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10 Point Guide on How to Start Investing in Share Market in India

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.

How to Start Investing in Share Market in India
How to Start Investing in Share Market in India

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 stock 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 purchase a stock, you are buying a unit of ownership in a company. As a shareholder, you are entitled to a share of the company’s profits and have a say in the company’s decision-making processes through voting rights.

There are two main types of stocks: common stock and preferred stock. A common stock gives shareholders voting rights and a share of the company’s profits in the form of dividends. Preferred stock has a higher claim on a company’s assets and earnings than common stock but typically does not offer voting rights.

Stocks are bought and sold on stock exchanges such as NIFTY and SENSEX through brokerage accounts. The price of a stock is determined by the supply and demand in the market. As the company’s financial performance and prospects improve, the demand for the stock may increase, resulting in a higher stock price.

Conversely, if the company’s financial performance deteriorates or investor sentiment toward the company declines, the demand for the stock may decrease, leading to a lower stock price.

2. How to Start Investing in Share Market – What is the Stock Market?

A stock market is a place where publicly traded companies’ stocks are bought and sold through organized markets called stock exchanges, like NIFTY and SENSEX.

To trade stocks, investors use brokerage accounts provided by financial institutions such as banks and online brokerages. They place an order with their brokerage to buy or sell a stock, which is then executed by a stock exchange. The price of a stock is determined by the market’s supply and demand.

It’s important to note that the stock market can be volatile, meaning that stock prices can change quickly due to various factors, such as market conditions and economic indicators. However, historically, stocks have provided investors with the potential for long-term growth and a higher return on investment compared to more conservative options like cash or bonds.

3. How to Start Investing in Share Market as Beginner?

To start investing in the stock market, you’ll need a DMAT account and a trading account. These two accounts will enable you to buy and sell stocks.

A DMAT account is where you hold your shares, and it’s opened with depository NSDL and CDSL. Your stockbroker can help you open one or more DMAT accounts, which are identified by a unique 16-digit DP ID.

Once you have a DMAT account, the next step is to create a trading account. If you open an account with a broker like Zerodha, ICICI, or Upstox, they will take care of everything, including creating your DMAT and trading accounts.

You can have multiple trading accounts just like DMAT accounts, but keep in mind that each trading account comes with expenses such as yearly account maintenance charges, platform charges, Demat charges, etc. So, it’s essential to be mindful of the number of accounts you create because you’ll still have to pay these charges, whether you use them or not. Therefore, create accounts that you plan to actively use.

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

The Indian stock market is facilitated by two popular exchanges- the NSE and BSE. When a company wants to enter the stock market, it has to go through the IPO (Initial Public Offering) process and list its shares on either of these exchanges.

To buy and sell stocks, you need to open a trading account with a stockbroker who is appointed by the exchanges. Popular brokers in India include Zerodha, ICICI Direct, and others. The broker will also help you create a DMAT account, which is where your shares will be stored.

When you open a DMAT account, you are assigned a 16-digit DP id, which is like a bank account number. This is where your stocks will be deposited every time you purchase them.

The depositories in India are NSDL and CDSL, where you deposit your shares, similar to how you deposit your money in a bank.

SEBI (Securities and Exchange Board of India) is the regulatory body that governs the rules of the stock market in India. They ensure that the brokers and other players in the market follow the guidelines and safeguard the interest of investors. In case of any complaints or grievances, you can approach SEBI.

Consider reading – 10 Important Stock Market Terminologies

5. How to Select the Correct Stock Broker in India?

In India, there are many stock brokers to choose from. Some are associated with banks like ICICI, HDFC, and SBI, while others like Zerodha, Upstox, and PayTM are called discount brokers. Here are some important factors to consider before selecting a stock broker:

  1. Safety and security: When it comes to money, safety and security are top priorities. Choose a stockbroker who is trustworthy and ethical.
  2. Cost: The broker will charge a brokerage fee every time you buy or sell shares. Ensure that your broker is not charging you an exorbitant brokerage fee. Nowadays, anything between 0.10% to 0.20% is reasonable. Keep in mind other charges such as account maintenance fees, platform fees, etc. before selecting a stock broker.
  3. Trading platform: Some discount brokers offer free trading, but their trading platform may not be able to handle the load. Look for the best trading platform, ease of fund transfer, and ease of buying and selling.
  4. Customer support: Make sure you receive proper support when you need it. Before selecting a stock broker, read reviews about the broker on their social media platforms to gauge their customer support.

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 is an index listed on the National Stock Exchange (NSE) that is made up of 50 stocks. The value of the NIFTY is calculated based on the performance of these 50 stocks. Each of the 50 stocks has a unique weightage on the index, meaning that the movement of each stock will have a varying impact on the overall value of the index.

Similarly, the Sensex is an index listed on the Bombay Stock Exchange (BSE) that is made up of 30 stocks. The value of the Sensex is determined based on the performance of these 30 stocks. Each of the 30 stocks also has a different weightage on the index, meaning that the movement of each stock will impact the index in a unique way.

Stocks are categorized into different market capitalization groups such as large-cap, mid-cap, and small-cap. The classification is based on the size of the company, specifically its market capitalization. Large-cap companies are typically larger and more established, mid-cap companies are mid-sized and growing, while small-cap companies are smaller and more volatile.

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?

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 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
  • TCS
  • Asian Paints
  • HUL
  • Reliance

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 short term – consider you are lucky!
  • Never invest in stocks with borrowed money!

FAQ on How to Start Investing in Share Market

  1. 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

  2. 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 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

  3. 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.

  4. 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 portfolio, regularly reviewing their investments, and being aware of the potential risks associated with investing in the stock market in India.

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