How to Invest in Share Market in India : 2024 Guide

Reasons Why Investing in Stocks is Better Than Other Investments

  1. Higher Returns in the Long Run

Primarily, investing in stocks offers superior returns over the long term. The stock market has a proven track record of outperforming other investments like fixed deposits, gold, or real estate.

  1. Liquidity Advantage

Stocks provide greater liquidity compared to other assets, such as real estate. Investors can easily convert their stock investments into cash, and the proceeds are typically available in their bank accounts the very next day.

  1. Low Entry Barrier

Investing in the stock market can begin with as little as 500 Rupees. Stocks of public sector enterprises and quality private companies are available at costs below Rs. 100, making it accessible for a broad range of investors.

How Does the Share Market Work

The share market operates based on the fundamental principle of supply and demand for stocks. Stock prices rise when there is high demand, indicating a widespread interest in owning shares of strong companies. Conversely, prices decline in response to negative news about a company.

A stock represents ownership in a listed company on the stock exchange. When an individual purchases a stock, they acquire a small percentage of ownership in that company. This ownership entails voting rights on company matters and entitlement to dividends when declared.

In India, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) serve as the primary stock exchanges. These platforms facilitate the trading of shares by providing a marketplace for buyers and sellers to engage in transactions.

Several factors influence the supply and demand dynamics of a stock, including:

– Company earnings
– Sector performance
– Expectations regarding interest rates
– Government regulations
– Economic conditions in the country
– Global financial events

Investors need to consider these factors to make informed decisions while participating in the stock market.

5 Key Factors to Consider When Investing in the Share Market

  1. Your Investment Goals

Clearly define your investment goals based on your time horizon and risk tolerance. Short-term goals, like purchasing an SUV in 1-3 years, require a different strategy than long-term goals, such as creating wealth for children’s education over 10+ years.

Example

– Investment Goal: Retirement
– Time Horizon: 10+ years
– Risk: Low-risk
– Strategy: Long-Term Investment

– Investment Goal: Luxury Car
– Time Horizon: 3 years
– Risk: Higher risk
– Strategy: Short-Term Investment

  1. Risk Appetite

Assess your risk appetite, determining how much capital you are willing to lose in case of adverse market conditions. Factors such as age and financial responsibilities play a role in defining your risk tolerance.

Example

– In youth, there might be a higher risk appetite, allowing for a more aggressive investment approach.
– As responsibilities increase with age, risk appetite may decrease, emphasizing a more conservative investment strategy.

  1. Research

Thorough research is crucial for understanding a company’s fundamentals, management, and industry dynamics. Informed decisions are made by acquiring knowledge about financials, industry trends, and other relevant factors.

  1. Diversification

Mitigate risk by diversifying your investment portfolio. Spread investments across different sectors and companies to reduce the impact of losses. Consider allocating a portion to other assets like mutual funds and ETFs for additional diversification.

Example

– Allocate 10-15% of the portfolio to assets like mutual funds and ETFs.
– The remaining 85-90% can be invested in individual stocks across various sectors and companies.

  1. Patience

Stock markets are inherently volatile, with prices fluctuating in the short term. Practice patience and avoid panic during market downturns. Long-term investments have the potential to recover and trend upward despite short-term fluctuations.

Example

– NTPC stock, despite short-term fluctuations, showed an upward trend from Rs. 80 to Rs. 170 over three years.

Successful investing involves aligning these factors with your financial objectives, ensuring a well-balanced and informed approach to the share market.

6 Steps to Kickstart Your Share Market Investment Journey for Beginners

Step 1 – Select a Reliable Stock Broker

Choose a discount broker that offers fixed brokerage per trade. Popular options in India include Zerodha, Upstox, 5Paisa, and Angel Broking. Consider factors like brokerage fees, ease of use, trading platform speed, and customer support.

Example

– Zerodha provides an easy-to-use Kite trading platform with a flat Rs. 20 per trade brokerage and zero brokerage on stock delivery for long-term investments.

Step 2 – Open a Demat and Trading Account

Prepare necessary documents like PAN card, Aadhar, canceled cheque/bank statement, scanned signature, and income proof (for F&O trading). Use these documents to open an online demat and trading account.

Step 3 – Fund Your Trading Account

Utilize UPI and internet banking to transfer money from your savings account to your trading account. Begin with a nominal investment of around Rs. 1000 to familiarize yourself with stock trading. As you gain confidence, consider increasing your investment for building a portfolio.

Step 4 – Execute Your First Trade

Choose a stock from the Nifty 50 list, preferably from a company whose products or services you are familiar with or trust. Create a watchlist using the broker’s platform, like Zerodha Kite. For instance, add HDFC Bank shares to your watchlist.

Example

– Maruti car
– Asian paints
– Britannia biscuits
– HDFC Bank savings account
– Sun Pharma medicines
– Indian Oil petrol

Use the search option and click the “+” icon to add these stocks to your watchlist. Place your first buy order by clicking the blue “B” buy button on Zerodha Kite and fill in the required details. Choose Intraday MIS for same-day selling or Longterm CNC for a long-term investment.

Step 5 – Monitor Your Investments

Keep track of your portfolio’s performance, market trends, and any news affecting your chosen stocks. Regularly review and adjust your investment strategy based on evolving market conditions.

Step 6 – Continue Learning and Evolving

Stock market dynamics change, and continuous learning is essential. Stay informed about market trends, financial news, and investment strategies. Join forums, read books, and consider advanced courses to enhance your understanding.

Embark on your share market journey with these steps, gradually increasing your knowledge and portfolio as you gain experience.

Starting with a Small Investment of Rs. 10,000 and Diversifying Your Portfolio as Your Investment Grows to Rs. 5 Lacs

As a beginner, it’s prudent to begin with a modest investment and gradually expand your portfolio as you gain confidence and knowledge. With just Rs. 10,000, you can initiate your investment journey and diversify your holdings to manage risk effectively.

Building a Diversified Portfolio

Start by selecting blue-chip stocks, which are shares of well-established companies known for their stable earnings and dividends. Here’s an example portfolio with an investment of Rs. 10,000:

– Adani Enterprises: 1 share at Rs. 1900
– Aurobindo Pharma: 1 share at Rs. 477
– HCL Technologies: 3 shares at Rs. 1108 each
– ICICI Bank: 1 share at Rs. 831
– ITC: 10 shares at Rs. 385 each

Diversification across multiple sectors helps spread the risk, reducing the impact of losses from any single stock.

Expanding Your Portfolio

As your investment grows to Rs. 5 lacs, consider diversifying further by investing in

– Mid-cap and small-cap stocks after thorough research
– Mutual funds and ETFs for indirect exposure to a basket of stocks, bonds, and government securities

Investing in Stocks for Beginners with Limited Funds

If you have limited funds, mutual funds and ETFs offer accessible options

– Mutual fund SIPs allow investments for as low as Rs. 100 per month
– ETFs listed on NSE have price ranges from Rs. 18 to Rs. 2000, providing flexibility in investment amounts
– Mutual funds are professionally managed investment portfolios, relieving you from the need for individual stock research. However, management fees ranging from 0.5% to 2% apply.

Investing in Tata Shares

Tata Group comprises 17 listed companies on Indian stock exchanges. To invest in Tata shares

– Transfer funds to your trading account
– Search for the desired Tata stock
– Place your buy order

Factors to Consider Before Investing in Tata Stocks

– Economic conditions: Monitor economic growth or slowdown, which impacts Tata’s profitability and stock prices
– Industry trends: Understand industry dynamics affecting Tata’s performance
– Competition: Assess changes in the competitive landscape and its impact on Tata’s market position
– Management changes: Stay informed about top management changes and their influence on Tata’s strategic direction
– Government policies: Consider government regulations affecting Tata’s operations, particularly in regulated sectors like automobiles and steel.

Leave a Comment