The stock market is referred to as a platform that lets public listed companies trade. These companies float their shares for the people in an Initial Public Offering (IPO). This article is going to explain every aspect of how to invest in share market. Investing in stocks means buying small shares of ownership in public companies. Let’s start with amazing facts that you might not be aware of. The United States of America (USA) denotes 54.5% of the world’s stock market capitalization. This is the reason that 10% of the USA households hold international equity. In 2018, the global market cap shrank 14.9% from the prior year. However, in the pandemic year of 2020, the global market cap rose to a record of $95 trillion when the world was going through a bad phase.
If you may ask how you can be an investor/trader, here is what you need to get sorted.
Plan your Investing Approach
With multiple ways of investing in stocks, you will have to figure out what kind of investor/trader you wish to become. Below are the types of investors/traders.
Individual Stock Trader/Investor
An individual can bring out the best of them to become a trader. It is because they do not have to depend on someone’s guidance. However, a little more tip is still required to get expertise in specific fields. This is why, under the segment of ‘ACE,’ Bizgurukul provides you with an exclusive ‘Stock Market Mastery’ course. It is a stock trading course for beginners to share the strategies and techniques to target their growth.
Penny stocks are stocks with market prices less than $5. To begin with, it is what needs to be done initially. It is highly profitable, and at the same time, boosts your trading skills. Investors/ traders can purchase significant quantities of penny stocks at lower prices, and when the market rises they can sell it to earn a profit.
Index Funds Trader/Investor
An index fund is a kind of mutual fund or an exchange-traded fund (ETF). Having a diversified portfolio is an added benefit of Index Funds. They are well known because they are designed to replicate the production of their underlying index- NIFTY 50, Sensex, etc. All of the stocks in these indices will be represented in their investment portfolio to some extent. This ensures a performance that is theoretically similar to the index being tracked. Its key selling point is its low expenditure ratio.
The decision of how to invest in the stock market is purely based on your risk tolerance and investment objectives. These funds don’t require a lot of attention. You can choose a Sensex or Nifty index fund, for example, if you’re going to invest in stocks but don’t want to accept the risks associated with actively managed equity funds. These funds will provide you with returns that correspond to the index’s upside potential. If you want to outperform the market, though, actively managed funds are the way to go.
A Robo-advisor is a type of digital financial advisor that gives financial advice or manages investments with little to no human involvement. Robo-advisors are designed to provide digital advice based on the investor’s inputs. Although Robo-advisors are designed to perform with minimum human involvement, this is not always the case. As a result, most Robo-advisors are still relatively basic in India, relying on a simple questionnaire to determine investment behavior.
Robo-advisors use algorithms to understand and forecast investor preferences, risks, and objectives. They usually ask a series of psychographic and demographic questions that result in a model portfolio.
Gender, income, liabilities, risk tolerance, and current asset allocation are questions on the most basic profile questionnaire.
Select the Amount and know how to Invest in the Share Market
Before going any further with this, let’s talk about the money you should not be investing in stocks when you receive your salary or get the money. Set aside a certain amount that fulfills your daily requirements. The extra money left is what you can invest in the stock market. In the next 4 to 5 years, the money you would not need should be invested in the stock market.
The chances of the market dropping are lower because it rises every year. But, let’s not forget that in the pandemic year of 2020, the market plunged to more than just 40%, but once it was over, it rose to an all-time high.
Here is something important you need to note. Let’s assume you’re forty years old. According to the approach, you should invest 70 percent of your available funds in the stocks and the remaining 30 percent in fixed income. Of course, you could wish to adjust this ratio in favor of your stocks if you’re a risk-taker or expect to work past the usual retirement age. If you don’t like massive changes in your portfolio, on the other hand, you would want to change it in the opposite direction.
Start with an Investment Account
If you are only reading about these tips and not implementing them in your real life, there is no point in you reading them. If you are being practical, you can easily understand everything. The platforms like Zerodha, Groww, etc., are designed to be effortless to work upon. Starting your investment account is easy and painless. The actual work only begins when you buy any one of them.
Type of account
In India, there are different trading accounts and Demat accounts to start your journey with. Demat is a short version of dematerialization, which means shifting from physical certificates to digital platforms. All six kinds of investment accounts are explained below.
- Equity Demat Account- It is one of the ways to keep shares in electronic forms. When one buys any claims, they are stored in the account, and when they are sold, they are taken from the account.
- Equity and Derivatives Trading Account- It can only be opened with a recognized stockbroker in India, like the National Stock exchange (NSE) and Bombay Stock Exchange (BSE).
- Commodity Demat Account- If someone is trading in the commodity future, the settlement can be done through cash or by delivery of the commodity.
- Commodity Trading Account- This account is opened with a commodity broker registered with a recognized commodity exchange in India.
- Discount Broking Account- These investors/traders trade huge volumes at a meager price. They solely provide plan execution. It does not offer any further services to its consumers, such as advice or research services.
- Full-Service Trading Account- A full-service account provides a variety of services in addition to trade execution. These services could include advising services, where a person can speak with financial consultants if they are trapped in a predicament. It might also involve research services, which could save an investor a lot of time when it comes to examining the entire market before making a selection.
Compare costs and features
Trading commissions have been removed by the majority of online stock brokers, putting most (but not all) on a level playing field in terms of expenses. There are, however, several significant variances. Some brokers, for instance, provide customers with a range of teaching tools, investment analysis, and other services that are especially beneficial to rookie investors. Many allow you to trade on international stock exchanges. Some even have existing branch networks, which might be helpful if you need personal investment advice.
Choose Your Stocks
There should be no compulsion on you to buy that same number of shares or to invest your entire portfolio in a single stock. Instead, consider starting small — extremely tiny — by buying only one claim to get a taste for what it’s like to own individual stocks and whether you have the endurance to ride out the hurricane with minimum sleep. Then, as you grasp the shareholder attitude, you can increase your position over time.
You should know which stocks you would want to buy and keep a hold of. You would only know it with a little to more expertise in the stock market. Your portfolio should be a combination of multiple stocks, but only after you know all of them.
Criteria to Choose
Before you begin, familiarise yourself with the following key concepts:
- Broaden your investment portfolio.
- Make sure to invest in companies you are aware of
- Until you’ve got the idea of investing, stay away from high-volatility stocks.
- Ignore penny stocks at all costs.
- Finally, learn how to analyze stocks using basic measurements and concepts.
There will be times when you will face loss, but this should not stop you from investing more. The best and surefire way to boost your business is by buying the best stocks at a reasonable price and keeping a hold on them until the money is essential to you. Also, keep researching other companies’ stocks in case you wish to broaden your portfolio.
The Bottom Line
Investing is possible as long as you want to start saving in a busy schedule. Then, you can create it with a small amount of money. However, it’s more complex than just picking the suitable investment (a challenging task in and of itself). First, you must be conscious of the limitations you encounter as a rookie investor.
You’ll need to do some research to determine the minimum deposit requirements and then match commissions with other brokers. It’s unlikely that you’ll be able to diversify your portfolio while spending a tiny amount of money on specific stocks. You’ll also have to decide on a broker with whom you want to open an account. To kickstart your investing journey, enroll in the ‘Stock Market mastery’ course by Bizgurukul, the best stock market course in India.