The stock market is a wide and dynamic marketplace where shares of companies are purchased, sold, and traded. The Indian stock market has recently witnessed a surge in investor participation. These new investors have just started investing in the stocks.
The stock market in India offers numerous advantages to both experienced and investors. However, you must know the process of how to invest in the stock market in order to gain from the stock market. For beginners, knowing the process will help you build a strong investing portfolio and gain high returns.
Basic Knowledge of the Stock Market
The stock market involves understanding fundamental concepts that are pertinent to investing and trading. These fundamental concepts include:
- Stocks (Shares): It represents an investor’s ownership in a company that is registered on a stock exchange (BSE or NSE).
- Demat Account: A Demat account is an online repository that stores and holds investor’s stocks and securities.
- Trading Account: A trading account enables investors the trade, sell, or buy securities in the financial markets.
- Dividends: It is a fraction of the earnings of a company that is allocated to its stockholders.
- Going Public (IPO): The first time a corporation offers shares to the general investors on a stock market.
Stepwise Process of How to Invest in the Stock Market
Having well defined investing objectives and ensuring technical eligibility are both essential for entering the stock market. Here is a step-by-step procedure for investing in the stock market:
Step 1: Understand the Fundamentals
A stock market allows investors to trade stocks, bonds, options, and commodities, among other things. Improving one’s understanding of the stock market is essential for making fresh and prudent investments. To invest effectively, the investor must first understand the elements that influence the shares and the market as a whole.
Step 2: Choose a DP
A depository participant (DP) is an agent of the financial system that works as an intermediary between the depository and investors. A DP is responsible for opening a Demat account and managing it. A Depository Participant also acts as a custodian for your stocks and manages transactions on your behalf.
Step 3: Open a Demat Account
A Demat account is your gateway into the stock market. You’ll keep your investments stored here digitally and execute trades. The majority of DPs provide online account openings and some even offers free demat account without AMC charges . This allows for a seamless flow of funds between your bank and demat account for transaction reasons. Here’s a question arises- is it mandatory to add nominee in demat account?
Step 4: Open a Trading Account
A trading account serves as a middleman between your demat account and your bank account. It is responsible for completing and executing trading transactions. When you apply for a demat account, your broker will usually open both accounts at the same time.Â
Step 5: Fund Your Account
You must now login to your Demat account. Moving money from your bank account is usually the easiest way to fund the brokerage account. You can use the money to place an order to buy stocks.
Step 6: Choose and Buy the Stocks
The next step in participating in the stock market is choosing the stocks you want to invest in. Choose the stock or a company based on its industry type, financial statement, history, and more. Once you know how to select the stock, mention the order type along with the desired units of shares for purchase and then place the order.
Step 7: Purchase Order Execution
After completion, you will get confirmation, and the bought shares will be deposited into your brokerage account. Managing risk is mostly dependent on diversity. Never invest all of your money in one stock or sector. Diversify your securities across different asset classes to reduce the chance of a single firm or industry underperforming.Â
Conclusion
The stock market allows investors to build long-term wealth and gain higher returns than any other investment alternatives. It also enables you to invest in many investment options like stocks, securities, bonds, MFs, ETFs, and options. You can benefit from all this by learning how to invest in the stocks in the Indian stock market.
Remember that the secret to effective investing is to start early, be consistent, and continue to educate yourself. It’s still advisable to conduct further research and seek professional advice when needed, as every individual’s financial situation is unique.
