Everyday we see a lot of buzz about the stock market on TV and newspapers.
This is the common question stock market beginners ask, how to invest in the stock market in india.
Well, I have seen different types of people, when it comes to the stock market. Someone is afraid of it. Someone is greedy. Someone is just curious about it.
When I tell someone that I invest in the stock market, the most common question I hear is, isn’t it risky?
And my answer to it is, Yes, it is risky.
But it depends on what your agenda is while putting your money in the stock market.
Is your goal to build wealth ? Or are you just looking for some short term profit like in gambling?
Stock market is very volatile in the short run.
So, if your investment horizon is just a few days, a week, a month or even a year and you do not like taking risks, then believe me the stock market is not for you.
But, if your investment horizon is like 3 years, 5 years, 10 years then all possibilities of risks get negated.
Even though the stock market is very volatile in the short run, if you observe its year by year returns, you will see that it goes up steadily.
This is the reason why financial advisors tell you to stay long in the mutual funds or in the stock market.
But, have you wondered , why is the stock market so volatile in the short run and build wealth over the long term ?
Answer is very simple and in front of your eyes.
And the answer is, the stock market represents our country’s economy.
Our country grows over the years.
In the short run there might be problems in the country’s growth.
But when you see the difference between India 10 years back and now, you can see a clear difference in how much India is developed.
Just like our country has to develop more in the future, the stock market has to follow that path.
In 2010, sensex was around 20,000 , it has now crossed 52,000 !
So, become a long term investor to build inflation beating wealth.
Today, I will try answering all basic questions about the stock market.
First of all,
How does stock market work
To understand how the stock market works, first you need to know about the stock exchange.
Stock exchange is a place where companies interested to raise money get listed.
After getting listed, everyday ( working day) their stock gets traded in the exchange.
Buyers and sellers meet in the stock exchange through registered brokers.
Price movement of the shares are determined by the demand and supply of the particular share of the country.
And demand and supply is driven by basic fundamentals of the company , political factors and internal and external economic factors.
In india, there are 2 major stock exchanges,
- National stock exchange
- Bombay stock exchange
Bombay stock exchange ( BSE ) is the oldest stock exchange in Asia. It has over 5500 companies listed on it.
So, once you open your demat account, you can start investing through any of these exchanges.
What is stock market trading
As we discussed earlier, stock market trading is a regular practice of buying and selling of the shares through registered brokers.
In general, stock market trading terms are used when you buy and hold shares for a short term like a few days, a week , intra day or some months and then sell to take advantage of a short term opportunity.
But, if you are new, this practice should be avoided without proper study of stock market dynamics.
Stock trading is usually performed by professional brokers as they are well researched and experienced in it.
While stock investing is the term used for long term investment.
As I said earlier, it is comparatively safe even if you are not experienced. Because good stocks always build wealth over the long term.
How to invest in stock market in India
In India, if you wish to invest in the stock market, it is mandatory to complete the KYC process.
KYC ( Know your customer ) is a one time process.
Once you are KYC registered, you can start investing in the stock market.
There are various brokers in india. They provide demat account facility and paid tips to invest in stocks.
You have to pay an annual maintenance charge (AMC) for your demat account. AMC varies broker to broker.
Apart from amc, you have to pay fixed charges while you buy shares
Some platforms like Zerodha charges 0, if you take delivery of shares ( you do not buy and sell shares in a single day)
You can access a demat account on your smartphone.
You can add money to your demat account from your bank account.
For adding money, it is necessary that both the demat account and bank account have the same name.
What is market cap in stock
Market capitalization , popularly known as market cap, indicates the total worth of shares of one particular company.
It is calculated by total outstanding shares of a company multiplied by current price of the share.
By multiplying it , you get the market cap of the company.
You can get an idea of the size of the company from its market cap.
Bigger the market cap of the company, bigger its size and vice versa.
Big market cap companies have a good level of stability and sustainable growth compared to small companies.
Because they are well established in the market.
That’s why big market cap companies are comparatively safer to invest than small companies.
But small and medium companies are still in the growing phase, so they have more room for growth than large companies.
Small and medium companies have chances to become large companies in the future.
While large companies are already large, they can not grow phenomenally like small companies.
But you can have senses of safety and steady returns with large cap companies.
So, if we summarize it, if you are young and unmarried, you can take more risk , so take a long horizon and invest in medium and small market cap companies.
And if you are middle aged or near retirement, go for large caps for steady returns with safety.
As per market caps, companies are categorized in large cap, mid cap and small cap.
Companies whose market cap is ranked in 1 to 100 of the listed companies are considered large caps, from 101 to 250 are considered mid caps and all companies beyond 251 rank as per market caps are considered small caps.
Some books on stock market
There is a lot of data and books available on the internet as well as offline about the stock market.
In fact, it is data overload.
From my personal experience I am saying, if you are a beginner and search about the stock market, you will get confused, what to read and what not.
There are some classic books about the stock market and investing that every stock market investor should read.
One advice from my side is, get inspired from books not from movies and webseries.
Later are just meant for entertainment, so just enjoy the show and do not get inspiration and knowledge from it about the stock market.
Here, I am going to recommend some books that I found very informative regarding the stock market.
If you are a beginner, first go through these books before investing.
- The intelligent investor by Benjamin graham
- One up on wall street by Peter lynch
- How to make money in stocks
- Stock investing for dummies
Best demat accounts in India
What we discussed about abundance of books, same applies here about demats as well.
There are so many options in demat.
Big brands like hdfc, kotak, icici offer demat accounts.
Their demat accounts are generally costlier and bundled with services like paid tips.
Then comes some big brokers like Sharekhan, Motilal Oswal, Angel broking. They too offer premium service bundled with demat accounts.
In the last decade, the concept of discount brokerage emerged in India as well, and with that concept zerodha is providing service.
I personally like Zerodha, as it is budget friendly and provides good quality service and simple user interface in app.
Zerodha has one of the lowest amc and charges nothing for delivery of stocks.
Recently Paytm money also started providing demat service and it is also very good in terms of price and user interface in its app.
Now we will cover some Frequently asked questions about the stock market.
How do I buy stock by myself ?
For buying stocks on your own, you need to complete KYC. After completing KYC , open a demat account with any brokerage house. After opening a demat account, add money to the demat account from your bank.
After completing these steps, if you are new start with famous large cap stocks.
After you learn fundamental research, start moving towards mid cap and small cap stocks.
What is the minimum amount to invest in stock market ?
You can start investing in the stock market with any amount, provided your investment amount is worth at least a single share.
Because shares are not issued in fraction, you must buy at least one share and in multiple of the same.
There is no minimum amount criteria to invest in a particular stock as long as you buy at least one stock.
How to learn to invest in share market online ?
One of the most trusted free sources of learning about the stock market online is investopedia.
It has learning categories for beginners, intermediate and expert level.
Another authentic source is NSE india. NSE India provides an online stock market certificate course for beginners.
This course is very basic and informative. If you are just thinking of starting out in the stock market, go for this course.
How Much one can earn in stock market in india ?
There is no limit of earning in the stock market. The more you stay invested, more your capital will get apprised over time.
What is important here is, how much patience you have and how disciplined you are in investing.
For investment in the stock market, you should have more than 3 to 5 years of horizon to see effective return.
This is my personal experience. Give at least 3 years to your investment and witness power of compounding.
How do I start investing in stock market with little money?
If you wish to invest small savings out of your monthly income, You can start investing in the stock market like SIP.
Pick good stocks that you wish to invest in and start buying that stock on a monthly basis out of your small savings.
Just remember, investing in the stock market is investing in the future.
So, allocate only a small amount from your income that you do not need in the present or in near future.
You do not need to be an aggressive investor, you need to be a disciplined investor.
Is stock market risky ?
Yes, Stock market is risky if you blindly invest without any study.
Stock market is a secondary market for trading stocks, not casinos.
So, if you are doing gambling then surely it is a risky game.
But if you have picked quality stocks and have a long term horizon, then you may witness plus or minus in a short time but ultimately you will create wealth after some years.
How much can you lose in the stock market ?
A share price can fall as low as zero.
So, the maximum amount you can lose in the stock market is the amount you invested.
You heard it right, at worst, your investment can become zero.
That usually happens to penny stocks and problematic stocks.
Chances of happening the same to large companies are low, but anything is possible in the stock market.
So invest wisely, stay invested and keep eye on your investment on a regular time period.
Can I lose all my money in stock market ?
Yes, you can lose all your money in the stock market.
If a company faces closing or insolvency, it will reflect in the price of its stock.
If a company loses all its value, the value of stock may become zero as well if there are no buyers to buy it.
To avoid this, always remember not to put all eggs in one basket. Diversify your investment in more stocks and other asset classes.
What are the 4 types of stocks ?
There are four types of stocks. 1. Growth stocks 2. Dividend stocks 3. New issues 4. Defensive stocks
Growth stocks are the stocks that offer capital appreciation, it shows appreciation in the stock price and do not focus on giving dividends. For example Dmart
Dividend stocks payback to investors whatever profit earned in the form of dividend. So, the price of stock will not see much growth but will give a good dividend. For example, Britannia, ONGC
New issues are stocks that are doing debut to the stock market, it is also called IPO
Defensive stocks are the stocks that perform comparatively better in economic slowdown.
Which is better mutual funds or stocks ?
Because of more diversification, Mutual funds are less risky compared to direct stock investment.
Mutual funds provide advantage of economies of scale , diversification and experienced fund managers.
Invest directly in the stock market after you understand the basics of the stock market and how to pick good companies of investment.