How to invest in share market in India?
Hi Investors. Today we are going to discuss one of the most basic topics for a beginner- How to invest in share market?
I have been planning to write this post for a number of days as there are many people who are willing to invest, however, do not know how to invest in share market.
Please note that this post might be a little longer as I am trying to cover all the basics that a beginner should know before entering the stock investment world. Make sure that you read the article till the end, cause it will be definitely worthwhile reading it.
For investing in Indian stock market, there are few pre-requisites that I would like to mention first. Here are the few things that you will need to invest in share market:
- Savings account
- Trading and demat account
- Internet connection
(Thanks to Reliance Jio, everyone has 4G internet connection now.. 😀 )
For opening a demat account, the following documents are required:
- PAN Card
- Aadhar card (for address proof)
- Passport size photos
- Cancelled cheque
You can have your savings account in any private/public Indian bank.
Where to open your trading and demat account?
This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 5).
Get your documents ready. If you do not have a PAN card, then apply as soon as possible (if you are 18 years old or above).
The basic advice that you need before starting investing:
When you are new to the stock market, you enter with lots of dreams and expectations. You might be planning to invest your savings and make lakhs in return.
Although there are hundreds of examples of people who had created huge wealth from the stock market, however, there are also thousands who didn’t.
Here are few cautionary points for people who are just entering the world of investing.
Pay down your debts first:
If you have any kind of debts like education loan, credit card dues, car loan debts etc, then pay them first. There is no point of wasting your energy to give all the returns you made from the market as interests of your debts. Pay down your debts before entering the market.
Invest only your additional/ surplus fund:
Stop right there if you are planning to invest your next semester tuition fee, next month flat rent, savings for your daughter’s marriage which is going to happen next year or any similar reasons.
Only invest the amount that won’t affect your daily life. In addition, investing in debts/loans is really a bad idea, especially when you are new and learning how to invest in share market.
Keep some cash in hand:
The cash in hand doesn’t just servers as your emergency fund. It also serves as your key to freedom. You can take big steps like changing your little flat, or quit your annoying job or simply shifting to a new city, only when you have cash in hand.
Do not get trapped by investing all your money and later losing your freedom. Do not sacrifice your personal freedom in the name of financial freedom.
Now that you have understood the pre-requisites and the basics, here are the 6 steps to learn how to invest in share market on your own. Do follow the step sequences for an easy approach to enter the stock market world.
How to invest in share market?
Step 1: Define your investment goals:
It’s important to start with defining your investment goals. Start with end goals in mind. Know what you want.
The time frame for different investment goals will be different. Your goal can be anything like buying a new house, new car, funding your higher education, marriage, retirement etc.
If you are investing for your retirement, then you have a bigger time frame compared to if you are investing for your higher education. When you know your goals, you can decide how much you want and for how long you have to remain invested.
Step 2: Create a plan/strategy
Now that you know your goals, you need to define your strategies. You might need to define whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan).
If you are planning for SIP, define how much you want to invest monthly.
Related post: SIP or Lump sum – Which one is better?
Step 3: Read some investing books.
There are a number of decent books on stock market investing that you can read to brush up the basics. Few good books that I will suggest the beginners should read are:
- The Intelligent Investor by Benjamin Graham
- One up on wall street by Peter Lynch
- Common stocks and uncommon profits by Philip Fisher
- The little book that beats the market by Joel Greenblatt
- How to avoid loss and earn consistently in stock market by Prasenjit Paul
Besides, there are a couple of more books that you can read to build good basics of the stock market. You can find the list of must-read books for Indian stock investors here.
Step 4: Choose your stock broker
Deciding an online broker is one of the biggest steps that you need to take. There are two types of stock brokers in India:
- Full-service brokers
- Discount brokers
• Full-Service Brokers (Traditional Brokers)
They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.
Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc
• Discount Brokers (Budget Brokers)
Discount brokers just provide the trading facility for their clients. They do not offer advisory and hence, suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives.
Few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, SAS online etc.
Read more here: Full service brokers vs discount brokers: Which one to choose?
I will highly recommend you to choose discount brokers (like Zerodha) as it will save you a lot of brokerage charges.
I initially started with ICICI direct (which is a full-service broker), but soon realize that it was too expensive when compared to discount brokers. It doesn’t make sense to pay extra brokerage charges even if you get the similar benefits.
Zerodha (discount broker) charges brokerage of 0.01% or Rs 20 (whichever is lower) per executed order on Intraday, irrespective of a number of shares or their prices. For delivery, there is zero brokerage charge in Zerodha.
This is way cheaper compared than ICICI direct (full-service broker) which asks a brokerage of 0.55% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 275 (for delivery trading).
Further, as this amount is charged on both sides of the transaction (buying & selling), hence you have to pay a total of Rs 550 for the complete transactions in ICICI direct (way too expensive than Zerodha).
In short, if you are planning to open a new trading account, I would recommend opening accounts in discount broker such as Zerodha so that you can save lots of brokerages.
Step 5: Select a platform to track your performance
You can simply use an excel sheet to track the stocks.
Make an excel sheet with three tables containing:
- The stocks that you are interested in and need to study/investigate,
- Those stocks that you have already studied and found decent,
- Miscellaneous stock- for the other stocks that you want to track.
This way, you can easily follow the stocks.
Further, there are a number of financial websites and mobile apps that you can use to keep track of the stocks.
Step 6: Have an exit plan
Its always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by booking loss.
If your investment goals are met, then you can exit the stocks happily. Further, if the stock has fallen under your risk appetite level, then again exit the stock. Also, keep in mind the time frame till which you want to remain investing before exiting.
It’s really important that you know how to take out your money.
There were the 6 steps that will help you learn how to invest in share market. Now, here are few other important points that every stock market beginner should know:
Additional points to take care of.
1. Start small:
Do not put all your money on the market in the beginning. Start small and test what you have learned. You can start even with an amount of Rs 500 or 1000. For the beginners, it’s more important to learn than to earn. You can invest in large amount once you have more confidence and experience.
2. Diversify your portfolio:
It’s really important that you diversify your portfolio. Do not invest all in just one stock. Buy stocks from companies in different industries.
For example, two stocks of Apollo Tyres and JK Tyres in your portfolio won’t be called as a diversified portfolio. Although the companies are different, however, both companies belong to the same industry. If there is a recession/crisis in tyre sector, then your entire portfolio might be in RED.
A diversified portfolio can be something like Apollo tyres and Hindustan Unilever stocks in your portfolio. Here, Apollo Tyres is from Tyre industry and Hindustan Unilever is from FMCG industry. Both the stocks are from different industry in this portfolio and hence is diversified.
Also read: How to create your Stock Portfolio?
3. Invest in blue chip stocks (for beginners):
These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.
For example- HDFC banks (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company) etc. Few other examples of blue chip stocks are Reliance Industries, Sun Pharma, State bank of India etc.
These companies have a stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest compared to other companies.
It’s recommendable for the beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.
4. Never invest in tips/advice:
This is the biggest reason why people lose money in stock market. They do not carry enough research on the stocks and blindly follow their friends/colleague’s tips and advice.
The stock market is very dynamic and its stock price and circumstances change every second. Maybe your friend has bought that stock when it was underpriced, however now it’s trading at a higher price range. Maybe, your friend has a different exit strategy than yours. There are a number of factors involved here, which may end up with you losing the money.
Avoid investing in tips/advice and do your own study.
5. Avoid blindly following the crowd:
I know a number of people who have lost money by blindly following the crowd. One of my colleague invested in a stock just because the stock has given double return to another of my college in 3 months. He ended up losing Rs 20,000 in the market just because of his blind investing.
Related post: 6 Reasons Why Most People Lose Money in Stock Market
6. Invest in what you know and understand:
Will you buy ABC company which produces Vinyl sulphone easter and dye intermediates even though you have zero knowledge of the chemical industry?
If you will, then it’s like giving some stranger 1 lakh rupee and expecting him to return the money with interests. If you are lending money to someone, you ask a number of questions like what he does, what is his salary, what is his background etc.
However, while investing Rs 1 lakh in a company which people do not understand, they forget this common logic.
7. Know what to expect from the market:
Do not set unrealistic expectations for the stock market. If you want to make your money double in 1 months, from the stock market, then you have set your expectations wrong.
Have a logical expectation form the market.
People are happy with 4% simple interest from the savings account, but a return of 20% in a year sounds underperformance for them.
8. Have discipline and follow your plan/strategy:
Do not get distracted if your portfolio starts performing too well or too bad in first few months of investing. Many people increase their investment amount just in few weeks if they see their stock doing too well, and ends up losing in long run.
Similarly, many people exit the market soon and are not able to get profits when their stocks start performing. Have discipline and follow your strategy.
9. Invest regularly and continuously increase your investment amount:
The stock investment gives the best returns when you invest for long term. Do not invest in lump sump at just one time and wait for next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity. Further, increase the investment amount as your savings increases.
10. Continue your education:
Keep learning and keep growing. The stock market is a dynamic place and changes continuously. You can only keep up with stock market if you also continue your education.
Besides, there are a number of more lessons which you will learn with time and experience.
Ready to start your journey to become a succesful stock market investor? If yes, then here’s an amazing course for newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS.
That’s all for this post on how to invest in share market. I hope this is helpful to the readers.
If you have any doubts, feel free to comment below.
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