Basic Guide for Stock Market Beginners| Motilal Oswal

Stock Market Basics for Beginners

The very goal of investment is to make your money work in your favour. The most time-tested way to grow wealth is investment. As fruitful as investment may be, there are some legendary investors who can give you tips to make sound choices to build wealth. 

For instance, whether you turn your view to the stock market to invest or any other channels, top investors define investment as “forgoing consumption now in order to have the ability to consume more at a later date”. These are the words of the most looked-up-to financial wizard on the planet, Warren Buffet. They very likely could be words to describe how to invest in the stock markets as well. 

Invest Small Amounts Regularly

New investors are enthralled by the appeal of the stock market. However, a certain degree of knowledge, at least fundamental concepts, should be acquired before investing. By making small investments over a long span, your money can grow over long periods. That is why, if you want to explore stock investment, you should begin early in your life. If you can afford to spare some cash, you can try to start with equity investment in small amounts regularly.

Learn About Shares

As a new investor, you may have already come across specific terms like upcoming IPO and stocks and shares, but have a limited idea of what different concepts mean. You can get to the upcoming IPO part later, after you learn a few fundamentals of what the stock market entails. The stock market deals with the purchase and sale of shares of a variety of companies. Shares or stocks that are bought by investors translate to owning a portion of the value of any given company. Therefore, if you buy ten shares of a particular company from the stock exchange, you become a shareholder in the company - you own a part of it. In terms of percentages, if you buy 1% of the stocks or shares traded of a company, you technically own 1% of the company. 

Open Your Accounts

The first thing to do as an activity, if you wish to invest in stocks, is to open a demat account with a solid broker. This account is an electronic account that stores the stocks you buy. It is linked to a trading account which enables you to “trade”, that is, buy and sell shares from the investment market (a stock exchange, for instance). Both of these accounts are further connected to your bank account to have money available to buy shares, and in the case of share sales, to make cash deposits you earn.

The Investment Market of Stocks in India

The next question you may have as a new and curious investor is, “Where do I buy shares from?” Shares of listed companies are sold via stock exchanges. These are platforms on which shares are bought or sold. In India, there are two main stock exchanges, the BSE (Bombay Stock Exchange), and the NSE (National Stock Exchange). 

Besides knowing about exchanges, new investors should know what SEBI is. This acronym stands for the Securities and Exchange Board of India. It is the regulatory authority that governs all the activities undertaken by investors, companies, brokers, traders, etc. It also lays down security guidelines and creates measures for safe methods of trading on the stock market. 

When to Conduct Transactions on the Stock Market

Once you sign up with an online broker, you can get access to trading on a stock exchange easily. Through a trading account, it is easy to buy and sell stocks on the stock exchange. As all financial transactions are conducted online these days, the benefit that investors get while trading in stocks (buying or selling them) is that they can take advantage of price fluctuations. In light of this, investors should know about the times when stock markets function. The business hours of the stock market in India are from 9.00 am - 4.00 pm. However, there may be a few days when markets are shut, and these are usually festival holidays in the country, such as Republic Day, Holi, etc.

Get Started in the Stock Market

If you want to truly invest to make good returns in the stock market, you should be aware of certain basic areas of investing in stocks. There are enough rumours about stocks and stock trading to fill an ocean, and some may be bad, while others are positive. Some truth can be sifted out of stock market tales, but for the most part, you have to step into the stock market knowing about yourself first.

  • The Tolerance of Risk - There are as many types of investors as there are stocks and methods of trading and investing to go around. The main thing to query yourself about before stepping into the stock market is your ability to tolerate risk. Are you ready to lose some money while investing in the stock market? A part of your basic study of stock markets should centre around the kinds of stocks to invest in depending on your levels of risk tolerance. In the stock market, you will discover large cap stocks, small cap stocks, value stocks, etc. All these have varied levels of risk attached. Based on how well you can tolerate risk, you can then invest.
  • The Investment Market and Financial Goals - Remember that you are a unique investor. No two can be alike. When you wish to enter the stock market investment scene, you should first evaluate your individual goals. This is linked to your time horizon. Do you want to earn money from stocks fast? How much would you expect to earn? Questions like this will help you get answers that pave your way into stock investment ahead. 
  • Patience and the Stock Market - The most popular reason (or goal) for new investors to enter the stock market is to build wealth. However, as a new investor, you should be aware of the fact that this does not happen at the drop of a hat. Your goal may be to make fast money. If you want substantial rewards, you have to wait it out with the stock market. 

Get Your Concepts Clear

Getting your concepts clear about the stock market is important if you want to make a name for yourself in stock investment. For now, you can just open a demat account with a reliable broker, and before you think of things like an upcoming IPO, do some research about different companies. You will get some idea about the growth path and prosperity of these before you invest in their shares.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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