Hi beginner. If you are planning to start to invest in the share market then you are at the right place to take prior knowledge of the share market. I have been thinking to write this post for many days so that interested people can start trading in the share market.
To get the full benefit of this article make sure that you read the article till the end, cause it will be worthwhile reading it.
Before you start investing you should have the following items.
- You should have at least one Savings bank account
- You should have a trading or Demat account
- You should have a computer or laptop or mobile
- You should have an internet connection
I know most of you have all the things except the account. Don’t worry now I will tell you how to create one Demat account.
For opening a Demat account, the documents required are as follows:
- PAN Card
- Passport size photos
- Canceled cheque or Bank Statement or Passbook
- Aadhar card (for address proof)
- savings account in any private or public bank.
Now the question comes, how to open a Demat account?
For that, you have to choose one stockbroker. There are two types of stockbrokers in India:
- Full-service brokers
- Discount brokers
Full-service brokers are traditional brokers. They give trading, research, and advise facility for stocks, commodities, and currency. These brokers charge commissions on all trades executed by them. They also facilitate investing in IPOs, FDs, Bonds, Forex, Mutual Funds, and Insurance.
Few examples of full-time brokers are ICICIDirect, HDFC Sec, Sharekhan, Motilal Oswal, etc.
Discount brokers are budget brokers. They do not offer advisory. They just provide a trading facility for their clients. They offer low brokerage, high speed, and a decent platform for trading in stocks, commodities, and currency derivatives.
An example of a discount broker is Zerodha.
Now, you must be thinking, being a beginner which one to choose. I will highly recommend you to choose discount brokers as it will save you a lot of brokerage charges. Also in discount brokers, you will be able to learn more about investing as you will gather information about good stocks from different sources like business channels, google searches, youtube videos, etc. Nowadays Zerodha is the cheapest and most trusted broker in India.
For opening a Zerodha account you can go through the link How to Open a Demat and Trading Account at Zerodha.
Things to be kept in mind before investing.
You must be entering the stock market with the expectation of doubling or tripling your principal amount in a short period. No doubt that it can happen but there is also a possibility of ending up with zero balance if you are not carefully selecting companies and having a regular review of your stocks. Although there are hundreds of people who had created huge wealth from the stock market, there are also people who had faced huge losses. So, there are certain thing you should keep in your mind before investing.
- Clear your debts first
If you have any kind of debts like personal loans, etc then pay them first. There is no point in wasting your energy to give all the returns you made from the market as interests of your debts. Pay down these debts before entering the market.
- Don’t invest all your savings amount
You should always remember that this share market is associated with risk so don’t invest all your savings amount here. Instead, you should first keep as much amount with yourself as would be required if any emergency comes like a health emergency or losing your monthly income source, etc. So you should be ready with a backup of at least six months. Also, investing in debts/loans is a bad idea, especially when you are new and learning how to invest in the share market.
Now that you have understood the pre-requisites and the basics, here are some steps to learn how to invest in the share market on your own.
1. Start with a small amount of money
Since you are a beginner you don’t have enough experience in investing in the share market. So, you are at a high risk of facing loss. That’s why you should start with a small amount and gain some experience in the share market at least for two months. Start small and test what you have learned. The value of a small amount differs for different persons according to their financial status. For the lower-middle-class person, an amount of Rs 500 or 1000 is enough for starting. For the beginners, it’s more important to learn than to earn.
2. Diversify your portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies, cash equivalents, etc. But here for the beginner portfolio means a group of shares of different companies. Diversification of the portfolio is very much important. Do not invest all in just one stock. Buy stocks from companies in different industries.
For example, two stocks of Tata Motors and TVS motors in your portfolio won’t be called as a diversified portfolio. Yes, companies are different but they belong to the same industry that is Auto Sector. So, if there will be a recession in the auto sector then the value of the shares of both the companies will go down.
You should buy shares from different industries like FMCG, Pharma, Auto, Bank, etc. If any recession comes in one industry then other industries will not let your investment go down. For example, nowadays due to the corona virus every industry is facing losses but Pharma and FMCG industries are doing well.
3. Don’t follow free advice or tips blindly
You will find many persons like your friend, relatives, people on the news channel, people on youtube, etc who will provide free advice on shares of different companies. Their advice may benefit you or may not. So, your strategy should be to listen to all tips and pieces of advice, do your research about the company, and if you are satisfied with the company’s performance then buy shares of that company. Blindly following others is the biggest reason to lose money in the stock market.
The stock market is very dynamic and here shares values change every second. There are several factors involved here, which may end up with you losing the money if you are not taking it seriously.
4. Blue-chip stocks are the best for beginners
If you are a beginner then to reduce the risk of loss you can invest in Blue-chips stocks. These are the stocks of those reputed companies who are in the market for a very long time, financially strong, and have a good track record of consistent growth and returns in the past many years. After gaining some knowledge and experience you can start investing in other companies.
Name of some Blue-chip companies are listed below:
- Indian Tobacco Company (ITC) Limited
- Hindustan Unilever Limited (HUL)
- Reliance Industries
- Tata Consultancy Services (TCS)
- Oil and Natural Gas Corporation (ONGC)
- Housing Development Finance Corporation (HDFC)
For more blue-chip companies you can go through the link List of Blue-chip companies in India.
5. Don’t expect too much from the market
If you are expecting that you can double your money in just a month or two then your expectations are wrong. Do not expect a very high return from the stock market. People are happy with 5%-7% interest from the fixed deposit account, but a return of 20% in a year sounds underperformance for them.
6. Have discipline and follow your plan/strategy
Do not get diverted from your strategy after seeing your portfolio performing too well or too bad in the first few months of investing. You should not increase your investment amount just in few weeks if you see your stock doing too well. Similarly, you should not exit the market soon when your stocks do not perform well. Have discipline and follow your strategy.
7. Invest on a regular basis
The stock investment gives the best returns when you invest for the long term. Like a fixed deposit does not invest a huge amount one time and wait for the next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity. Also, increase the investment amount in proportion to your savings amount.
8. Continue your education
Keep learning and keep growing. The stock market changes continuously and is a very much dynamic place. You can only keep up with the stock market if you also continue your education. Besides, there are many more lessons which you will learn with time and experience. I strongly recommend you to read the book The Intelligent Investor to gain high level of profit in share market.