How to Start Investing in the Stock Market

If you’ve never invested in the stock market then this article is for you. Most individuals investors invest in the stock market without gaining the required knowledge because of which they end up losing all their savings.

To be frank, stocks are risky, but the risk can be eliminated to a certain extent if you are certain about the company’s financial health. 

Before we go in-depth, let us understand the concept of investing in the stock market.

 

What is Stock or Share?

Stocks or Shares is the security ownership that a company issues to its shareholder (who hold company share).

For example, you have a company A, which needs capital to expand or to operate its day to day business. So to raise the said capital say Rs.10000 you issue 100 share of Rs.100 each. If someone bought 40 shares, he holds 40% ownership in your company for which you are obligated to share profits and dividends.

 

How to purchase shares of the company?

Stock Market is under the protection of Authorities such as SEC or SEBI, so you cannot purchase shares from any random person or directly from the company. There are some brokers called stockbrokers who are registered with these authorities can only sell shares to individual.

To purchase and hold those stock you need a Demat account (Account for trading and investing in Mutual Funds, Bonds, Stocks and IPO’s). You also need to have a bank account for this matter.

For purchasing stocks, you need to transfer funds to your Demat account from the saving account and then place an order with your broker. Broker than purchase stock on your behalf and hold it till you show in interest in selling the same stock.

 

How to Buy or Sell the stock?

To purchase any stock you need to have a Demat account and a bank account linked with each other. So you transfer the funds to Demat account from bank. Once you have sufficient cash available to purchase shares, you have to place an order with your broker by phone or web platform. Broker charge commission for purchasing or selling the stock.

Charges may defer from broker to broker, some offer no brokerage for holding long-term. Broker hold stock for you in the Demat account and if you wish to sell, he can do the same for you.

 

How much money do I need to Invest to buy stocks?

This is my favorite question to answer because the stock market is an affordable investment in the current market. Almost any person can afford it.

Generally, the midsize stock price can range from  Rs.200 ($3 to $4) depending on the valuation of companies, so you can purchase according to your budget. But, this is the best investment in my opinion because you purchase part of the company and watch them work for you.

Management, employees, labor, machines, advocates and government operates to run your company every day, what you need to do? Nothing, just have watched over them.

 

Do I need to Hire an Advisor to Advise me to Invest?

Yes, if you are a kind of busy person who cannot afford your time in research, you need to hire one. But if you are enthusiastic about investing and knowing about what are you invested in. I would suggest you dig your own gold rather than trusting someone who you don’t know much about. 

I will make your work hell lot easy, What if I say you that, I research companies for you and you get to decide which is the best performer for your portfolio. Amazing right? I will research companies financial and put them in 3 categories;

Penny Stocks, Mid-cap and Large-cap.  But it is important you make the decision as the market are subject to risk and you cannot eliminate all the risk.

 

Is Stock market risky?

Frankly speaking YES. But if you don’t know the path you cannot reach your destination. If you know the type of company you are invested in (growth companies) you eliminate 60% of your risk and if you diversify your investment it can further reduce risk even more.

But remember risk cannot be zero, life is uncertain so is the stock market. Never fall in the trap of guaranteed returns, it’s not possible to attain.

 

What is a dividend?

 A dividend is the sum of money paid by the company to its shareholders if it achieves above-average returns. A Dividend is solely option on the company whether to pay or not. 

 

Which company can pay a dividend?

Companies with sufficient cash available with it can pay dividends. But sometimes companies struggling with cash can also pay dividends to attract investors.

 

Do I have to Pay Tax if I invest in stock?

Only profits attract taxes. But stocks comes with amazing tax benefits. There is certain exemption on investments in bonds and mutual fund, but currently not on stock equities.

The government in India tax 10% on profit for the long term and 15% on the short term. For more detail, you need to check my blogs on tax filing if you file your own tax returns. If you are not interested in filing or handling shady taxes filing, consult the nearest chartered accountant.

 

How many stocks I should hold in my Portfolio?

Your portfolio should not exceed 20 stocks and not less than 5 stocks. Too many stocks can result in ambiguity and a lot of headaches to track. Consider holding 12 stocks at most. Holding 1 or 2 stocks may not diversify your risk even if you are very confident about the companies growth.

 

Can I mortgage my stocks for Loan?

Stock is most in its liquid form. It can easily be converted into cash whenever required. So, banks and institutions may accept it as mortgage depending on their terms and rate of interest.  

 

Which Broker should I choose for opening a Demat account?

If you are Indian, many brokers offer a great deal, currently no broker charge on account opening. They may charge you AMC (Account Maintenance commission) and lower brokerage. You can choose for Zerodha, 5 Paisa, Sharekhan and Motilal Oswal as they offer great services and lower brokerage.

I tried to cover almost all beginners guide on How to Start Investing in the Stock Market. Feel free to ask anything related to the above post. 

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