10 Point guide on how to start investing in share market in India

Last Updated on 1 year ago by Raj Kumar

How to start investing in share market in India?

Investing in stock market was seen as gambling until early 2000 but things have changed now. People in India have started realising the importance to invest in stocks and how it can help in their investing journey.

Conventionally Indians are more inclined to invest in real estate, Gold, FD and PF but with the technological enhancements, awareness via social media more and more Indians are looking to invest in stock by themselves.

But investing in stocks is not easy! You need to be aware of it’s basics so that you don’t end up buying random stocks and ultimately lose you hard earned money.

In this how to start investing in share market in India guide we will go through the basics of stock markets and make ready for taking the first step towards your stock market journey!

Consider reading – Investing for beginners guide in India

Remember – Investing in stock is like running a marathon! Don’t jump into stock market to make quick money, more often than not you will lose your money if you are investing stocks to get quick returns!

How to start investing in share market
How to start investing in share market

1. What is a stock?

So what is a stock? why are people so hooked to some stocks?

A stock is a company which gets traded in an exchange. When you purchase a company’s stock, you’re purchasing a small piece of that company, called a share.

When you buy a stock you are a shareholder of a company. The company floats a number of shares(sometime in crores). When you are buying few shares of the company then effectively you are owing some part of the company. It can be as little as 0.00….X %.

2. What is the stock market?

Many times beginners get confused about what is the stock market? What does it do? How do I invest in the stock market? Many people get scared and think the stock market is a gamble.

Well, the stock market is simple. Like in a normal market, you buy vegetables; in the stock market, you can not only buy stocks, you can sell them after you purchase. So to keep it simple, the stock market is a place where you can buy and sell stocks!

3. How to start investing in share market as Beginner?

As a beginner to invest in a stock market you need a DMAT account and a trading account. These accounts will enable you to buy and sell stocks.

DMAT account is the account where you keep your shares. It gets opened with depository NSDL and CDSL. Your stockbroker will help you open one. You can have one or multiple DMAT accounts. It is identified as a unique 16 digit unique DP id.

After a DMAT account is opened for you the next step is to create a trading account. When you open an account with broke like Zerodha, ICICI, Upstox etc. They take of everything like creating DMAT and Trading account for you. Again like you can have multiple DMAT account, you can have multiple trading account as well!

Should you create multiple trading account? – There is no restriction in creating multiple trading accounts but you need to be aware that each of these trading accounts come with expense like yearly charges for account maintenance, platform charges, demat charges etc. So if you have many accounts, regardless of if you are using them or not – you will still be required to pay these charges. So only create accounts which you will actively use.

4. What is Stock Exchange, Stock Broker, Depository and SEBI?

Exchanges: – NSE and BSE are famous stock exchanges in Indian. Company’s get listed here (IPO process). And after IPO, their shares/stocks trading happens on these exchanges.

Stock Brokers: – Exchanges appoint stock brokers. You need to open one trading account one of the brokers appointed by stock exchanges. Brokers will also help you with opening a DMAT account and trading account.  Stockbrokers are like Zerodha, ICICI direct, etc.

Depository:- NSDL and CDSL are two depositories in India. The way you deposit your money in Bank – You deposit your shares with depositories. When you open your Demat account, you are given a 16 digit DP id. This DP id is like your bank account number. So, every time you buy share/stocks, your stocks get deposited in your DP id (Demat id).

SEBI: – SEBI is the regulatory body. They make rules for the stock market in India. They will also safeguard your interest. You can complain about your broker to SEBI.

5. How to select the correct stock broker in India?

There are many stock brokers in India. some are part of banks like ICICI, HDFC, SBI etc and some are exclusive stock broking service like Zerodha, Upstok, PayTM which are also referred as discount brokers. The main factors you should consider before selecting a stock broker are as below:-

Safety and security:- In financial services and banking business or anything related to money “safety” and “security” should be the first in the rank. So, the stockbroker must be trustworthy and ethical.

Costing: – Every time you buy or sell shares, the broker will apply a brokerage fee. Make sure your broker is not charging you a hefty brokerage fee. Anything between 0.10% to 0.20% is fine these days. After Zerodha came to market the brokerage rates across the brokers have reduced drastically. But please be mindful about other charges such account maintenance fees, platform fees etc. before you select a stock broker.

Trading platform: – Some of the discount brokers offer free trading, by doing so a lot of customers open their account with them but unfortunately their trading platform couldn’t manage the load. Always make sure you get the best trading platform, ease of fund transfer, ease of buying and selling.

Client support: – Always make sure you get proper support when you need. before selecting a stock broker, read reviews about the broker in their social media platforms.

Zerodha is the largest broker in India. It offers brokerage free plans for retail investors. You can open an account with them here – Open Account

You can create an account with other brokers like ICICI Direct, HDFC securities, etc. Please check the charges and brokerages before taking any decision.

6. I have the DMAT and Trading account created what next?

Now that you have the necessary set up done. You can now buy and sell shares. The most obvious question you have is what stocks should I buy and how much I should invest?

If you are a beginner to the stock market then do not invest in any random stocks or on some random tip. Before you buy any stock, understand what the company is. Do not invest in stock for short term gains or on a tip which says the stock is going to give steep returns in a short time.

If you don’t have any experience in buying or sharing stocks then you can try doing mock trading in platforms like https://moneybhai.moneycontrol.com/ which will give you a real trading experience without involving real money.

After you are confident of buying some stocks the head over to your broker’s trading platform and place your order for buying the stock.

7. What is NIFTY, Sensex, Large-cap, mid-cap, small-cap – I am confused!

NIFTY 50 – is an index of NSE (National stock exchange). Which is created taking 50 stocks into consideration. So NIFTY’s value is determined by how much these 50 stocks go up or down. Each of the 50 stocks has different weightage on the index so it depends on how much which stock is going up or down.

Sensex – It is an index of BSE (Bombay stock exchange). Which is created taking 30 stocks into consideration. So NIFTY’s value is determined by how much these 30 stocks go up or down. Each of the 30 stocks has different weightage on the index so it depends on how much which stock is going up or down.

Large-cap, mid-cap, small-cap – A stock is categorized in these categories depending on their market capitalization. So Big companies are called large-cap, medium ones are mid-cap and smaller companies are called small caps.

8. I am feeling confident now, how much money I should invest in the stock market?

Now that you are aware of most of the fundamentals you must be eager to invest a good amount of money to get rich quickly!

Remember one thing in the stock market – most of the rich persons you see around in the stock market are around for a long time. They have built their wealth over the decades. So the stock market is a patience game. You need to buy good companies at a good price and keep invested to get good returns.

Everyone wants to get rich like me but no one wants to give time as much I gave

– Warren Buffett

When you are a beginner, invest a small portion of your savings to start with and see how good you are at investing. If you do losses initially it will be good for you as you will learn what not to do in the stock market. When you gain enough experience then you start allocating more % of your savings into stocks.

9. When is the right time to invest in the stock market?

There is no right or wrong time to invest in the stock market. Remember you are buying a stock, check if the stock has the potential to grow more in the future. Invest in a mind-set of long term investment. There will be short term volatility in the market where stocks go up and down but find out a company that will do well in the long term and invests in that company.

Keep yourself aware of the latest happenings of market, keep an eye if the market goes into a correction (which it does every now and then) then it will give you a good entry point for your stock

10. Where to invest? What are the stocks for beginners?

When you are beginning your investment journey, stick to large-cap good stocks where the probability of losing big will be minimum. Find out companies which have done great in the past and have good management and have brighter future prospects. Stick to stocks that are part of NIFTY 50. Find out leaders in their respective businesses and invest in them.

Few stocks which have done excellent in recent pasts are:-

  • HDFC Bank
  • TCS
  • Asian Paints
  • HUL
  • Reliance

Before you start investing in stocks – Do you have an Emergency Fund?

Want to take take inspiration from the market legends? Have a look at their portfolio

Radhakishan Damani Portfolio

Rakesh Jhunjhunwala Portfolio

Porinju Veliyath portfolio

Vijay Kedia stocks portfolio

Nemish Shah stocks portfolio

Mohnish Pabrai Stocks Portfolio

Ashish Kacholia stocks portfolio

Dolly Khanna portfolio

How to start investing in share market – Closing thoughts

We hope the above guide has provided some useful information about how to get started with your stock market journey. With the advent of new technologies it’s becoming very easy for retail investors to open a trading account instantly these days. But as a beginner please keep below things in mind so that you don’t end up losing your hard earned money:-

  • Always evaluate a stock before you invest
  • Never buy a stock because your friend has told you so
  • Never blindly trust experts in TV shows
  • Always try to study the stock and its future prospects
  • Always remember- investing in stock is a long term affair. If you get quick returns in short term – consider you are lucky!
  • Never invest in stocks with borrowed money!

FAQ on Stock market investing

What are some best stocks for beginners?

If you are a beginner in stock market investing then it is advisable that you stick to high quality bluechip companies in your initial Investment journey. You can consider investing in stocks like

1. Reliance industries
2. TCS
3. Infosys
4. Asian Paints
5. Nestle
6. HDFC Bank

What precautions I should take while investing in stocks as a beginner?

If you are in early days of your investing journey then you should follow rules –
1. Learn investing in stocks by investing small amounts of money
2. Do not borrow money to invest in stocks
3. Always Research about the company you are planning to invest
4. Do not believe in speculation
5. Do not panic if you have short term loss
6. Do not try buy stocks just because the stock has fallen a lot
7. Understand concept of stop loss

Is it better to invest in stocks or mutual funds?

Stock and mutual fund both are excellent Investment choices. How ever , if you are a beginner then you should start with mutual fund and understand how stock market investing works before you directly jump into buying stocks.

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