How to Invest

 

   INVESTING AND ITS PROCESSES                        

              

Investing is a way of achieving your financial goals, like buying a horse, funding your child’s education, being financially stable post-retirement, and many more. It is allocating your money towards an asset with the hope that it’ll make your future better financially. There are various investment options available in the market. Each investment comes with its own goal, risk, and returns. Amongst several investment options in India, stocks are a popular option. In this article, learn about stocks, types, how to invest in the stock markets pros, cons, and more. 

What are stocks? 

In simple terms, stocks are the share of ownership in a company. These are also known as ‘equities’. Based on the entire company’s value, the price of each share is decided. So when you buy shares of a company, you own a small portion of that public corporation. 

For example, Rahul wants to start a company and needs an investment of Rs. 10 lahks. But he has only Rs. 4 lahks. So he asks 2 of his friends to invest in the company. He gives them 30% of the company’s ownership in return. After 5 yrs, the company is performing well and is valued at Rs. 50 lakh, the value of the investment of Rahul and his friends increased by 5 times.      

Therefore, when the company’s value grows, your investment also grows. But you can’t buy stocks in any company you like. For an outsider to purchase shares in a company, the company must be listed publicly in the stock market. 

What is the stock market?

The stock market is a platform where shares of companies trade. The buyers and sellers of different companies’ shares come together and trade in the share market. The stock market provides the details of the liquidity that an investor requires after purchasing a share of a particular company.

In India, there are two national-level stock exchanges: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). When private companies list themselves on the stock exchanges, they become public companies where anyone can buy or sell company shares.  

How to invest in the stock market?

Once you understand the working, investing in the stock market is simple. It involves a few steps as follows. 

1. Select an intermediary (broker)

In the stock exchanges, direct buying or selling shares by individuals is not allowed. Only an authorised company or individual by the SEBI is permitted. These companies or brokers act as intermediaries and can trade shares in a stock exchange on your behalf. For the intermediary service provided, the broker charges a fee from you. 

2. Open a Demat account

Demat account is used to hold shares and securities in electronic format. Earlier shares were issued in paper format, but now everything is digitalised, and shares are issued in electronic form. All the electronic securities and shares that individual purchases are kept in electronic form under the Demat account.

Documents need to open a Demat account are, 

·        Photo ID proof like PAN card, Aadhaar card, driving licence or voter ID card.

·        Address proofs like driving licence, passport, utility bills, etc. 

·        Proof of the bank account like a bank passbook or account statement 

Steps to open a Demat account online

·        Visit your broker’s website and open a Demat account for free. 

·        Fill out the Demat application form. 

·        Scan and submit the required documents.

·        Provide your bank account details to transact. 

·        Once your account is verified the Demat account will be opened.

3. Buy a share

·        Once the Demat account is opened, you are all set to start buying or selling shares on the stock market. Shares can be bought by giving instructions to the brokers. If you want to buy a share, you must provide the broker with price and quantity instructions. Once the price in the market matches the provided price, then the trade is executed. If you are buying a share and want to take delivery, it will take a few days to reflect the shares in your Demat account. It is called the settlement period.

·        You can directly buy a share on the online trading platform. Current BID/ASK prices reflect each share in the trading platform. So you can give buying instructions directly on the online trading platform provided by the broker.