Everyone knows that stock market investing is one of the most popular ways to strike rich by building a large corpus over the years. However, what holds back people from investing in stocks is the myth that – it's too complicated. Beginner investors are scared of the stock market because they assume that it's risky, time-consuming, and complicated.
Worry not, this guide will teach you how to invest in the stock market in India. We offer you step-by-step instructions helping you simplify the process.
Beginner’s Guide to Investing in Shares in India
If you're a beginner investing in the stock market for the first time, here's what you should do.
1.Get a PAN card, if you don't have one.
The PAN (Permanent Account Number) is a must for all Indian citizens to carry out any financial transactions like paying the income tax, opening a bank account, investing in mutual funds, etc. It’s a 10-digit alphanumeric code assigned to each individual by the Tax Department for assessing the tax liabilities.
Most individuals hold a PAN card. If you don't have a PAN card, then you need to get one before you can start investing in the stock market in India.
Additional Reading: A Beginner’s Guide to Investing Part 3: How to buy or sell stocks
2.Choose your Stock Broker
Individuals can't buy/sell stocks directly on the national stock exchanges like the BSE and NSE. Instead, you need the help of intermediaries called brokers.
A stockbroker is an authorised person/company who can buy/sell stocks on the markets. SEBI (Securities and Exchanges Board of India) is the organisation responsible for regulating the country's stock market. The SEBI awards license to individuals/companies to buy/sell shares on stock markets. Individuals/companies who hold these licenses are known as stockbrokers.
You can choose an individual stockbroker, whom you can trust. Or alternatively, you can select any online broking firm to help you buy/sell stocks on the market. Some of the popular online broking firms include – Sharekhan, ICICI Direct, IndiaBulls, Kotak Securities, etc.
Note: The names of the online broking firms mentioned above are just examples. It’s not a recommendation. So, make sure to do your research and choose the right broker for you.
3.Set up Demat and Trading Accounts
Once you have decided on a broker – individual, company, or online platform – the next step is to set up a Demat and trading account.
Demat account is the place where you digitally store the stocks/shares in your name. Think of it as your online stock portfolio. Stocks cannot be stored in a Demat account in the physical format. It can only hold shares in a dematerialised state. Hence the name Demat.
All the shares that you buy from the market are held in your name in the Demat account. Stocks that are sold will be removed from your Demat account. At any time, the Demat account reflects the shares in your portfolio.
Besides the Demat account, you also require a trading account. While the Demat account is like an online portfolio of your shares, the trading account is what facilitates buying and selling. It acts as an intermediary facilitating buying and selling of stocks.
If you're wondering how to open a Demat and trading account, do not stress much. Generally, your broker or online broking agency handles it for you.
4.Understanding the Role of the Depository Participant
Besides the Demat and trading account, there is another term that you must be aware of before you begin trading on the stock market. This is the depository participant. There are two depositories in the country:
NSDL – National Securities Depository Limited
CDSL – Central Depository Services Limited
Both these depositories offer depository participants to hold their shares. Though the depository participant sounds similar to your Demat account, it's not the same.
The Demat account shows the number of shares you hold, the trading account shows the buying/selling that has taken place in your account. The depository participant is where the shares you purchased and sold are held.
Most brokers register you for the depository participant, while you open Demat and trading accounts.
5.Register for UIN (Optional)
If you are looking to trade shares worth more than Rs. 1,00,000 at a single time, then you need a UIN (Unique Identification Number). You can ask your broker to get you the UIN. If you're a beginner, then UIN is not needed. You can register for it later when you decide to go big on your trades.
6.Finally, It’s Time to Trade
Now that you've set up everything, it's time to start trading. Before you carry out your first trade, you need to understand the basics of how it works.
Let's say you want to purchase 10 shares of Britannia Industries Ltd when it reaches a price of Rs. 3400, you need to inform your broker. You set up instructions with your broker. For example, Buy Britannia Industries Ltd, Quantity: 10, Price: 3400. The broker/online broking company will set up an alert. When the share reaches that particular price, the transaction is done on your behalf.
The shares are purchased based on your instructions and will be reflected in your Demat account. The same applies to selling as well. You set up an instruction with your broker. For example, Sell Britannia Industries Ltd, Quantity: 5, Price: 3600. The sell order is carried out if the stock reaches a particular price.
Note that generally, buy and sell orders you set up are valid only for a specific period – say one day. If the stock doesn't reach your desired purchase/selling price during this period, then the order is cancelled, and you have to place a new order again.
In India, buying and selling happen in two stock exchanges:
NSE (National Stock Exchange)
BSE (Bombay Stock Exchange)
Share may be listed on one or both exchanges. Generally, when you place a sell/buy order, you need to mention your preferred stock exchange as the price varies slightly based on the exchange.
Additional Reading: 10 golden rules of investing in stock markets
As you can see, investing in the stock market is not all that complicated. Choosing the right broker is crucial, as the broker plays a vital role in helping you trade. If you have not yet started investing in the stock market, we hope this guide enables you to get started.
Invest wisely and start building a winning stock portfolio!