Investment is the most important way of increasing a person’s wealth. Investing in stocks helps you in gaining long terms returns.
You can buy and sell shares of a company in the stock market. Let’s say you’ve purchased a stock for Rs.10/- and holed it for 1 year and sold it for Rs.100/-.
This simple way of conducting trade is nothing but a stock investment. The basic logic behind it is value selling you are purchasing a stock at a low rate and selling it at a higher rate.
But the real question is how will you decide the rate of the stock and the entire game of investment is to find the true value stock which can help you in gaining profit for your investment.
When well done, Stock Market can fetch you higher returns than any other asset that you own. So, here is the guide which will help you in getting started with your investment journey with the step-by-step guide.
Opening Demat Account
The very first step towards starting with the investment in the stock market is to open a Demat Account. Managed by CDSL and NSDL, all the Demat Accounts are managed by these organizations.
It is a Government registered share depositor who manages your buying and selling of stocks. You can follow these steps to open a Demat Account-
- First, choose a trading platform where you want to get started with your investment
- You can simply start investing using your smartphone by downloading the app on your device like Groww app, Zerodha, etc.
- Before choosing any platform, make sure you have read carefully all the charges imposed by the Platform
- Now, download and install the app on your smartphone and click on the Continue on Google button
- After that, you’ll have to choose your Google account for beginning your account registration or simply click on the continue with the email button
- Enter your email in the given field, an OTP will be sent to your email which you’ll have to verify
- After verification of the email, you’ll have to enter the mobile number followed by verifying the OTP sent on your mobile number
- Now, enter the PAN number in the given field followed by clicking on the Create Account button
- Enter the date of birth, marital, gender, occupation, income, Mother name, Father name, etc.
- Now, choose the bank where you have your savings account followed by selecting your bank branch
- You’ll have to verify your bank account by entering the account number
- After verifying the bank account, you’ll have to participate in the KYC process
- Take a photo, sign a signature, followed by enabling the Aadhar eSign process by entering the Aadhar number and OTP sent to your registered phone number
- Your account has been created and you can create and you can add money to your wallet and use the online money
Documents Required for the Opening Demat Account
The following are the documents required for the Opening Demat Account-
- Bank Account
- Canceled Cheque
- Pan Card
- Proof Of Identity
- Proof Of Address
Choose the Types of Trading
There are two types of trading in the stock market- Intraday and Long Term Trading. Intraday trading means buying and selling stocks within the same day.
The price of the shares keeps on fluctuating throughout the day and intraday traders speculate based on the fluctuation and sell the stocks within the day.
Now, if you do not sell the funds yourself then at the end of the trading day, your stocks will be automatically sold.
The profit or loss that you’ll make will be within the day and the risk involved is much higher and is just like gambling.
Long-term investing, as the name suggests is an investment that you make in the stock market that you can hold on to as long as you want.
Types of Market
The other important aspect that you’ll have to decide is what market you want to invest in. There are two types of the market i.e. Primary Market and Secondary Market.
Primary markets are those markets where businesses and corporates release an Initial Public Offering to the investor’s interest.
The company here has complete control over who is to subscribe to the stocks and how much to allocate to the individual.
The secondary market is the market where the listed companies’ stocks are traded amongst investors.
A stock market is an investment tool that requires a lot of research and digging out. You’ll have to be good at finding out the details of the stocks to make profits.
The stock market is a highly volatile place where you can experience instant gain or an instant loss if you make a trade without any research.
The fundamental principle behind the stock market investment is to gain profit by buying the stock at a low price and selling the stock at a higher price.
While researching, you’ll have to find the stock at a low price and for that, you’ll have to look at a few key indicators which will be shown on the main stock panels.
The very first area where you want to research is the industry in which you want to invest. Industry analysis is important to get a bigger picture of what is going to be expected of the companies of that industry.
For example- During the pandemic, the communication industry like the internet, phone, etc. have done very well hence, the stocks of that industry have done very well as well.
Industry outlook provides you with a good insight into how well your investment can do.
Risk Assessment is a term used to deduce any loss of an asset, loan, or investment. In the stock market, there is a huge risk involved however the returns are also huge.
Usually, when you engage in a long-term continuous investment the risk of your investment going down gets distributed for as long as you hold on to the stock.
Now, this ensures that the investments that you’ve made do not lose their value. When it comes to Short term investment, sure, the returns can be instant however, the risk involved is next to gambling risk.
So, to reduce the risk, you’ll have to think for the long term and improve your risk profile.
Technicality of Investment
There is a lot of technical information which goes into the investment decisions which are crucial for preparing your portfolio.
The very first technical aspect to look at while looking at any stock is to look at the (P/E) Ratio. P/E ratio stands for the price-to-earning ratio which tells you the price of the stock is high relative to the earnings per stock.
A high P/E ratio shows that the stocks are overvalued and a lower P/E ratio i.e. around 1.0 is the option that you’ll have to choose.
A quick go through the company’s balance sheet, income statement, and cash flow statement will provide you with information on the company’s performance.
These statements provide you with details on the sales, profit margins, and scope for profitability on which your investment appreciation will depend.
Also, look at the historical fluctuation that the stock has gone through to look at the trend that other investors are following with the stock.
Understanding the Fees and Taxes
At last for taking the profit home, you’ll have to understand fees and taxes to save your money. For the investment that you earn, you’ll have to pay taxes to the Government under the Capital Gain tax.
There are two types of Capital Gains- Long Term Capital Gain and Short Term Capital Gain. The basic difference between them is the period that you hold on to the stocks.
Long Term Capital Gains are the profit you make on the stock’s investment by selling it not before 12 months.
Short Term Capital Gains are the profits you earn before the completion of 12 months. The tax for Long Term Capital Gains and Short Term Capital Gains is @10% and @15% respectively.
Apart from the taxes, you’ll have to also bring in the fees charged by the platform. Usually, apps like Groww’s fees are very low however, you can look into the fees on the official website of the Platform.