By and large, the majority of Indians view the share market today as the greatest source of investment. Even if many people choose not to ultimately invest in stocks and other equities, they have thought about it seriously at some point. Share market trading and investing rules to consider, in the words of the “God” of wealth creation, Mr. Warren Buffet, are “Rule number one is never to lose money, and rule number two is never to forget rule number one.” Therefore, in any kind of investment you undertake, whether its stocks or mutual funds, it is vital to consider certain rules, and steps, if you wish to tread ahead in a systematic way.
The myth, and sometimes reality, is that stock markets are only for the brave at heart, and not for risk-averse investors. While markets may be volatile at the best of times (and the worst of times), there is some positivity in terms of returns from the stock market today. However, the first and foremost step to take is to do some serious thinking. As the stock markets are so accessible to everyone online today, potential investors are tempted to try their hand at trading. Maybe they’ve heard that a friend “made a stack of wealth” by trading. There are as many stories of success as there are stories of failure. However, doing some due diligence will help in your investment decisions as far as the stock market goes.
Some of the first steps you need to take when you are considering investment in stocks, are those that have to do with purely administrative aspects of investing. Hence, assuming you already have a PAN card, you can jump to the next step. If you are a novice trader and investor, you will undoubtedly seek help. Asking your neighbour, or a friend (even one who has dabbled in stocks) is not the answer.
Whether you wish to make a stock or mutual fund investment, you should look for a reputed broker. Do some research here, and find a broker with a reliable success rate and one which offers a user-friendly platform. Also check rates of brokers, as you shouldn’t end up with one whose charges are so exorbitant, they make your profits redundant. Once you are set with a broker, open a Demat account. Some brokers of repute, like Motilal Oswal, let you open one for free. With a Demat account, you also need to have a trading account which aids in the actual transactions of purchasing and selling stocks. This account will be linked with your Demat account, and possibly a bank account through which easy access to funds is possible.
Fairly straightforward so far? Then you are ready for the next thing you have to do. You should familiarise yourself with different terms related to the investment in the share market today. For instance, your broker is typically a firm that aids you in trading stocks. It gives you a platform to trade online and also helps with tips and recommendations. Your Demat account is an account that stores your stocks in a digital format, once bought. Then you have to understand the role of your DP or depository participant. This is either your broker (if you select one), or the Demat department of your bank. Hence, the two major depositories in India, the NSDL (National Securities Depository Limited) and the CDSL (Central Depository Services Limited) provide permission to registered DPs to hold shares/stocks.
When you have your broker, a demat account and some terms established, you can finally try your hand at the actual activity of trading. You should note that to trade in the share market, or invest in other assets, like any upcoming IPO, you need to have a Demat account mandatorily. Whatever investments you make which are equity-related, a Demat is a must as it holds your stocks in a dematerialised electronic format. Coming back to the actual process of trading and investment of stocks, you have to know the basics of how the system works.
You can either start off by just buying shares at a price you see displayed, or leave instructions with your broker to buy them when they reach a certain value. For example, if you wish to buy 15 shares of Britannia Industries Ltd, when they reach a value of Rs. 3,400 per share, you can set up an alert to do this with your broker. If and when the stock achieves that value, your broker will purchase the amount you have requested on your behalf. You can also choose to place a sell order in the same way.
Steps for actual investing are not that challenging to go through. However, the stock market today can be a volatile place. Price shifts can happen suddenly, and opportunities may be missed and money lost. Nonetheless, your homework as an investor must be taken seriously. Initially, it is better to invest in a small way, no matter what rumours you hear externally. Peers can pressurise you into making investments that may not pan out for you. If you are interested in investing in shares, depend on yourself to make calculated decisions. When you are interested in a company’s stocks, do some research on the company, look at its previous profit and loss (if any), and view its projections for the future. Then undergo a decision-making process to invest.
The share market today is not the lion’s den that most people make it out to be. It can be a place where you see good returns. It is important to note here that good stocks may dip and slide, but it's important to hold on to them for long-run gains. So, you have to play a patience game as well. However, you have to work at stock trading and investing, and it cannot be done impulsively. People who open a Demat account cannot contain their enthusiasm to invest, and this shows confidence in investors. This is not a completely bad thing, but it can lead to thoughtless action. If you are confident, yet careful, you can win with stocks.
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