How to Start Investing in Stock Markets?

How to Start Investing in Stock Markets?

How to Start Investing in Stock Markets?

You must have heard about something called ‘stock markets’ going up and down in news and people making a fortune from buying something called ‘stocks’. So, what are stocks? What is a stock market?

First of all, stock market is not at all a gambling place. It’s more of an investment place. And investment means putting your money in something after carefully studying it and assessing it from all angles, and then waiting for it to grow. For eg., when you want to make a fixed deposit or FD in a bank , you compare the interest rates of different banks and try to make a FD in the bank which you feel is most trustful and which can offer the best interest rates on FD. Similarly, in stock markets, you put your money in a company after carefully assessing it.

 Ok, so I am going to talk about some basics of the stock market and then I am going to come to the main focus of this article which is how can you begin investing in stock markets?. In simple terms, a stock market is a market where you trade in stocks of a company (buying stocks simply means you are buying a teensy-weensy portion of the company) and if that company grows, your money grows, and if not, then it diminishes. For example, suppose I buy a few stocks of Reliance. Buying a few stocks of Reliance means I am literally the owner of Reliance! (though there are millions of other owners of Reliance too). Now, suppose over a couple of years, the revenues and profits of the company grow, meaning the demand for the shares of the company grows, so does my money grow. Now how much my money grows depends on various factors, which I am not going to explain in detail here. But to give you a small overview, companies like Infosys, PAGE industries, Reliance, etc. have doubled or tripled the investor's money in about 3-10 years. In some cases, even in less than a year! Some companies even give up to 100% returns in a month or so. But note that there are always two faces of a coin. If you do not invest in the right company, you are certainly going to lose your money. Remember you don’t have to look at the stock market as a gambling place, so one has to study the companies and make sure to invest in the right company.


A very basic but important question usually comes to the minds of all the beginners, how much money do we need to start with? There is no specific answer to this question, but I can tell you that I started with Rs 500 only! If you are a student or a person with less income, you could start with just Rs 1000 or even lesser. But if you are a person who is earning good bucks, you could start with Rs 10,000 or even more. It all depends on your wish and risk appetite. Greater the risk, greater the money. There are stocks which you can buy for as low as Re 1 and the best part is you can buy even 1 share also! The next question usually people think is what is the right age to start? The answer to this question is again vague. In India, people usually start investing when they start earning, meaning usually after 25 years of age or so. But the fact is that even if you are 15 or 50 years old, you could start investing right now.


Now let’s come to the main topic, which is ‘how to start?’ To start investing in Indian stock markets, you need to open a demat account and a trading account with a broker. If you are a beginner, don't get confused about these terms. I know these are a bit complicated for a complete beginner, but I would try my best to explain these in simpler terms. When you buy shares of a company, those shares are kept in dematerialised form in an account which is known as the Demat Account. Now, ideally you would think that you would get a proper document of proof from the company that you have bought its shares or invested in it. You are thinking this the right way but this used to happen two decades back in India. Basically, your demat account contains the shares you bought in a paperless manner.. The demat account contains proof that you have bought the shares. In summary, like your money is kept in a bank account, your shares are kept in your demat account.


The Trading Account contains the money through which you buy or sell the shares. The trading account is just like a bank account where you use your money present in the trading account to trade in the stock market.


Now let’s come to the term ‘broker’. In the simplest terms, a broker is a middleman who coordinates your buying and selling of your shares in the stock market and charges you a commission (known as brokerage) for your trades. All your trading in the stock market has to go through the broker. Just like you open your bank account with different banks such as SBI, ICICI, etc., you need to open a trading and Demat account with the broker. Just like you have a lot of choices to choose from different banks with which you can open your bank account, there are thousands of brokers in India with which you can open your trading and Demat accounts. Now, remember that I have explained all these terms vaguely and not through exact definitions, as I have tried to make all this simpler through a beginner's perspective.


Now let's come to the role of stock exchanges in a stock market. Stock exchanges are the place where you place your orders to buy and sell and these exchanges regulate the orders between the investors and the companies. There are mainly two exchanges in India, namely- Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).


So, to summarize it all, you open a demat and a trading account with a stock broker and the stock broker places your orders on your behalf on the stock exchanges and the stock exchanges further regulate the buying and selling between different investors and the companies.  


There are obviously many things left to explain, but I think now you can open your account with the stockbroker to have a glimpse of the stock market. You could open your trading and demat account with any broker you like, but I would suggest you open your account with some discount broker such as Zerodha or Uptox or 5paisa or any other discount-broker rather than full-time brokers such as HDFC Securities or Kotak Securities since discount brokers charge a lot less brokerage (commissions) compared to full-time brokers. Most of the brokers today offer online quick account opening procedures, so you can open an account online by just sitting at your place of comfort.

Happy Investing!


Previous Post Next Post