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

How to start investing in the share market? what is stock, and how to open a DMAT and trading account? when to buy a stock, how much you should invest

This post was most recently updated on December 19th, 2022

Investing in the stock market was seen as gambling until early 2000 but things have changed now. People in India have started realizing 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, and 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 its basics so that you don’t end up buying random stocks and ultimately lose your 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 you ready for taking the first step toward 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 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!

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

1. What is a stock?

A stock, also known as a share or equity, represents a unit of ownership in a company. When you own a stock, you are entitled to a share of the company’s profits, as well as a say in the company’s decision-making processes through voting rights.

There are two main types of stocks: common stock and preferred stock. Common stock represents ownership in a company and entitles the holder to vote at shareholder meetings and receive dividends. Preferred stock has a higher claim on a company’s assets and earnings than common stock but typically does not come with voting rights.

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

The stock market refers to the organized market where stocks of publicly traded companies are bought and sold. Stock exchanges, such as the NIFTY and the SENSEX, are platforms that facilitate the trading of stocks.

Investors buy and sell stocks through brokerage accounts, which are offered by financial institutions such as banks and online brokerages. To buy or sell a stock, investors place an order with their brokerage, which is then executed by a stock exchange. The price at which a stock is bought or sold is determined by supply and demand in the market.

The stock market can be volatile, meaning that stock prices can fluctuate rapidly in response to changes in market conditions, economic indicators, and other factors. However, over the long term, stocks have historically provided investors with the potential for long-term growth and a higher return on investment compared to more conservative investments, such as cash or bonds.

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 a broker like Zerodha, ICICI, Upstox, etc. They take off everything like creating DMAT and Trading accounts for you. Again like you can have multiple DMAT accounts, you can have multiple trading accounts as well!

Should you create multiple trading accounts? – There is no restriction in creating multiple trading accounts but you need to be aware that each of these trading accounts come with an 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 that you will actively use.

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

Exchanges: – NSE and BSE are famous stock exchanges in India. Companies 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 with 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 shares/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.

Consider reading – 10 Important Stock Market Terminologies

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

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

Safety and security:- In the 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 of other charges such as 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 accounts 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, and ease of buying and selling.

Client support: – Always make sure you get proper support when you need it. before selecting a stock broker, read reviews about the broker on 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.

How do I open a brokerage account in India?

To start investing in the stock market in India, you will need to open a brokerage account with a financial institution or online brokerage. This will allow you to buy and sell stocks through the exchange. To open a brokerage account, you will need to provide personal and financial information, such as your name, address, PAN (permanent account number) card, and employment information. You may also be required to provide a minimum initial deposit, which can vary depending on the brokerage.

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?

Now that you have the necessary setup 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 that 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 about buying some stocks then head over to your broker’s trading platform and place your order for buying the stock.

7. What are NIFTY, Sensex, Large-cap, mid-cap, and 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 a 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 a different weightage on the index so it depends on how much which stock is going up or down.

Large-cap, mid-cap, and 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 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.

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 mindset 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 the market, and 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 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?

Want to 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 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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