How to Invest in Share Market?

Investment in shares is increasingly becoming a popular investment option, especially for young investors looking to build a long-term investment portfolio. However, there is still a sizeable chunk of potential investors struggling with basic questions like how to invest in share market. If you too among this lot and wondering where to start, then here are the basics that you need to know on how to invest in the share market.

What is Stock Market?

A share market is the platform for buying and selling shares of publicly traded companies. A stock market, often used interchangeably with a share market, is more like a broader term used as a platform for investors to buy and sell not only shares but also their related derivative products like futures and options. SEBI (Securities Exchange Board of India) regulates stock markets in India. NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are the dominant stock exchanges in India. 

Types of Share Markets

The share market is divided into two types: the primary market and the secondary market.

In the primary share market, companies issue their shares for the first time to the general public to raise capital for their ventures through an Initial Public Offering (IPO). This allows them to generate funds from public investors. The price at which the shares are offered is predetermined by the company and its underwriters. 

Conversely, the secondary market is a platform for investors and traders to buy and sell shares after the company already issued them through the IPO. These transactions occur between investors at market prices or prices agreed upon by the parties involved. 

Difference Between Short-term and Long-term Investment

One of the primary factors influencing investment in the share market is the investment horizon. Investments can be classified as short-term or long-term based on their holding period and the investment goal for which they are made. 

The differences between short-term and long-term investments are tabled below.

How to Invest in the Stock Market for Beginners?

The primary requirement to invest in stock markets is to open a demat account with a reputable broker after considering factors like brokerage fees, ease of access to the trading platform, and security, along with ancillary features provided by the broker like stock analysis, trading indicators and chart patterns, etc. 

At FYERS, you can open a Demat account in 4 simple steps

1. Sign up using your mobile number

2. Verify your identity - Enter PAN and verifying Aadhar with Digilocker

3. Link Bank - Connect your bank with IFSC or UPI

4. Submit Selfie & Signature -  Provide your selfie and signature to get Demat acct details on your mobile number.

Here are the steps for investors to start investing in the share market- 

• Using your login details, you can sign in to your Demat account through a mobile app or web platform.

• Select stocks for investment after thorough research and analysis, ensuring they align with individual parameters like risk tolerance, return perception, and investment goals. 

• Mention the quantity or the lot to be purchased and ensure sufficient funds are in the bank accounts to execute investments and trades easily.

• Once the order is executed, the amount will be debited from the bank account, and the shares will be credited to the Demat account.

Factors To Consider Before Making Stock Market Investment

Now that we've discussed how to invest in stocks, let's discuss the important factors to consider before making a stock market investment.

Conduct thorough market research and analysis: Before investing, understand market dynamics, trends, sentiment, potential stocks, and economic indicators for informed decisions.

Determine financial goals and investment horizon: To select appropriate stocks, define financial goals and investment duration.

Invest according to your risk tolerance: Choose stable blue-chip stocks for low-risk profiles and riskier stocks for higher risk tolerance. Match your risk profile to suitable stocks.

Expect realistic returns: The market can be volatile, and high returns quickly are unrealistic. Long-term investments generally yield better returns.

Invest only with surplus funds: Use only surplus funds, not money needed for daily expenses or emergencies. Maintain an emergency fund for financial stability.

Diversify the investment portfolio: Diversify across sectors, industries, and asset classes to reduce risk and increase potential returns. Avoid over-diversification.

Monitor the investment portfolio: Regularly review your portfolio to ensure alignment with goals and market conditions. Periodic assessments help make informed decisions.

Conclusion

Investing in stocks is not a gamble, as it is often perceived, but a strategic investment option requiring careful analysis. Investors need thorough planning and consider several important factors to have an informed mindset and achieve financial goals while effectively managing risks. By understanding the basics of investing in stocks, investors can simplify and excel in this journey.