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Learn How to Invest in the Stock Market

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Posted by : Sathish SS on | Jul 14,2020

The stock market has become a favorite place for investors of late. On one hand, many investors are aware of stock market investing, many are still there who need to learn how to invest in the stock marketas random investing might take a toll on them later. If invested judiciously, it can no doubt help you make a handsome amount but if invested in haste, you can lose your money too.  

Investing in stock market for beginners

If you are looking for a type of investment that could beat inflation and also provide good returns, the stock market is one of the best options you got. It’s obvious that one would want to know how to learn stock market investing before stepping in. In this article, we have illustrated some of the most common mistakes that a novice investor makes and steps to get well-versed with the nitty-gritty of the market. Below are the points that will make you start off your investing journey with ease. 

Demat Account

Well, first and foremost, to either trade or invest in India, you need to have a Demat account. It's an account that holds all the shares that you purchase in an electronic or dematerialized form.

Basically, a Demat account acts to your shares what a bank account acts to your money. A Demat account acts like a bank account to your stocks as it entails the certificates of your financial instruments like shares, bonds, government securities, mutual funds, and exchange-traded funds (ETFs). 

Depository

A depository holds shares, which belong to the investors, in electronic form. The investor needs to open an account with the depository, through a Depository Participant (Broker). The broker acts as an intermediary between the depository and the investor. There are two depositories in India, viz. National Securities Depository, and Central Depository Services. Banks such as HDFC Bank, ICICI Bank, SBI, and so on certain brokers act as DPs in both online (through apps and websites) and offline (physical) form. 

Never step into stock market in a haste

The most common mistake people make is to blindly jump into share market investing. Many times it so happens that while chatting with friends and colleagues, the discussion suddenly heads towards investing in the stock market, and also how the stock market can provide you huge money overnight. What it does is it ignites the misconception that the stock market is a cup of tea and anybody can make big money without proper knowledge. Next, what happens is you also decide to buy some stocks just for the sake of the experiment.

However, if you entered the market just to follow the trend, you should try reconsidering your thoughts. You should always start investing after giving it a proper thought and thorough research. Not to mention, deciding your investment objective is a must.

Determine your goals

Setting a specific investment goal according to the budget is of high importance. Novice investors should ask two questions to themselves in this step of the process:

1.Whether I have a certain investment goal?

2.Whether I have enough capital to invest and save simultaneously?

Before you get into any kind of investing, you first have to ensure that your financial situation is in a position to manage this new activity of yours so that accordingly you set your financial objective. Your financial baggage entails everything from your income to outstanding debt, to your household budget. Some of the points to be kept in mind while youlearn how to invest in stocks are:

Specific considerations include:

Employment – make sure that proper income so that you can begin investing.

Debt – Before investing, make sure that you clear all your outstanding debt so that there is no impediment in your investing journey

Your household budget – you should have some room left in your budget even after wrapping up all the household expenses so that you can direct it into your investment ventures.

The amount you need to buy an individual solely depends on the price of the - whether it is expensive or cheap. Share price can range from a few hundred to as good as lakhs; so the decision is up to you, how you want to go with it.

One step at a time: Learn basics first

Before starting off with your investment journey, take some time to learn the stock market basics and the shares constituting the market. Try to find your area of interest and decide accordingly which sector do you want to invest in. Factors like individual securities which you are investing in and their relationship with the respective industry and broader economy. Learn about what is NIFTY/Sensex/Index, the bull market and bear market, why stock prices fluctuate. You can learn most of these terms for free using a simple google search or by watching videos and tutorials available on youtube. Some key areas of the market which you should be familiar with before entering the market are:

  • Delve deeper into financial parameters and definitions such as PE ratio (Price-earnings ratio), EPS (Earnings per share), ROE (Return on equity), Market Cap and so on

  • Learn about renowned methods of Stock Selection and Timing, such as fundamental and technical analysis

  • Gain some important understanding about the market and its relationship with the economy such as the relationship of the market with inflation, GDP, fiscal deficit, crude prices, rupee’s valuation against the dollar. It is imperative to learn how to invest in stocks; people lose money in the markets because they simply jump into the market without having a basic understanding of the economic and investment market cycles. 

Diversify, but don't get into too much diversification 

Never invest all the money in a single stock. Rather, try creating a well-diversified portfolio of stocks that can help you reduce the risk and save you from losing money if a few stocks do not perform up to the expectation. Also, at the same time, avoid over-diversification, as this can increase the number of stocks up to a certain limit do help in diversifying the risk proportionately, but beyond a certain number of stocks, your investment can’t get the proper growth. 

On a closing note

The stock market is not something that can be entered without going through the prerequisites of it. If you have a question in your mind like how to learn the share market, we hope this article helps you to some extent and makes your investing journey easier.

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