10 points on How to invest in stock market in India

Every day we see a lot of buzz about the stock market on TV and in 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? 

The 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, or 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 the stock market.

But, have you wondered, why is the stock market so volatile in the short run and builds wealth over the long term? 

The answer is very simple and in front of your eyes.

And the answer is, the stock market represents our country’s economy.

Our country has grown 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 ago and now, you can see a clear difference in how much India has developed.

Just like our country has to develop more in the future, the stock market has to follow that path.

In 2010, the 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 to answer all basic questions about the stock market.

First of all,

How does the stock market work

To understand how the stock market works, first, you need to know about the stock exchange.

The stock exchange is a place where companies interested in raising money get listed.

After getting listed, every day ( working day) their stock gets traded in the exchange.

Buyers and sellers meet on the stock exchange through registered brokers.

The price movement of the shares is determined by the demand and supply of the particular share of the country.

Demand and supply are driven by the fundamentals of the company, political factors, and internal and external economic factors.

In India, there are 2 major stock exchanges, 

1. National stock exchange
2. 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 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 a proper study of stock market dynamics.

Stock trading is usually performed by professional brokers as they are well-researched and experienced in it.

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 the 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 a 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 from broker to broker.

Apart from AMC, you have to pay fixed charges while you buy shares

Some platforms like Zerodha charge 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, both the demat account and bank account must have the same name.

 

What is a 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 the total outstanding shares of a company multiplied by the 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.

The bigger the market cap of the company, the 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 in than small companies.

However 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 a chance 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 a sense of safety and steady returns with large-cap companies.

So, if we summarize it, if you are young and unmarried, you can take more risks, 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 into large-cap, mid-cap, and small-cap.

Companies whose market cap is ranked from 1 to 100 of the listed companies are considered large caps, from 101 to 250 are considered mid-caps and all companies beyond 251 ranked as market caps are considered small caps.

 

Some books on the stock market

There is a lot of data and books available on the internet as well as offline about the stock market.

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, about 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 piece of advice from my side is, to get inspired by books, not from movies and web series.

 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.

1. The intelligent investor by Benjamin graham
2. One up on wall street by Peter lynch 
3. How to make money in stocks
4. Stock investing for dummies

 

Best demat accounts in India

 

What we discussed about the abundance of books, same applies here about demats as well.

There are so many options in demat.

Big brands like HDFC, Kotak, and 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, and 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 a simple user interface in-app.

 Zerodha has one of the lowest amc and charges nothing for the 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.