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

This post was most recently updated on March 2nd, 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.

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. However 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 venture into the stock market, you’re essentially buying a stake in a corporation. This stake, known as stock, grants you a share in the company’s earnings and the right to vote on important corporate matters.

Stocks fall into two main categories: common and preferred. Owners of common stock can vote at shareholder meetings and receive dividends, a portion of the company’s earnings distributed to shareholders. Preferred stockholders typically don’t have voting rights but are given priority over common stockholders for earnings and assets distribution.

Stock exchanges like NIFTY and SENSEX are the venues where stocks are bought and sold, facilitated by brokerage accounts. The price of a stock is determined by market dynamics, influenced by supply and demand.

A company’s robust financial health or promising future prospects can increase its stock’s demand, driving up the price. Conversely, disappointing financial performance or negative market perception can reduce demand, leading to a decrease in stock price.

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

The stock market serves as a dynamic arena where shares of publicly listed companies are bought and sold. This activity takes place on structured marketplaces known as stock exchanges, with NIFTY and SENSEX being notable examples.

Investors engage in this marketplace by establishing brokerage accounts via financial entities, including banks and online brokers. These accounts enable investors to execute buy or sell orders for stocks. The transactions are conducted on the stock exchanges, where the price of stocks shifts in response to the principles of supply and demand.

Volatility is a defining characteristic of the stock market, with stock prices subject to swift changes due to factors like market trends and economic indicators. Despite the inherent risks, investing in stocks has traditionally been seen as a path to significant long-term gains. When compared to more conservative investments such as cash or bonds, stocks often offer a greater potential for return on investment.

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

Initiating your venture into the stock market requires setting up two critical accounts: a DMAT account and a trading account. These accounts are fundamental for the seamless purchase and sale of stocks.

A DMAT account is essentially a digital vault overseen by depositories such as NSDL and CDSL, safeguarding your shares. Opening this account through a brokerage firm grants you a distinct 16-digit DP ID, which acts as the identifier for your DMAT account.

Subsequent to establishing a DMAT account, a trading account is necessary. Brokerage firms, including Zerodha, ICICI, and Upstox, often offer this account in conjunction with the DMAT account setup. While holding multiple trading accounts is possible, akin to DMAT accounts, it’s crucial to consider their associated fees. These may encompass annual maintenance fees, platform fees, and Demat transaction charges.

Given these costs are incurred irrespective of account usage frequency, it’s wise to activate only those accounts you plan to use actively for trading. This strategic approach helps in optimizing your investment strategy while minimizing unnecessary expenses.

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:

1. Safety and Security: Your financial security is paramount. Opt for a broker known for their trustworthiness and ethical practices.
2. 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.
3. 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.
4. 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?

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

Embarking on your stock market journey can be an exciting yet daunting task. Thanks to technological advancements, retail investors now find it increasingly accessible to open a trading account with ease. However, navigating the stock market as a beginner requires careful consideration to safeguard your investment and ensure long-term success. Here are essential tips to guide you:

1. Conduct Thorough Research: Before investing, delve into an in-depth analysis of the stock. Understand its performance, market position, and potential for future growth.
2. Make Independent Decisions: While advice from friends or acquaintances might come with good intentions, base your investment decisions on your research and understanding of the stock market.
3. Question Expert Advice: Exercise skepticism towards stock recommendations from TV shows or online experts. Always cross-verify these suggestions with your research.
4. Focus on Long-term Investments: The stock market is best approached with a long-term perspective. Quick gains, though welcome, should be viewed as exceptions rather than expectations.
5. Avoid Using Borrowed Money: Investing with borrowed funds amplifies the risk. Ensure your investments are made with your own capital to prevent financial strain.

By adhering to these principles, you set a solid foundation for your investment journey, minimizing risks while optimizing for future growth and stability.

FAQ on How to Start Investing in Share Market

How can a beginner invest in stock market?

Beginners aiming to invest in the stock market should start by opening a demat account, which safely stores purchased securities electronically. Additionally, partnering with a reputable brokerage is essential for both trading and receiving professional investment guidance. Before investing, new investors are encouraged to educate themselves on market basics and create an investment strategy that suits their financial goals.

Can I invest 1000 rupees in stock market?

Yes, you can invest Rs 1000 in the stock market. Many brokerage platforms offer the option to begin investing with a small amount, allowing you to buy shares of companies directly or invest in mutual funds and exchange-traded funds (ETFs) that suit your budget. Starting small is a viable way to enter the stock market.

How do beginners start trading stocks?

Beginners can start trading stocks by first educating themselves about the stock market, understanding financial metrics and stock market terminology. Next, set clear trading goals, choose a reputable online broker, and open a trading account. Afterwards, start with a small amount of capital, diversify your portfolio, and continuously monitor your investments. Always invest only what you can afford to lose.

How to invest as a beginner?

As a beginner, start investing by first setting clear financial goals. Educate yourself on the basics of stocks, bonds, mutual funds, and other investment types. Commit to a budget for investing and consider opening a brokerage account. Start with index funds for diversification, and consider using robo-advisors or consulting a financial advisor for personalized guidance.