More and more people have build up the habit of investing in various investment vehicles over the last few decades. It helps in saving the extra money people are left with after paying all the bills and thus, creating financial support for the future or for the time of need. One of the most popular investment platforms is the stock market, where people invest in shares and other securities. Investing in shares can help you earn lucrative returns on capital investment. However, share investment is not backed by the government and is susceptible to market risk. Thus, it is crucial for investors to understand thoroughly the concept of shares and how the share market works before opting for investment in shares.
What are shares?
Shares are units of ownership in a company’s capital that an investor holds as a financial asset. The investor gets returns in the form of dividends from the owned shares when the company earns profit. The returns, however, are not guaranteed by the company and you might lose your capital investment if the company runs at a loss. There are two common types of shares- preference shares and equity shares. Holders of preference shares get some benefits such as preference while distributing the dividends by a company, preference for repayment if the company winds up, etc. Equity shares, on the other hand, are the typical type of shares that are traded actively in the stock market. The shareholders of such shares get dividends after preference shareholders and they have voting rights in the company’s meetings. As investments in shares don''''t guarantee returns, it is a risk-bearing investment. That is why it is advisable to invest through a reliable broker who offers the lowest brokerage and trading account and has expert knowledge of the stock market as then you will have better chances of earning good returns from investment.
Step-by-step process for investing in shares
Before investing your hard-earned money in shares, it is important to know how to invest in the stock market and what are the procedures required for it. Below goes the step-by-step procedure for investing in shares.
Know your investment goals
You should start with analysing and fixing your financial goals. This will help you in deciding how much you should invest through your demat trading account and for how long you would need to stay invested to achieve your goal. If you consider investing in shares as an alternative source of income, you can keep investing for a long tenure and keep earning from your investments. However, if you want to achieve some short-term goal such as financing your higher education, buying a house, financing your child’s marriage, etc., then invest accordingly, so that you can achieve that goal within the desired time.
Read good share market investing books
To learn about anything in depth, books are the best source. You can gather some basic knowledge about shares and how to invest in them strategically by reading some investing books. There are several reliable books on stock trading and investments. You may also gather information about share market investments from some reputed trading journals. If you don’t prefer reading books, there are even video tutorials on stock investment available on YouTube. By going through such books and other resources, you can learn about how the market works and feel confident enough to invest in shares being well-informed.
Choose an ideal stock broker
One of the most important steps before opening demat account for investing in shares is choosing the right broker. There are multiple brokerage firms and institutions that provide brokerage services. You can choose a discount broker who will just take orders and trade in shares on your behalf. However, if you want more thorough guidance while investing, you should go for a full-service broker. He will provide you with advisory and management support, along with executing your orders. Besides, you should also consider some other aspects while choosing the ideal stock broker, such as brokerage fee, market research and recommendations, trading platform, trading margin, etc. The most important consideration, however, should be that you select a broker who is reliable enough to let him handle your invested money.
Apply for a demat and trading account
Once you have selected your stockbroker, you will need to open a demat and trading account through your broker. Through the trading account, you will buy and sell shares in the market while through your demat account you can track the shares you own. Apply for opening a demat and trading account online through your broker’s website. You will need to fill an application form and also submit some necessary documents to the broker for opening the account. Some commonly required documents are PAN card, address proof, bank statement, etc. You will also need to pay the required fees and charges, which include account opening fee, Annual Maintenance Charge(AMC), brokerage fee, etc. Comparing these fees charged by different brokerage firms, you should go for the lowest brokerage and trading account. Once your demat account gets opened, you will receive a unique demat account number.
Research about the market
After opening demat account, you can start investing in shares. But for that, you need to first do some market research and learn about the share prices of different companies. It is good to invest in a large-cap company as a beginner. After you gain some expertise in share investments, then you can invest in mid-cap and small-cap companies as well. You can start researching the popular companies that you know or have heard of. Check the price of their shares, learn how well the company is running presently and then decide which company’s shares you want to purchase, aiming to earn higher returns.
Create a suitable strategy
On doing a good amount of research, you will be in a position to understand where to invest your fund. However, you also need to understand how you should invest them. Thus, chalk a strategy that aligns with your financial goals. Remember that if you are going for intraday trading, it''''s higher on risk and earns a higher return. If you plan for investments only, you might earn less, but it''''s low on risk comparatively. You need to decide whether investing a lump sum will be good for achieving your goals or you would prefer going for a systematic investment plan (SIP).
Invest and keep track of shares
Finally, you would need to trust your research and start investing through your demat trading account in shares that you believe are going to do better in the near future. The trick is to track the shares price every now and then and sell your shares when it has reached a handsome amount. If you keep on holding onto your shares, its price might fall drastically and you may need to sell at a price lower than at what you bought. On the other hand, it is ideal to buy a share at a time when its price is decently low. So, it''''s important to keep track of the price of shares you own or the ones you want to buy and invest accordingly.
Now you know how exactly you need to proceed for investing in shares and how to manage those investments. It is important that you realise that even if you are investing through a broker in intraday trading, position trading, etc. you should have a clear knowledge of the market so that you can take necessary decisions regarding your investments so as to avoid losing your capital investment or getting cheated on.