A share market is a marketplace where shares are publicly traded and issued, indicating buyers and sellers exchange share documents through the share market. Bombay Stock Exchange and the National Stock Exchange are primary stock exchanges in India, which trade in quality stocks. There are different ways in which money can be invested in the share market.
How can beginners invest in the stock market?
Beginners have to follow certain prerequisites to investing in the stock market as stated below:
- Documents Required
- PAN Card
- Aadhaar Card
- A cancelled cheque that has your name from your active bank account
- Six-month bank statement
- Proof of residence with reference to documents accepted by your broker, depository participant, or the relevant bank
- Income-proof document
- Passport size photographs
- Demat Account
- Demat Account is required to hold your shares in your account
- Hassle-free process for opening Demat Account
- Demat Account is an electronic mode of holding your shares, dematerialized version
- Opened online through a depository participant.
- Many banks offer Demat account services
- Opening a Demat account is a hassle-free process that can be carried out from the comfort of one’s home within a matter of minutes.
- Trading Account
- A trading account is an account to buy and sell securities in the stock market
- A trading account should be opened with a depository participant who offers trading on both BSE and NSE to get the benefit of trading in quality stocks
- Linked Bank Account
- Your active bank account should be linked to your trading account.
- Helps in seamless money inflows and outflows from your account while trading
- Mandated by most brokers where even some keep the account same for both Demat and Trading
- Unique Identification Number (UIN)
- UIN is required as per SEBI guidelines
- Helps big spenders in accessing the database provided by SEBI for checking any details of any disciplinary charges faced by intermediaries like brokers or agents
Investing in the share market can take place in both types of markets: both primary and secondary.
Investing in Primary Share Market
One can choose to invest in the primary share market through an initial public offering or IPO. For this purpose, a Demat account is required to hold electronic copies of shares and a a trading account to trade online. In some instances, such investing can also be done through the investor’s bank account. If your IPO application is successful, then a certain number of shares will be allotted to you depending on the market’s response to the IPO, based on demand and availability. One can apply for an IPO through their net banking account. This is done by a process known as Application Supported by Blocked Amount (ASBA), wherein the money which you allocate for IPO is blocked in your bank account instead of sending it directly to the company. Once you have been allotted shares, the exact amount then gets debited and the remaining balance gets released. This procedure is mandatory for all IPO applications. Once the shares are allotted, then they get listed on the respective stock exchange. You can start your trading activity in these shares within one week of such allotment.
Investing in Secondary Share Market
The secondary market is normally referred to as the stock market, wherein all the buying and selling of stocks by investors take place. It is mandatory to have a Demat account linked to your bank account to invest in the secondary share market. It is especially useful for beginners who wish to trade in the second share market to open a Demat and trading account using one’s linked banking account. To start trading in the secondary share market, one has to log in to their respective trading account. Select the shares which they wish to buy or sell on that day. Always ensure that you have the necessary funds in the linked account whenever you want to buy funds. While putting a selling option, an investor has to ensure that they have the requisite amount of shares to sell. Decide on the price at which you wish to buy or sell shares. Wait for the other party to respond to your buy or sell request. Your stock market transaction is completed when you transfer the money/shares or you receive money/shares.
The various prerequisites for investing in the stock market for beginners have been elaborately explained. Though it looks difficult to comprehend, once beginners to the stock market complete the required formalities and start trading, the process gets very simple for them. One should always understand that any buy or sell activity in shares should be undertaken only after careful consideration of one’s investment horizon and financial goals before stating their active trading in the stock market. Otherwise, there could be the risk of you losing your investments in the share market.
1. While investing through brokers, do I need to pay brokerage?
Yes, brokers charge brokerage fees for undertaking your investment in the stock market.
2. Is it mandatory to have a PAN Card or Aadhar Card for investing in the stock market?
Yes, having a PAN Card or Aadhar Card is mandatory for investing in the Indian stock market.
3. Can I do direct trading in the stock market?
Yes, you can do direct trading in the stock market. This benefits experienced investors as they save on brokerage charges. For a beginner, this may be a little risky.
4. Is it necessary to monitor my stock portfolio regularly?
Yes, it is always prudent to monitor your stock portfolio regularly. One has to reshuffle their portfolio based on their investment horizon, market conditions and financial needs. This helps to mitigate the stock market fluctuations to a great extent.
5. What is the right time to buy and sell stocks?
Buy the stocks at its lowest price when the market gets weak and sell the stock when the market is on an upward rally.