Get into the stock market world, understanding its nuances and the art of investing. From understanding costs to evaluating different stock types, you can go through your investment journey. Plus, get answers to frequently asked questions also in this blog.
What Is The Stock Market?
The stock market is a vast, intricate platform where shares of publicly traded companies are bought and sold. Essentially, it’s a marketplace for securities, akin to a vegetable market, but instead of vegetables, you deal with shares, bonds, and other financial instruments.
India’s main stock markets are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), with NSE being the bigger one. Other specialised exchanges, such as the Multi Commodity Exchange (MCX) for commodities and the Indian Energy Exchange (IEX) for energy trading, also exist.
The body overseeing stock market activities and its players in India is the Securities and Exchange Board of India (SEBI).
These stock markets not only feature companies but also have indices. An index groups stocks to show a specific market trend or theme. Two popular indices are the NIFTY on NSE and SENSEX on BSE, representing top companies based on their market value.
Indices like NIFTY and SENSEX help compare the performance of investment funds and stocks. For example, if a fund linked to the NIFTY earns 15% returns and the NIFTY earns 20%, the fund didn’t do as well as just investing in the NIFTY stocks directly.
How to Invest in the Share Market?
Here’s a step-by-step guide for Indian investors to invest in share markets 2023.
- You can’t directly engage with the stock market; instead, you’ll need a broker or a brokerage platform. Here’s a simple breakdown:
- Start by creating a trading account with a broker or brokerage service. This account lets you place buy or sell orders.
- The broker will then set up a demat account for you, which keeps the securities under your name.
- These two accounts will be connected to your bank account.
- For account setup, you’ll give KYC documents, like your PAN or Aadhar card.
- Many brokers have a digital KYC method, letting you swiftly open an account online.
- After setting up, trade online using a platform or offline through phone calls with your broker.
What Does it Cost to Invest in the Share Market?
Investing in the share market is not free. Costs associated with it include:
Brokerage Fees: Brokers earn a commission for executing trades on your behalf. With the emergence of discount brokerages, these fees have been decreasing. In addition to the commission, brokers also accumulate governmental charges for every trade, including the Securities Transaction Tax (STT), SEBI fees, and the Goods and Services Tax (GST) among others.
Demat Account Fees: Although brokers or trading platforms initiate the opening of your demat account, they aren’t responsible for its management. Central securities depositories, such as NSDL or CDSL, regulated by the government, oversee these accounts to protect the investor’s rights. An annual fee, generally collected by your broker or trading platform, is charged for account maintenance. The fees can vary, ranging from ₹ 100 to ₹ 750 annually.
Tax Implications: A portion of your investment profits is paid as tax to the government. For equities, a long-term capital gains tax of 10% is levied if you retain them for over a year. Conversely, stocks held for under a year incur a short-term capital gains tax of 15%. These rates can fluctuate depending on additional charges or surcharges imposed by the government.
Types Of Instruments You Can Buy In Share Market
The share market isn’t limited to just shares. Various instruments can be traded:
- Equity Shares: Ownership in a company.
- Bonds: Debt instruments where you lend money to an issuer in exchange for periodic interest payments plus the return of the bond’s face value.
- Mutual Funds: A pool of funds from multiple investors to invest in diversified securities.
- Derivatives: Financial contracts derived from an underlying asset, e.g., futures and options.
- Exchange Traded Funds (ETFs): Funds that track indexes like Sensex or Nifty.
Different Types of Stocks to Invest in the Stock Market
When diving into stocks, it’s vital to know the varieties available. We will see the varieties in the simplest manner:
Blue-Chip Stocks:
Imagine the most popular and successful students in a school – the ones everyone knows will do well in life. Similarly, in the stock market world, Blue-Chip Stocks are like these top students. They belong to very well-known and financially strong companies that have been around for a long time and have proven their success. When you hear names like Reliance or TCS in India, you’re talking about these star performers. Investing in them is generally considered safe, but they can be expensive because everyone trusts them.
Growth Stocks:
Picture a young athlete showing a lot of potential and promise. You expect them to win many trophies in the future. Growth stocks are like that athlete. They are from companies expected to grow faster than the average. Their potential is seen in their future performance, not necessarily in today’s earnings. And just like that athlete might not have many trophies right now, these companies might not give dividends (a share of their profit) to their shareholders because they’re reinvesting everything to grow faster.
Dividend Stocks:
Think of a generous friend who always shares their things with you. Dividend stocks are similar. They belong to companies that like to share a piece of their profits with their shareholders regularly. So, if you invest in these, you can expect periodic payments, almost like a bonus for trusting them.
Value Stocks:
Ever seen a product on sale and thought, This is worth so much more than its price? That’s the idea behind value stocks. They’re shares of companies that, for various reasons, are selling for less than what they’re truly worth. Experienced investors love hunting for these because they’re like hidden gems. They believe that, over time, the market will realise the true value of these stocks, and their prices will go up.
Small-Cap, Mid-Cap, and Large-Cap Stocks:
These categories are like different sizes of companies, almost like comparing local shops, city-based businesses, and huge multinational companies. Cap stands for capitalisation, which is essentially the total value of all a company’s stocks.
- Small-Cap refers to smaller companies that have the potential to grow but also come with higher risks.
- Mid-Cap companies are in the middle – they’re bigger than small-caps but not as massive as large-caps. They offer a balance between growth potential and stability.
- Large-Cap stocks belong to those well-established, giant corporations that are stable but might not grow as quickly as the younger, smaller companies.
How to Know Which Stock to Buy in the Stock Market?
Deciding which stock to buy requires a blend of technical and fundamental analysis:
Determine Your Comfort with Risk
How much risk can you handle? Several things determine this: how long you plan to invest, your age, your goals, and the money you have. Also, think about your current responsibilities. If you’re the main earner for your family, you might want to play it safe. Maybe you’ll lean towards safer investments, like large companies’ stocks.
However, if you’re younger with fewer responsibilities, you might be okay with taking bigger risks.
Invest Consistently
With your demat account ready, plan how much you’ll invest regularly. Look at your spending, decide on a budget, and determine what you can spare. A good strategy is to use a Systematic Investment Plan (SIP). With a SIP, you invest the same amount monthly, like in a mutual fund. This spreads your investments over time, helps you build good habits, and lets you gradually invest more as you become more confident.
Diversify Your Investments
A golden rule in investing is to spread your money across different types of assets. This reduces the blow if one doesn’t do well. Don’t put all your money in one booming sector. Instead, spread it across sectors, choose a mix of company sizes, and balance riskier stocks with stable options like bonds. Also, use SIPs to invest across various market situations.
Adjust Your Investments
As life changes, so should your investments. Every few months, review and adjust your portfolio to make sure it aligns with your current situation. This is essential as you age and your goals shift. For example, as you have a family or approach retirement, you might want to be more conservative with your investments.
Visit us at Vakilsearch to get more legal information!
FAQs on Stock Market
What are the first steps for beginners to start investing in the share market?
Begin by talking to experts and people who know about this. Open a Demat and trading account, research well, and start small.
How do I open a Demat account and trading account to begin share market investing?
Approach a registered brokerage in India, provide the necessary documentation (PAN, Aadhar, etc.), and complete the KYC process.
What are some common mistakes to avoid as a beginner in the share market?
Avoid herd mentality, overtrading, skipping research, and investing without a clear strategy.
How can I analyse stocks or investment options before making a decision?
Use fundamental and technical analysis. Stay updated with financial news, and consider seeking advice from financial advisors.
What are some popular share market investment strategies for beginners?
Beginners can consider strategies like dollar-cost averaging, diversifying their portfolio, or following a value-investing approach.
Also, Read:
- List of top 10 Indian Company Names by Market Share
- Public Listed Company and Its Benefits
- Necessity For A Social Stock Exchange
