How to Invest in Share Market

Stock market investing is as easy as buying a product from Amazon, but you should understand the risks of investing in the stock market before buying any share. 

What would you learn through this article today

  • How much money should be invested in the beginning 
  • How to minimize the risk as a beginner investor
  • What is a Demat and Trading account 
  • How to signup for the best demat and trading account in India
  • Documents required to open a demat and trading account
  • Direct Investing in the stock market through shares
  • In-direct investing in the stock market through mutual funds and index funds

How to Start Investing in Stock Market in India

You need to have a bank account, demat & trading account and internet connection to operate demat account. It’s easy to place a buy order, but it’s hard to know which share to buy. I have explained in a separate article how to screen and filter the best shares to buy for the long term in the Indian stock market. 

You should invest only that money in the stock market which you don’t need for the next 5 years because it takes time to get good returns from the stock market. Set aside your emergency fund and short-term goal’s money. Don’t ever buy stocks with borrowed money. You can never predict the direction of the stock market. It’s better to be safe than sorry. 

As a beginner investor, it’s more important to learn how to select the good stocks in the initial days. You can invest more money into the stock market once you learn the art of picking profit-generating stocks. Allocate your surplus money to invest in the stock market and invest only 10% of that in stocks initially. That will minimize the risk in case you pick wrong stocks in your initial days of investing. 

7 Steps to Invest in Stock Market

#1. Open a demat account 

Open a demat account with one of the best demat account brokers in India. You can also negotiate the brokerage charges or choose a discount broker that charges fixed brokerage fees on every trade. 

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Best discount broker in India
Zerodha

 

  • Fix Rs. 20 per trade on intraday trades
  • Zero brokerage on the stock delivery
  • Good customer support
  • Best charts and tools for technical analysis

#2. Log in to demat account

You can access your demat account through a web portal or mobile app. Get your username and password from your broker. 

#3. Transfer funds to your demat account

Transfer funds from your bank account to demat account using UPI, NEFT or online banking option. 

#4. Select a stock trading below its intrinsic value.

Learn value investing and select a fundamentally strong stock. Don’t invest in companies where you can’t understand their business model. Check the integrity of management, strong balance sheet, low debt and future growth perspective. 

#5. Buy the stock 

You can place a buy order using a limit price or market price. 

#6. Check transaction status

You can see if your stock order is pending in the order book. All the transaction records can be seen in the transaction book on the completion of the order. 

#7. Check the portfolio

You will be able to see your stocks in your portfolio where you can track the profit and loss. 

Documents Required to Open a Demat Account

Only 5 documents are required to open a demat account

  1. PAN Card
  2. Address Proof
  3. Cancelled Cheque
  4. Income proof to enable FnO trading 
  5. 2 photographs (or online video in case of digital account opening)

Make sure your name and address matches in all the documents otherwise your account would be put on hold. Discount brokers Zerodha and Upstox open the account within 48 hours when you complete the documentation. 

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Best discount broker in India
Zerodha

 

  • Fix Rs. 20 per trade on intraday trades
  • Zero brokerage on the stock delivery
  • Good customer support
  • Best charts and tools for technical analysis

Difference between Demat and Trading Account

When you open a share trading account with any broker, they will open demat and trading account by default. You don’t have to worry about opening separate accounts. 

You should only understand the fundamental difference. You need a trading account to buy or sell any share. If you buy a share in the morning and sell within the same day, then you won’t see any shares in your account. You would only see the profit or loss amount in your available funds sections. This is called intraday trading. 

You would need a demat account if you want to keep the shares for more than one day. This is called delivery of shares. Your shares will be safely kept in the demat account for as long as you want. In earlier days, physical shares were delivered by the broker to their clients. There was a risk of losing the physical shares, and it was hard to manage moving share certificates physically. Demat means dematerialization of shares, that helps you keep your share certificates digitally in demat account. 

Stocks Vs. Mutual Funds Vs. Index Funds

Direct stock investing is always riskier than mutual funds and index funds. You can decide where to invest depending on your stock market understanding and risk appetite. 

Stocks : Invest in stocks when you can learn the fundamentals of investing. 

Mutual Funds : Invest in mutual funds when you don’t have enough time to research individual stocks but still expect a high ROI from the stock market. 

Index Funds : Invest in index funds when you want to invest totally passively and expect ROI just above the inflation. 

About Pardeep Goyal

I love to talk about money saving hacks (Credit Cards, Travel, Shopping, Taxes). I share transparently how I am making passive income and where I spend my money.

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