This post was most recently updated on January 1st, 2024
Investing in the Indian stock market is a great way to grow your wealth and achieve your financial goals. However, for beginners, the world of stock trading can seem intimidating and complex. With a multitude of stocks, stockbrokers, and trading platforms to choose from, it can be difficult to know where to start.
In this comprehensive guide, we will take you through the process of how to start investing in share market in India step-by-step.
We’ll explain the basics of the stock market, including stocks and stock exchanges, and help you understand the different types of stocks and their risks and returns.
We’ll also walk you through the process of choosing a stockbroker, creating a trading account, and developing a trading strategy.
Additionally, we’ll provide valuable tips on how to minimize risks and maximize returns, as well as common mistakes to avoid when investing in the stock market.
Traditionally, many Indians have preferred to invest in real estate, gold, fixed deposits, and provident funds. But with the advancement of technology and increased awareness through social media, more and more people are becoming interested in investing in stocks on their own.
However, investing in stocks can be challenging, and it’s crucial to understand the basics so that you don’t end up buying random stocks and losing your hard-earned money.
In this guide on how to start investing in the stock market in India, we will cover the fundamentals of the stock market to help you take the first step toward your investing journey.
Consider reading Investing for beginners guide in India
Remember, investing in stocks is like running a marathon! Don’t jump into the stock market to make quick money; more often than not, you will lose your money if you are investing in stocks to get quick returns!
1. How to Start Investing in Share Market: What is a Stock?
When you decide to invest in the stock market, you’re acquiring a piece of ownership in a corporation. This ownership, represented by stocks, entitles you to a portion of the company’s profits and empowers you to participate in key decisions through voting rights.
Stocks are primarily categorized into two types: common and preferred. Common stock offers shareholders the right to vote and receive dividends, which are a share of the company’s profits. Preferred stock, on the other hand, usually doesn’t provide voting rights but it does have a higher priority over common stock in the distribution of assets and earnings.
The trading of stocks takes place on stock exchanges, such as NIFTY and SENSEX, through brokerage accounts. The stock price is a reflection of market forces, governed by supply and demand.
A company’s strong financial performance or positive future outlook can boost investor demand for its stock, leading to a rise in its price. Conversely, poor financial results or negative investor sentiment can diminish demand, causing the stock price to fall.
2. How to Start Investing in Share Market: What is the Stock Market?
The stock market is an ecosystem where stocks of publicly traded companies are exchanged. These transactions occur on organized platforms known as stock exchanges, with prominent examples being NIFTY and SENSEX.
To engage in stock trading, investors typically set up brokerage accounts through financial institutions, including banks and online brokerage firms. Through these accounts, investors can place orders to buy or sell stocks. These transactions are facilitated by the stock exchanges, with stock prices fluctuating based on market supply and demand.
One crucial aspect of the stock market is its volatility. Stock prices can rapidly change, influenced by various elements like overall market trends and key economic indicators. Despite this volatility, stocks have historically offered the prospect of substantial long-term growth. In comparison to conservative investment avenues like cash or bonds, stocks generally provide a higher potential return on investment.
3. How to Start Investing in Share Market as a Beginner?
Beginning your investment journey in the stock market involves setting up two key accounts: a DMAT account and a trading account. These accounts are essential for buying and selling stocks effectively.
A DMAT account, managed by depositories like NSDL and CDSL, is where your shares are digitally stored. You can open this account through your stockbroker, who will provide you with a unique 16-digit DP ID to identify your DMAT account.
Following the DMAT account, you’ll need to establish a trading account. Brokers such as Zerodha, ICICI, and Upstox can facilitate this, often bundling it with the creation of your DMAT account. It’s possible to have multiple trading accounts, much like DMAT accounts, but it’s important to be aware of the associated costs. These can include annual maintenance fees, platform charges, and Demat charges.
Remember, these expenses apply regardless of how frequently you use the accounts. So, it’s prudent to only open accounts that you intend to actively use for your investment activities.
4. What are Stock Exchange, Stock Broker, Depository, and SEBI?
The Indian stock market operates primarily through two major exchanges – NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). Companies looking to join the stock market begin by launching an Initial Public Offering (IPO), which leads to their shares being listed on either NSE or BSE.
To engage in buying and selling stocks, it’s essential to have a trading account. This account is opened through a stockbroker, who is officially recognized by the stock exchanges. Notable brokers in India include Zerodha and ICICI Direct. These brokers also assist in setting up a DMAT account, the digital repository for your shares.
Upon opening a DMAT account, you are given a unique 16-digit DP ID, similar to a bank account number. This ID represents the account where your purchased stocks are deposited.
In India, the two main depositories are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited), akin to banks for your shares.
Overseeing all these activities is SEBI (Securities and Exchange Board of India), the regulatory authority ensuring market fairness and investor protection. SEBI monitors compliance with market rules and is the go-to body for any stock market-related grievances or issues.
Consider reading – 10 Important Stock Market Terminologies
5. How to Select the Correct Stock Broker in India?
India’s stock brokerage landscape offers a plethora of choices, ranging from bank-associated brokers like ICICI, HDFC, and SBI to discount brokers such as Zerodha, Upstox, and PayTM. Picking the right stock broker is crucial for your investment journey. Here are vital factors to consider:
- Safety and Security: Your financial security is paramount. Opt for a broker known for their trustworthiness and ethical practices.
- Cost Efficiency: Pay attention to the brokerage fees. Ideally, a reasonable rate ranges between 0.10% to 0.20%. Additionally, consider other fees like account maintenance and platform charges before making your choice.
- Trading Platform Quality: While some discount brokers offer free trading, their platforms might not be robust enough. Look for platforms that provide easy fund transfer, seamless buying and selling processes, and overall reliability.
- Customer Support: Efficient customer service is essential. Before finalizing a broker, explore reviews on their social media channels to assess their customer support quality.
This guide is designed to help you navigate the diverse options available in the Indian stock brokerage market, ensuring you make a well-informed decision that aligns with your investment needs.
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.
How do I Open a Brokerage Account in India?
If you want to invest in the Indian stock market, the first thing you need to do is open a brokerage account with a financial institution or an online brokerage. This will enable you to buy and sell stocks through the stock exchange.
To open a brokerage account, you will need to share your personal and financial information, such as your name, address, PAN (permanent account number) card, and employment details.
Additionally, you might need to deposit a minimum amount of money, but this can differ based on the brokerage you choose.
What Documents do I need to Open a Brokerage Account in India?
To open a brokerage account in India, you will typically need to provide the following documents:
- A signed account opening form
- PAN card
- Proof of identity (such as a passport, driver’s license, or voter ID card)
- Proof of address (such as a utility bill or bank statement)
6. I have the DMAT and Trading Account Created – What Next?
Congratulations on completing the necessary setup! With that out of the way, you’re now ready to dive into the world of buying and selling shares.
However, if you’re a novice investor, it’s crucial to avoid investing in stocks based on random tips or impulse decisions. Instead, it’s important to understand the company you’re considering investing in, and avoid short-term thinking.
While it may be tempting to invest in stocks that promise high returns in a short amount of time, this strategy is often unreliable and can result in significant losses.
To gain experience without risking real money, consider using a mock trading platform like https://moneybhai.moneycontrol.com/.
Once you’ve gained the knowledge and confidence to purchase stocks, visit your broker’s trading platform to place an order.
Remember to carefully consider the amount of money you’re willing to invest and which stocks align with your long-term investment goals.
7. What are NIFTY, Sensex, Large-Cap, Mid-Cap, and Small-Cap – I am Confused!
The NIFTY 50, a prominent index on the National Stock Exchange (NSE), comprises 50 select stocks. Its value is derived from the collective performance of these stocks. Each stock within the NIFTY 50 carries a distinct weightage, influencing the index’s overall value according to its individual performance.
In parallel, the Sensex operates as a benchmark index on the Bombay Stock Exchange (BSE), consisting of 30 stocks. The performance of these 30 stocks collectively shapes the value of the Sensex. Similar to the NIFTY 50, each stock in the Sensex has a unique weightage, affecting the index value in its own way.
Additionally, stocks are categorized based on market capitalization into groups like large-cap, mid-cap, and small-cap. This classification hinges on the company’s market capitalization size. Large-cap companies are generally larger and more established entities, mid-cap companies represent growing mid-sized businesses, and small-cap companies are smaller, often exhibiting higher volatility.
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 people 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 investing 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.
Consider reading: Top 100 Best Blue chip Companies in India
9. When is the Right Time to Invest in the Stock Market?
When it comes to investing in the stock market, there isn’t necessarily a “right” or “wrong” time to do so.
However, it’s important to carefully evaluate a stock before investing to ensure that it has the potential to grow in the future.
It’s also a good idea to adopt a long-term investment mindset since short-term market fluctuations are common.
To find a good investment opportunity, look for a company that has strong potential for long-term growth.
Stay informed about market trends and keep an eye out for market corrections, which occur periodically and can provide an opportunity to enter the market at a good price.
By staying informed and investing with a long-term perspective, you can increase your chances of achieving success in the stock market.
10. How to Start Investing in Share Market with Little Money? What are the Stocks for Beginners?
Find out companies that 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.
A few stocks which have done excellent in the recent past are:
- HDFC Bank
- Asian Paints
Before you start investing in stocks – Do you have an Emergency Fund?
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 the short term – consider you are lucky!
- Never invest in stocks with borrowed money!
FAQ on How to Start Investing in Share Market
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
4. Asian Paints
6. HDFC Bank
What precautions I should take while investing in stocks as a beginner?
If you are in the early days of your investing journey then you should follow the rules –
1. Learn investing in stocks by investing small amounts of money
2. Do not borrow money to invest in stocks
3. Always Research 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 to buy stocks just because the stock has fallen a lot
7. Understand the concept of stop loss
Is it better to invest in stocks or mutual funds?
Stock and mutual funds both are excellent Investment choices. However, if you are a beginner then you should start with mutual funds and understand how stock market investing works before you directly jump into buying stocks.
What are the risks of investing in the stock market in India?
Investing in the stock market carries risk, as the value of an individual stock or the overall market can decline due to a variety of factors. These factors may include economic conditions, market trends, company-specific issues, and external events. It is important for investors to understand and manage risk by diversifying their portfolios, regularly reviewing their investments, and being aware of the potential risks associated with investing in the stock market in India.
Can I invest 1000 rs in the Stock Market?
Yes, you can start investing in the stock market with as little as Rs 1,000. This approach allows you to efficiently utilize your time to learn about the market, ensuring you’re well-prepared when investing larger amounts in the future. Begin your investment journey with confidence, even with a modest budget
How should a beginner invest in stocks in India?
To begin investing in stocks in India, it’s important for beginners to approach a SEBI-registered member or broker of a stock exchange. Follow these steps: Find a SEBI Registered Member. Identify the stock exchange they are registered with. Register as an investor. By following these steps, beginners can start their journey in stock investing.
Can I invest 50 rs in the share market?
Yes, you can invest 50 rs in the share market. Some undervalued stocks from small companies are available under this budget. However, it’s important to stay invested for the long term to generate good returns. Keeping a long-term perspective is key for investing in stocks under 50 rs.