Now that you understand shares and the concept of a share market, we come to the next important question: How to invest in shares?
Let’s first look at what you need to begin investing.
- PAN Card – It is mandatory to have a PAN Card to invest in stocks.
- Demat Account – This is the account that will hold the shares in the name of the buyer. You can open a Demat account with any depository participant. Most banks offer Demat account services. New age investment platforms also offer Demat account opening in a hassle-free manner.
- Trading Account – To start making a stock market investment, you need a trading account with a stockbroker. Remember, stockbrokers, register with stock exchanges. While most good-quality stocks are listed on both primary exchanges (BSE & NSE), some might only be available on either of the two. Ensure that you open a trading account with a broker registered with both BSE & NSE.
- Linked Bank Account – Since you are investing in stocks, you will be buying and selling them over time. Hence, you will need a bank account that is linked to your trading account to ensure that money flows in and out of your account seamlessly when you transact.
2. Documents Needed
- PAN Card
- Aadhaar Card
- A cancelled cheque from your bank account with your name on it
- Proof of address (from the list of documents accepted by the bank/depository participant/broker)
- Proof of income
- Photographs
With these accounts in place, you are set to begin your stock market investment journey.
Investment process
As explained above, there are two markets that you can consider – primary and secondary. We will look at the investment process in both these markets.
1. Investing in the Primary Market (IPOs)
Investing in the primary market involves investing in an IPO. You will need a Demat account to hold the allotted shares and a trading account to apply online. You can also apply through your bank account. Now it’s important to remember the number of shares allotted to you will depend upon the market’s response to the IPO. Once the company receives all IPO applications, it allots shares based on the demand and availability of shares.
You can easily apply for an IPO through your net banking account through a process called ASBA (Application Supported by Blocked Amount). In this process, if you have applied for shares worth Rs.1 lakh in an IPO, the amount is blocked in your banking account instead of being sent to the company. Once the shares are allotted the exact amount is debited and the balance is released. It is mandatory for all IPO applications to follow this procedure. Once the shares are allotted, they are listed on a stock exchange within a week and you can start trading them.
2. Investing in the Secondary Market
This is where all the action is. The secondary market is usually what we refer to when we say the stock market. It is the place where investors and traders buy and sell stocks. To invest in the secondary market, you will need a trading account, Demat account, and a linked banking account. If you are thinking about how to invest in share market online, then the answer is simple:
- Open a Demat and trading account with a linked banking account
- Log in to the trading account
- Choose the share that you want to buy or sell
- Ensure that you have funds in your account for buying and shares in your Demat account before selling
- Determine the price at which you want to buy/sell
- Wait for the seller/buyer respectively
- Complete the transaction by transferring shares/money and receive money/shares
The process is simple. However, becoming a successful investor is hard work. Let’s look at some concepts that you need to understand and tips that you can use for investing in the secondary market
Things To Keep In Mind Before Investing.
Now that you are clear with the basics, let’s see what are the other things you need to consider before investing
1. Understand Your Investor Profile
Every investor is unique. Hence, you must ensure that you invest based on your investor profile. There are three critical factors that can help identify your profile:
Financial goals – Define your financial goals. What are you trying to achieve? Retirement corpus? Funding your world tour? Planning a marriage? Thinking of buying a house? These goals will help you get clarity on how and which stocks to invest in.
Risk tolerance – How much risk can you stomach? If you invest in the stock of a strong company like Tata, then the price will not move up or down a lot. It will be relatively stable. On the other hand, if you invest in a small company that seems promising, then every small achievement will boost the stock price and failure will result in a crash. You need to determine how much volatility you can handle without panicking and making wrong decisions.