A beginner’s guide to investing in stock market

Stock markets have produced stellar gains for investors in the past few years. Many stocks have risen to record-high levels due to several factors that have given multiple returns to investors.

Apart from the attractive returns, participation in equity markets has increased over the years as the evolving financial technology and the wide range of trading apps have made such investments more convenient. While many have taken a plunge and put their money in stocks for better returns, a large section of people still stay away from equity markets due to the risk involved. Lack of adequate knowledge about how to start stock trading also keeps many potential investors away.

Beginners in stock investment must understand the basics of equity markets and stock trading. So here is a beginner’s guide to investing in the stock market, which will help the new investors in the equity segment to make substantial returns.

Investing in stock markets requires these simple steps:

• Knowledge about stock markets: Primary and secondary share markets
• Opening a Demat account
• Open Trading account
• Choose the stock
• Transfer money for investing in the stock market
• Buy stocks

Let’s understand these key factors behind the stock market investing guide for beginners in detail:

Knowledge about stock markets

Before knowing about how to invest in stocks, let’s understand about shares, stock markets and risks with stocks. Shares or equities are securities that give investors an ownership or shareholding in a public company. Stocks allow investors to own a part of a company.

These stocks or shares can be purchased at different stock exchanges such as the BSE and National Stock Exchange of India (NSE). The stock market refers to buying and selling of shares on the stock exchanges. There are two types of markets— primary and secondary markets.

Primary and secondary markets

In the Primary market, companies issue new shares or securities to investors through IPOs (initial public offerings) or follow-on public offers. In the Secondary market, an investor can purchase and sell stocks issued in the Primary market.

Risks with stocks

Investors must be aware of the risks associated with investing in stocks. As the prices of stocks change every day due to various factors, investment in stocks can lead to returns as well as losses depending on the movement in the share price of a company.

Broker needed for purchase sale of stocks

An investor needs a broker to purchase shares of a company as stock exchanges do not allow investors to buy shares directly from them. A stockbroker can be a person, a company or a trading app, which are registered member of a stock exchange. Investors should purchase shares through registered members or stock brokers only.

After selecting a broker, an investor needs to open an account, called a Demat account, with the broker for the purchase and sale of stocks.

Open a Demat account

Beginners in stock investment need to open a Demat account with a broker to buy and sell shares. Shares are stored in these accounts in electronic format and can be purchased or sold from these accounts.

Opening a dematerialised account is a very simple process. Opening these accounts requires documents like address proof, PAN and identity proofs.

Trading apps allow paperless accounts through an online KYC verification process. You should contact a broker to know these requirements.

Open a Trading account

An investor needs to open a trading account for housing funds that are needed to buy stocks. A trading account is a link between a Demat account and a bank account. An investor needs to link his or her bank account with Demat account through the trading account for smooth transactions.

Brokers open trading accounts and Demat accounts simultaneously. These days, brokers provide access to online platforms or trading apps which make it easier for beginner stock investment.

Trading apps and online platforms show share prices and easy processes to buy or sell those stocks at a particular price or trading price.

How much money you want to invest

Beginner stock investors must know how much money they want to invest in company shares. Investors should be clear about their stock investing goals. There are many investment strategies that beginners in stock investments can adopt for minimising risks in the share market.

Choose the stock

After assessing the money to be invested in stocks, an investor should select shares to be purchased. Before buying a stock, an investor should conduct research on the company’s performance, share price movement and market trends. Any decision without thorough research and adequate information can lead to losses in stock investment.

Transfer money for investing

An investor needs to transfer money from a bank account to a trading account for the purchase of the shares selected by him. Sufficient money should be in a trading account for smooth transactions.

Buy stocks

You can place a buy order for selected shares through the platform – online or trading app – provided by your broker. You need to select the quantity and the price at which you want to purchase a particular stock. Shares can be purchased at trading price also. These prices are available on trading apps and online platforms.

The transaction is executed if a seller matches the buy order. After the purchase these shares are stored in electronic format in the Demat account.

Stock market investment can potentially improve the financial portfolio of an investor. These can help meet the financial goals of investors. Beginners in stock market investing should do thorough research and gain enough knowledge before putting their money in equity markets. You can follow this beginner’s guide for investing in the stock market to build a financial plan. It’s advisable to seek professional help from a brokerage or a financial planner to make the best out of your equity investments.