar card linked to your Bank account and PAN
- Cancelled cheque of the bank account you are willing to attach for trading
- Income proof (in case of future & options)
- Address proof (Aadhar card, Passport, Driving license)
- Passport size photograph
- Scanned copy of signature
Steps to Invest in Share Market
If you decide to invest in the share market, you first need to understand that you cannot directly buy or sell in the share market. Either you have to go through brokers who are authorized to trade or you have to pay a nominal percentage of brokerage on every trade to a trading application.
- Demat account – To start investing, you first need to have a Demat account to trade. A demat account will help you buy and sell the instruments and hold all your securities in electronic form. Either go to a reputed stock broker or open your demat account by yourself through a trusted application.
To start a demat account you will need to submit all the required documents and you have to link your demat to your bank account.
- Select the share – There are thousands of options available in all kinds of stocks, may it be shares, mutual funds, or bonds. Based on your goal, budget, risk, and return expectations, you have to select the best stocks to add to your list.
Start with proper research to study the stock available in the market and potential growth. If you have no knowledge of which stock to invest in, take suggestions from experienced investors.
- Invest – Now that you have a list of your preferred stock, you are ready to trade. Buy, hold, or sell your stock based on the profit you are expecting out of it. Although you can incur losses at times as well, so be prepared. Also, make sure you have sufficient funds while making the purchase.
You can also invest in a company’s IPO if you want its first subscribers through your demat account.
- Portfolio – Once you start trading, you now need to regularly review your portfolio. The shares credited to your account will be shown on your portfolio, where you have to check their market performance regularly to make the perfect return.
Continue trading with regular research of market conditions, upcoming stocks and IPOs, political scenarios, and the performance of your stock to avoid future losses.
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What do you need to consider before you decide to invest in the share market?
The factors to consider before investing in the share market will depend upon an investor’s personal goals, budget, and risk-bearing ability. There are a few factors every investor should consider.
- There can be losses – where most people think the stock market is a scheme to grow your money, what they forget is there can be losses. An investor should be ready to incur certain losses when they decide to invest in the share market. There is no perfect formula where an investor will never incur loss even if there is a high chance of profit.
- There’s no fixed investment amount – Your investment journey begins with your decision and there’s no fixed rule on how much to invest.” The size of your investment should be based on your financial ability, future goals, risk ability, and market conditions.
- Investment plan – Investing recklessly can put you in heavy losses and you might lose your hard-earned money. It’s always a good idea to have an investment plan with your expected ROI (return on investment).
- Diversified portfolio – If you stick to a particular class of assets, it could be difficult to grow your portfolio. It’s always suggested to diversify the portfolio for better security and growth.
- Opening charges and transaction costs – An investor has to pay certain charges to open their demat account, whether through a broker or an app. Also, when you trade i.e. buy and sell stocks in the market, a nominal amount of transaction charge will get deducted by the application or as brokerage by the broker.
- Regular research and study- You cannot sit back and relax once you have started investing. Of course, that can be the case if a broker is doing your trades for you. But otherwise, you need to research regularly to study well-performing stocks in the market to keep your portfolio positive.
Conclusion
Investing in the share market is not as complicated as it is shown by numerous people. Various applications and platforms have made this journey a lot easier and feasible for people around the country. So research, plan, and start your investment journey. All the best!!
FAQs
- What is the difference between the stock market and the share market?
The stock market is a more generic term that includes various instruments like bonds, derivatives, mutual funds, as well as shares. Share market is a specific term used for ownership offered by the company in the form of shares. - Which stocks are good to buy?
To consider a stock as good to buy, an investor needs to check their market performance, overall economic condition, and ongoing market situations. - What is the minimum amount of investment in the share market?
There’s no minimum investment limit prescribed anywhere. The investment amount entirely depends upon your goals (long-term or short-term), risk-taking ability, and investment strategies.