Know about investment in share market for beginners

If you want to invest in the stock market but are unsure of the initial steps, you have come to the correct spot. Here’s a step-by-step guide on how to invest in the share market for beginners to guarantee you’re doing it correctly.

What is the Share Market?

The stock exchange is where you may purchase and sell stocks. A share is a unit of ownership in the firm you bought it. For example, if you bought ten shares of any firm for Rs. 200 each, you would become a shareholder of that firm.  It enables you to sell the company’s shares whenever you desire. Investing in stocks helps you realize your aspirations, such as furthering your education, purchasing a car, or constructing a home. The rate of return will be great if you start investing at an early age and continue to invest for an extended period. You can arrange your investing strategy based on the time frame you require funds.

By purchasing a share, you are putting money into the firm. As the firm expands, so will the value of your stake. You may make money by selling your shares on the market. A share’s price is affected by a variety of variables. The price may rise and fall. Long-term investment will cancel out the price drop.

Why does a corporation offer its stock to the general public? A corporation needs capital or money for expansion, development, and so on; thus, it raises funds from the public. The procedure through which a corporation offers shares is known as an Initial Public Offering (IPO). We’ll learn more about IPOs in the Primary Market section.

How to Invest in the Share Market?

Determining Your Investment Strategy

It is the first thing to consider for investment in India’s share market for beginners. Some investors like to buy specific companies, while others adopt a passive strategy. The good news is that regardless of which of these assertions you agree with, you are an excellent prospect for becoming a stock market investor. 

Determining the Amount of Money, You Want to Put into Stocks

The stock market is not a good place to put the money you could need in the next five years. While the stock market will most likely grow in the long run, there is just too much unpredictability in stock prices in the near term; in fact, a 20% decrease in any given year is not uncommon. During the COVID-19 epidemic in 2020, the market dropped by more than 40%. It rebounded to an all-time high within a few months. Thus, it is essential to be clear about the amount of money for the investment in the share market for beginners. 

Allocation of Assets

Let’s speak about what you can do with your investable money, which is the money you won’t need in the next five years. It is a concept known as asset allocation, and many variables influence it. Your age is as important as your risk tolerance and investing goals.

Let us begin with your age. The primary assumption is that equities become a less attractive location to invest your money as you get older. If you’re young, you have decades to ride out market ups and downs, but this isn’t the case if you’re retired and rely on investment income.

Create an Investing Account

There is a need for a brokerage account for the investment in the share market for beginners, which is a form of specialized account. Companies such as IIFL, Kotak Securities, Zerodha, Upstox, Angel Broking, and others provide these accounts. In most circumstances, opening a brokerage account is a simple process that takes only a few minutes. You may quickly fund your brokerage account with an EFT transfer, a cheque, or a wire transfer.

Opening a brokerage account is pretty simple, but there are a few things to consider before settling on a broker for the investment in the share market for beginners in India:

Compare Prices and Features

Because most online stock brokers have abolished trading fees, most (but not all) are on a level playing field regarding expenses.

However, there are numerous significant variances. Some brokers, for example, provide consumers with a variety of teaching tools, access to investment research, and other services that are especially beneficial to beginning investors. Moreover, some have existing branch networks, which might be helpful if you want face-to-face investing advice.

The user-friendliness and functionality of the broker’s trading interface are other essential considerations. Many will allow you to try out a demo version before committing any money, which you can opt for.

Select Your Stocks

If you’re looking for some great beginner-friendly investment alternatives, here are five great stocks to get you started.

• Diversify your investment portfolio.
• Only invest in firms that you understand.
• Avoid high-volatility stocks until you’ve mastered investing.
• Avoid penny stocks at all costs.
• Understand the fundamental measures and ideas for analyzing equities.

It’s a good idea to understand the concept of diversity, which means that your portfolio should include several various sorts of firms. However, you can stick to industries you know. Suppose it turns out that you’re strong at (or comfortable with) appraising a particular sort of company. In that case, there’s nothing wrong with one area accounting for a sizable portion of your portfolio.

Buying showy high-growth companies may appear to be a terrific method to gain money (and it certainly can be), but you can wait until you’re a bit more experienced before doing so. Building your portfolio’s “foundation” with stable, well-established companies is better.

Continue to Invest

Here’s one of the most critical investment secrets, courtesy of the Oracle of Omaha himself, Warren Buffett. You don’t have to do anything remarkable to receive extraordinary results. (Note: Warren Buffett is not just the most successful investor over a long time but also one of the top sources of financial advice.)

The surest strategy to earn money in the stock market is to acquire shares in excellent companies at affordable prices and keep them for as long as the companies are wonderful (or until you need the money). You will suffer some volatility along the road, but you will earn fantastic investment returns over time if you do this.

How the Stock Market Works

When a person buys a public firm’s stock, he buys a tiny portion of that company. The basic idea behind how the stock market works is straightforward to understand. Purchasers and sellers can negotiate prices and make trades on the stock market. 

The stock market operates through exchanges, such as the Bombay Stock  Exchange (BSE) and the India International Exchange (INX). You can see the list of a company’s stock on an exchange through a process known as Initial Public Offering, or IPO. Investors buy those shares, allowing the company to raise funds to expand its marketing. Investors can then purchase and sell these stocks among themselves while the exchange monitors each listed stock’s supply and demand. 

This supply and demand help control each security’s price or the levels at which stock market investors and traders are ready to purchase and sell. 

Purchasers offer a “bid,” or the most they’re willing to pay, which is usually less than the amount sellers “ask” for in exchange. The bid amount and ask amount difference are the bid-ask spread. A trade can only occur if a buyer raises his price or a seller lowers his. 

All of this may appear complicated, but computer algorithms handle the majority of calculations related to price-setting. If you purchase a stock, all the three parts, i.e., bid, ask, and the bid-ask spread, will be available on the broker’s website, but in many cases, the difference will be very little, which will be of almost no concern to both novice and long term investors. 

What Does it Cost to Invest in the Market?

Here are the descriptions of costs involved in making the investment in the share market for beginners. 

Brokerage

The fee imposed by the stockbroker for transactions conducted by the investor depends on the contract’s value or a fixed rate agreed upon between the parties.

Tax on Securities Transactions

It is a mandatory charge calculated as a percentage. The STT charge is 0.1 percent of the transaction amount for delivery-based equity share trades.

GST and Stamp Duty

The state government imposes stamp duty since the transaction includes the security transfer between two parties. GST (both central and state GST) acts as a percentage of the transaction’s brokerage fee. Currently, the CGST rate is 9%, and the SGST rate is 9%.

Transaction Fees

The stock exchange charges transaction fees for buying and selling shares. SEBI assesses a turnover fee of 0.0002% of the transaction value.

DP

The depository participant (NSDL/CDSL) decides these fees for the safekeeping of the investor’s assets.

Gains in the Capital

Tax doesn’t work on the profit made on the sale of shares, depending on the holding term. Gain on sale of less than a year of holding shares is subject to STCG tax, whereas profit on the sale of more than a year of holding shares is subject to LTCG tax which is more than Rs 1 lakh.

What Can You Invest in the Stock Market?

Buying showy high-growth companies may appear to be a terrific method to gain money (and it certainly can be), but I’d advise you to wait until you’re more experienced. It’s better to build the foundation of your portfolio with stable, well-established companies.

If you wish to invest in individual stocks, you need to be familiar with fundamental evaluation methods. Our value investing primer is a terrific place to start. There, we can assist you in locating stocks with attractive valuations.

Look for independent, quality stock advice, begin purchasing in modest increments, and track your portfolio’s success (it’s straightforward on your trading app). Remember that not every stock will rise in value, and take a portfolio strategy. It’s also crucial to remember to sell and profit along the road.

How Should You Decide What to Buy?

Always check a few things before deciding which share you want to buy.

• Check if the company has good fundamentals like Earnings Per Share (EPS)
• Price to Earnings Ratio (PER), Price to Book Ratio (PBV), Debt to Equity Ratio, Return on Equity (ROE), Price to Sales Ratio (P/S), Current Ratio, Dividend, etc.
• Make sure you understand the company’s services and the products offered. 
• Think if people would use the services and products after years too. 
• Make sure that the company has a low-cost, durable competitive advantage.
• Try to get an idea about the difference between the company and its competitors. 
• Check if the company has significant debts. 
• Get an idea about the efficiency and qualification of the company’s management.

Conclusion

This article about how to invest in the share market for beginners in India makes you understand the stock market provides investors with substantial profits, particularly long term. Making money in the stock market, on the other hand, might be difficult for newcomers who have little to no knowledge of how the market operates. While there is no sure-fire formula for success, some market experience can assist you in determining the best investing plan. 

Keep in mind that stock market investing needs patience, dedication, and a systematic approach. Also, keep in mind specific simple stock market ideas that, if followed carefully, may help you earn significant results. They may assist you in making sound financial selections and avoiding losses. I hope this whole article is helpful on how to invest in the share market for beginners in India.