How to Invest in Share Market? A Beginner’s guide

hi Investors. Today we are going to discuss one of the most basic topics for a beginner- How to invest in share market? I have been planning to write this post for a number of days as there are many people who are willing to invest, however, do not know how to invest in share market.

Please note that this post might be a little longer as I am trying to cover all the basics that a beginner should know before entering the stock investment world. Make sure that you read the article till the end, cause it will be definitely worthwhile reading it.

Pre-requisites:

For investing in the Indian stock market, there are few pre-requisites that I would like to mention first. Here are the few things that you will need to invest in share market:

1 Savings account

2 Trading and demat account

3 Computer/laptop/mobile Internet connection

(Thanks to Reliance Jio, everyone has 4G internet connection now.. 😀 )

For opening a demat account, the following documents are required:

1 PAN CardAadhar card (for address proof)

2 Passport size photos

3 Canceled cheque/Bank Passbook

You can have your savings account in any private/public Indian bank.

x`

Where to open your trading and demat account?– This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 3).

Step 1: Define your investment goals:

It’s important to start with defining your investment goals. Start with end goals in mind. Know what you want.

The time frame for different investment goals will be different. Your goal can be anything like buying a new house, new car, funding your higher education, marriage, retirement etc.If you are investing for your retirement, then you have a bigger time frame compared to if you are investing for your higher education. When you know your goals, you can decide how much you want and for how long you have to remain invested.

Step 2: Create a plan/strategy

Now that you know your goals, you need to define your strategies. You might need to define whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan).

If you are planning for SIP, define how much you want to invest monthly

Step 3: Choose your stock broker

Deciding an online broker is one of the biggest steps that you need to take. There are two types of stock brokers in India:

Full-service brokers

Discount brokers

Full-Service Brokers (Traditional Brokers)

They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.

Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc

Discount Brokers (Budget Brokers)

Discount brokers just provide the trading facility for their clients. They do not offer advisory and hence, suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives.

Few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, SAS online etc.

Step 4: Start researching common stocks and invest.

Start noticing the companies around you. If you like the product or services of any company, dig deeper to find out more about its parent company, like whether it is listed on the stock exchange or not, what is its current share price, etc.

Most of the products or services that you use in day to day life — From soap, shampoo, cigarettes, bank, petrol pump, SIM card or even your inner wears, there is a company behind everyone. Start researching about them.

Step 5: Select a platform to track your performance

You can simply use an excel sheet to track the stocks.

Make an excel sheet with three tables containing:

The stocks that you are interested in and need to study/investigate,Those stocks that you have already studied and found decent,Miscellaneous stock- for the other stocks that you want to track.

Further, there are a number of financial websites and mobile apps that you can use to keep track of the stocks.

Step 7: Have an exit plan

Its always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by booking loss.

If your investment goals are met, then you can exit the stocks happily. Further, if the stock has fallen under your risk appetite level, then again exit the stock. Also, keep in mind the time frame till which you want to remain investing before exiting.

It’s really important that you know how to take out your money.

Additional points to take care of.

1. Start small:

Do not put all your money on the market in the beginning. Start small and test what you have learned. You can start even with an amount of Rs 500 or 1000. For the beginners, it’s more important to learn than to earn. You can invest in large amount once you have more confidence and experience.

2. Diversify your portfolio:

It’s really important that you diversify your portfolio. Do not invest all in just one stock. Buy stocks from companies in different industries.

For example, two stocks of Apollo Tyres and JK Tyres in your portfolio won’t be called as a diversified portfolio. Although the companies are different, however, both companies belong to the same industry. If there is a recession/crisis in tyre sector, then your entire portfolio might be in RED.

A diversified portfolio can be something like Apollo tyres and Hindustan Unilever stocks in your portfolio. Here, Apollo Tyres is from Tyre industry and Hindustan Unilever is from FMCG industry. Both the stocks are from different industry in this portfolio and hence is diversified.

3. Invest in blue chip stocks (for beginners):

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.

For example- HDFC banks (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company) etc. Few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India etc.

These companies have a stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest compared to other companies.

It’s recommendable for the beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.

4. Never invest in tips/advice:

This is the biggest reason why people lose money in the stock market. They do not carry enough research on the stocks and blindly follow their friends/colleague’s tips and advice.

The stock market is very dynamic and its stock price and circumstances change every second. Maybe your friend has bought that stock when it was underpriced, however now it’s trading at a higher price range. Maybe, your friend has a different exit strategy than yours. There are a number of factors involved here, which may end up with you losing the money.

Avoid investing in tips/advice and do your own study.

5. Avoid blindly following the crowd:

I know a number of people who have lost money by blindly following the crowd. One of my colleague invested in a stock just because the stock has given double return to another of my college in 3 months. He ended up losing Rs 20,000 in the market just because of his blind investing

6. Invest in what you know and understand:

Will you buy ABC company which produces Vinyl sulphone easter and dye intermediates even though you have zero knowledge of the chemical industry?

If you will, then it’s like giving some stranger 1 lakh rupee and expecting him to return the money with interests. If you are lending money to someone, you ask a number of questions like what he does, what is his salary, what is his background etc.

However, while investing Rs 1 lakh in a company which people do not understand, they forget this common logic.

7. Know what to expect from the market:

Do not set unrealistic expectations for the stock market. If you want to make your money double in one month, from the stock market, then you have set your expectations wrong.

Have a logical expectation form the market.People are happy with 4% simple interest from the savings account, but a return of 20% in a year sounds underperformance for them.

8. Have discipline and follow your plan/strategy:

Do not get distracted if your portfolio starts performing too well or too bad in the first few months of investing. Many people increase their investment amount just in few weeks if they see their stock doing too well, and ends up losing in long run.

Similarly, many people exit the market soon and are not able to get profits when their stocks start performing. Have discipline and follow your strategy.

9. Invest regularly and continuously increase your investment amount:

The stock investment gives the best returns when you invest for long term. Do not invest in lump sump at just one time and wait for the next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity. Further, increase the investment amount as your savings increases.

10. Continue your education:

Keep learning and keep growing. The stock market is a dynamic place and changes continuously. You can only keep up with the stock market if you also continue your education.

Besides, there are a number of more lessons which you will learn with time and experience.

That’s all for this post on how to invest in the share market. I hope this is helpful to the readers. If you have any doubts, feel free to comment below