How to invest in share market ? - Earnistic

 

One of the most popular ways to generate wealth in the modern world is to invest in the share market. You’ve heard about the stimulus of the ‘traditional rich story, starting with some horrific losses about share market investors. The beauty of this investment avenue is that it treats each investor differently based on its approach to investing. So, understanding how to invest in shares is the maximum of your success.

What is the share market?

Let’s understand shares before we talk about the share market......

What is a share?

Imagine an organization making a profit by running its regular business and looking for ways to expand. It has decided to launch a new type of product that requires huge factory installation and skilled workers - a huge investment.

The company does not have the necessary funds to create this setup. Thus, it seeks to raise money from a bank or financial institution or in any other way that does not require payment of interest on the amount raised.

One way to do this is to involve partners by asking them to contribute a certain amount to the company's capital.

An organization is legally allowed to do so by issuing shares. When an organization decides to raise capital, it issues shares to the public. The amount of shares you hold determines what percentage of your holding is held in the company.

So, if the price of a company is one million rupees and if you hold one lakh rupees shares, then you are a 10% shareholder of the company. You will be eligible to receive a portion of the profits received by the company. This is a very easy way to understand the share. Since a share is a document that certifies your ownership of an organization, you can sell it to someone for a price.

So, if you are a partner of ABC Limited, you can disclose your rights with the company to any third party.

Suppose you want to be a partner of HDFC Bank Ltd. The company gives shares if it wants to raise capital. How do you find existing shareholders in a company and at what price would you buy the shares?

To facilitate this, regulators around the world created a marketplace where investors could buy and sell shares of any company listed on the share exchange.

So, if you want to buy shares of HDFC Bank Limited, you can look at this marketplace and buy at the current market price.

The marketplace has a process with several intermediaries that ensures that the company is notified of changes in shareholders, the buyer accepts the shares, and the seller accepts the money. This is the share market.

When a company issues shares to the public for the first time, it sets the price of the shares and launches an initial public offering (IPO).

This is the primary share market where you buy shares directly from the company during the IPO. These are listed on a share exchange as soon as the company completes the issuance of shares through IPO. It is the secondary market where you can buy and sell shares to other investors.

Share market intermediaries

When you buy part of a company from another shareholder, a lot can go wrong. Thus, each country has a regulatory body that ensures that share transactions are smooth and free from fraud.

To help ensure maximum protection for all investors, including the following companies, the company has defined a process for share trading:

• Share Broker -SBI has ordered that all transactions on the share exchange must be done through a sharebroker registered with the exchange.
• Depositor and Depositor Participant - Tradition Traditionally, shares were allocated in the form of physical share certificates, this has now given way to electronic or digitized shares. Just as you need a bank account to keep a record of your digitized money, you also need a Demat account for your digitized shares. This account has been provided by the depository participant.

• Bank - You need money to buy your shares and a bank account to buy and sell. Thus, a bank is a necessary intermediary in the case of share transactions.
• Clearing Corporation - This agency ensures that all transactions are successfully cleared.

How to invest in the share market?

Now that you understand shares and the share market concept, we come to the next important question: how to invest in shares?

1. The need to invest in the share market

    Let’s look at what it takes to get your investment started first.

•  PAN Card - It is mandatory to have a PAN card for investing in shares.
•  Demat Account - This is an account that holds shares in the buyer's name. Most banks offer Demat account services. New age investment platforms offer hassle-free Demat account opening.
• Trading Account - You need a trading account with your sharebroker to start investing in the share market. Remember, sharebrokers, register with the share exchange. Although most good-quality shares are listed on two primary exchanges (BSE and NSE), some are only available on one of the two. Make sure you open a trading account with a broker registered with both BSE and NSE.
• Linked Bank Accounts - Since you are investing in shares, you will buy and sell them over time. Therefore, you need a bank account linked to your trading account to ensure that your account flows and flows meaninglessly during your transactions.

2. Document required

• PAN card
• Aadhaar card
• This includes a canceled check from your bank account with your name
• Proof of address (from the list of documents received by the bank/depository participant/broker)
• Proof of income
• Photograph

In place of these accounts, you will start your share market investment journey.

 Investment process

As described above, there are two markets that you can consider - primary and secondary. We will look at the process of investing in these two markets. Primary Market Investment (IPO)

1. Investing in the Primary Market (IPOs)

Investing in an IPO involves investing in the primary market. You will need a Demat account to hold the shares and trading in the share market. The number of shares allotted to you now will depend on the response of the IPO market. When companies accept all IPO applications, they allocate shares based on demand and availability of shares.

You can easily apply for IPO through your net banking account through a process called ASBA (application supported by blocked amount). In this process, if you apply for a share of Rs 1 lakh in an IPO, this amount will be blocked without sending it to the company in your banking account. Once the shares are allotted, the right amount is debited and the balance is declared. This procedure is mandatory for all IPO applications. Once the shares are allotted, they are listed on the share exchange within a week and you can start trading them.

2. Investment in the secondary market

All actions are here. When we say share market, we usually refer to the secondary market. This is the place for investors and traders to buy and sell shares. To invest in the secondary market you need a trading account, a Demat account, and a linked banking account. If you are thinking about how to invest in the share market online, the answer is simple:

• Open a Demat and trading an account with any linked banking account
• Log in to the trading account
• Choose the share you want to buy or sell
• Make sure you have funds in your account for purchases and shares in your Demat account before the sale
• Determine the price at which you want to sell/buy
• Wait for the seller/buyer respectively
• Complete the transaction by transferring shares/money and accept money/shares

The process is simple. However, successful investors are hardworking. Let’s take a look at some of the ideas that you need to understand and tips that you can use to invest in the secondary market.

Things to keep in mind before investing.

Now that you are clear about the basics, look at what other things you should consider before investing

1. Understand your investor profile

Every investor is unique. So, you must confirm the investment based on your investor profile. Three critical reasons can help identify your profile:

• Financial Goals - Set your financial goals. What are you trying to achieve? Retirement corpus? Are you financing your world travel? Planning a wedding? Thinking of buying a home? These goals will help you to be clear about how and in what shares to invest in.
• Risk Tolerance - How Risky Can Your Stomach Be? If you invest in shares of a powerful company like Tata, the price will not be too high or too high. It will be relatively stable. On the other hand, if you invest in a small company that looks promising, every small achievement raises the share price, and the failure results in a crash. You need to determine how much instability you can handle without panicking and making the wrong decision.
• Investment Horizons - Share investments give good returns over a period of 7-10 years (long term). Based on your financial goals, you set a time limit for investing in a particular share.

2. Research the company before investing

If you do not make a transaction, do not decide to invest based on share price alone. Share investment marathon - not a sprint. Therefore, you need to invest in a share that can withstand long journeys and also make good returns.

One of the best way to look at shares is to look at their finances. Without complicating matters, simply try to determine if the company is financially sound and can prevent any future financial turmoil. A strong company usually attracts positive investor perceptions and higher share prices.

3. Diversification

Since share investments carry market risk, it is important to minimize your equity portfolio's risk as much as possible. Diversification is another one of the best ways to reduce risk. The reason is here -

If you invest too much in banking shares and some policy changes or international events negatively affect the banking sector, a huge portion of your investment could be lost. Therefore, when investing ensures that you diversify across sectors and industries.

If you invest in shares of companies with primary offices in Mumbai and an event stops in Mumbai, your returns may be affected. So, diversify cities, states, and even countries to reduce this effect.

We all want to bet on dark horses. In the share market, shares of small-cap firms are the proverbial dark horse and share-defending champions of large-cap firms. Whichever one you choose, it is better to invest across all market caps.

4. Track your investments regularly

Although many investors believe in the concept of ‘investing and forgetting’, investors must keep an eye on their investments. A share market is a volatile place. By tracking your investments, you can identify opportunities to sell and balance your portfolio for maximum revenue. You can also reduce your losses by selling non-performing share before it hits the rock-down.

We hope this article has covered most of your questions about how to invest in the share market. This is one of the best ways to generate resources but requires patience, perseverance, and a strategic approach.