How to Invest in Share Market: The Ultimate Guide

Considering the volatility, Investing in share markets is both an art and a science. So, if you’re an investor curious to know how to invest in the share market, look no further!

How to do Investments in Share Market – Understanding the Basics

If you look previously, Indian investors have considered gold and fixed deposits safe-havens. However, the actual rate of returns (post inflation) these assets delivered is minuscule. Many investors have invested in the share market in India to create wealth in the past few years. In the last five years, i.e., from April 2014 to March 19, Nifty has delivered approx. 14.2% CAGR return, much above the returns of other traditional asset classes such as Gold, PPF, Real Estate, NPS, and FDs delivered.

So, the question is – How do you invest in the share market in India and create wealth?

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What is the Share Market?

The share market, also known as the stock market, is a financial marketplace where shares of publicly listed companies are bought and sold. It serves as a platform for companies to raise capital by issuing shares to investors and for investors to buy and sell ownership stakes in these companies. The share market operates through various exchanges, such as the New York Stock Exchange (NYSE) and the National Stock Exchange (NSE), where stocks are traded. Prices of shares fluctuate based on supply and demand dynamics, company performance, and broader economic factors. Investors participate in the share market to potentially earn returns through capital gains and dividends, while companies use the capital raised to fund growth and development. Overall, the share market plays a crucial role in the economy by facilitating investment and enabling companies to access capital for expansion.

Before even getting into which businesses to buy, there are a few steps that you need to follow before you start to invest in the share market.

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How to Do Investment in Share Market in India?

A simple step-by-step guide to help you invest in the Share market  

Here is a 4-step simple process guide to Invest in the Share Market and get the basics right before you invest in share market

1. Get a PAN card: It is mandatory to have a 10-digit alphanumeric number assigned to you by the Indian Tax Authorities. A PAN number is required to open your bank account, Demat account, and trading account. If you already have your PAN card handy, move to the second step.
2. Identify a broker for you: Brokers are authorized individuals or companies who help you to buy and sell your stock market investments. In India, the Securities Board of India regulates and issues licenses to brokers. Before you hire a broker, try to analyze their creditworthiness, fee structure, reliability, credibility, past record, experience, range of services, etc.
3. Open Demat and trading account: Before investing in the India share market, it is mandatory to open a Demat and trading account with your registered stockbroker. The Demat account will hold the securities/shares/stocks in your name, while the trading account facilitates buying and selling stock market investments. With this, you also need to know that there are two depositories in India: National Securities Depository Limited (NDSL) and Central Depository Services Limited (CDSL). NDSL and CDSL have their own depository participants, who act as intermediaries between the depository and the investors.
4. Identify the stock market investments that suit your goals: Each investor is unique, and so is their risk appetite, financial goals, and investment horizon. Hence, hiring a stock market advisor or wealth creation expert who considers your risk profile and financial goals before recommending stock market investments is always recommended.

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2. How to Invest in the Share Market: Dos & Don’ts While You Invest In Share Market In India

Take a look at the best and most unhealthy investment practices before you get started with your stock market investments.

Now that you’re sorted with how to invest in share market basics, picking up the right stocks can be tricky and cumbersome. Remember, stock markets are moody and volatile, and if you don’t make decisions based on data and empirical evidence, there are high chances of losing money while investing in the share market in India. We do not mean to scare you, but even if you buy high-quality stocks, wrong investment decisions can prove dangerous for your portfolio.

Remember: The world of stock market investing is like a jigsaw puzzle. The good news is that with the proper guidance and data, it is easy to solve this puzzle and create immense wealth for your family and you. However, many fail in doing so because they equate stock market investing to gambling, speculation, or buying a lottery ticket.

A true value investor takes calculated risks based on facts and empirical evidence. For example, we know that the levels of seawater or a pool are dangerous. However, someone with the right swimming skills would know how to sail through it and even enjoy it. Similarly, equity investments are risky. But if you embrace the correct investment methodology, you will not only navigate through the markets’ ups and downs but also achieve your goals by investing in equities.

Also, if an investor believes in the 3 P’s of investing – Patience, Power of Compounding, and Perseverance- the journey toward financial abundance becomes easier.

1. Display patience when there is turbulence in the Indian stock market
2. Trust the magic of the power of compounding rather than timing the ups and downs in the stock market. The longer you stay invested, the lesser the risks involved and the higher the chances of returns.
3. Always remember that stock markets fluctuate, but your goals shouldn’t. Stay disciplined with your goals and financial plan, and keep investing a fixed amount periodically to reach your financial destination.

3. How to identify the shares to buy today in the Indian market?

Here are a few financial parameters you may look at while identifying the Good shares to buy today in the Indian market.

Out of 5,500 stocks listed on the Indian stock exchange, how would you identify the best stocks to buy? Plus, with the continuous barrage of stock tips on WhatsApp, business channels, and newspapers/magazines, how would you know if the stock recommendations are backed by rigorous research?

Research & Ranking helps its investors to invest in high-quality stocks that pass the stringent fundamental test. Fundamental analysis is a method to assess the intrinsic value of a stock. It is based on a host of qualitative and quantitative parameters.

Factors To Consider Before Making Stock Market Investment

Before making stock market investments, it’s essential to consider several factors to ensure informed and strategic decision-making:

1. Investment Goals: Define your financial objectives, such as saving for retirement, buying a home, or funding education. Your investment strategy should align with these goals.
2. Risk Tolerance: Assess your willingness and ability to endure market fluctuations. Stocks can be volatile, and understanding your risk tolerance helps in choosing investments that suit your comfort level.
3. Time Horizon: Consider the length of time you plan to hold your investments. A longer time horizon can allow for greater risk-taking and potential for higher returns, while a shorter horizon may necessitate more conservative investments.
4. Financial Health: Evaluate your current financial situation, including income, expenses, and debt levels. Ensure you have a solid emergency fund and manageable debt before investing.
5. Diversification: Avoid putting all your money into a single stock or sector. Diversifying your portfolio across various assets can reduce risk and improve potential returns.
6. Research and Analysis: Conduct thorough research on potential investments. Analyze company financials, industry trends, and economic conditions to make informed choices.
7. Market Conditions: Be aware of current market trends and economic indicators. Market conditions can impact stock performance and influence investment decisions.
8. Investment Costs: Understand the fees associated with buying, selling, and managing investments. High costs can erode returns, so look for cost-effective options.
9. Investment Strategy: Develop a clear investment strategy based on your goals, risk tolerance, and time horizon. Decide whether you will be a passive or active investor and choose appropriate investment vehicles.
10. Regulatory Environment: Stay informed about regulatory changes and how they might affect your investments. Compliance with regulations can impact stock market performance and investor protection.

Considering these factors can help you make more informed investment decisions, align your investments with your financial goals, and manage risk effectively.

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Quantitative parameters to look at while investing in equities

1. Screen financial parameters: Research & Ranking looks at various information such as market capitalization, earnings per share, debt levels, shareholding pattern, consistency of cash flows, growth in topline and bottom-line numbers, etc.
2. Check financial ratios: Once you are done with screening the basic economic parameters, deep dive into ratios such as debt to equity ratio, price to earnings ratio, price to sales ratio, return on capital employed, dividend yield, return on equity, return on assets, price to book value along with other ratios to gauge the financial health of the company. Remember, don’t look at these ratios in isolation. It is recommended to compare it with peers and the industry average to make a sound financial decision.

Recommended reading: If you find the above terminologies overwhelming, read this story on 8 Common Investment Jargons Simplified For You.

One is advised to look carefully at the various financial statements such as balance sheet, profit & loss account or cash flows to understand if the company has the potential to deliver returns for you over the long term.

Few qualitative parameters to consider while you invest in share market

Many investors fail because they only look at the balance sheet, profit & loss statement, or cash flows statement. However, one can get exhaustive information about the company’s business model, its growth plan, and the pedigree of the leadership team by going through the annual reports. Before you hit a buy button, ask yourself the following questions.

1. Does the company have a robust corporate governance policy?
2. Is the company well-managed and helmed by a competent, credible, and visionary leadership team?
3. Does the company have any unique advantage (technology, process, product, or pricing) compared to its competitors?
4. How well-placed is the company to adapt to the technological disruption?
5. What are the future prospects of the company?
6. Is the company embracing risk management policies?

Read a detailed blog on How Fundamental Research Helps You Identify Potential Stocks.

Even though you’ve identified the best shares to buy today in the Indian market based on fundamental analysis, only invest in businesses/sectors that you understand. Also, since markets are unstable, only invest the amount you’re willing to lose.

Research & Ranking provides a detailed rationale behind each investment opportunity, which helps investors make meaningful investment decisions as well as ensures you’re equipped with answers to the questions that most investors face:

Where should I invest in Share Market?

Why should I invest in Share Market?

When should I invest in Share Market?

How should I invest in Share Market?

Once you have identified the best shares to buy today in the Indian market, how you would know when is the right time to buy, sell or hold a particular stock. Refer to this blog on ‘How You Know it Is The Time To Buy, Sell Or Hold’ that can guide you whenever you’re stuck in your wealth creation journey.

4. Finding The Best Stock Market Advisory Company In India?

Here are some questions that will help you to know whether you are signing up with the right wealth creation expert.

What kind of services does the advisory provide?
This question will help you cut through the marketing hype and give you a clear idea of the services the wealth advisor provides. Many wealth advisors typically deal in multiple products, including direct equity investments, mutual funds, life insurance, fixed deposits, etc.

It also means wealth advisors who deal in all financial products under the sun are most likely to try and pitch those products that give them the highest commissions.

How long have they been in business?
Years of existence reveal the kind of experience a wealth/stock advisory company has. It will also give you the confidence that the wealth advisory is not a fly-by-night operator who will shut shop anytime.

How do they get paid for their services? It is an essential question that can help you avoid paying substantial hidden fees without realizing it. Remember, there is no such thing as a free lunch. So, you must understand all areas of your financial advisor’s compensation.

What’s their investment philosophy?
A good wealth advisor will offer customized advice based on your financial goals and not their perspective on investing.

What investment benchmarks do you use? A good wealth advisor will measure success based on how well your investment portfolio progresses against the goals you laid out when you set it up. The advisor should also be willing to share how you’re performing against a relevant benchmark index.

How accessible is the advisor?
Imagine you need some urgent help with your portfolio, say for rebalancing during a severe market correction, and nobody from the wealth advisor’s side is answering your calls. How would you feel in this case?

What specific deliverables can you expect from their services?
The objective of investing one’s hard-earned money using a wealth advisor is to create wealth. So it is natural for an investor to define his financial goals clearly. Similarly, a stock advisory company should be able to explain the kind of deliverables the investor can expect from their services clearly.

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Now the most critical question is how much should you pay your financial advisor?

Before I answer that, let’s take you through an investor’s life cycle in the stock market.

You have Rs. 1 lac to invest. The first step would be identifying the best businesses from more than 5,500 listed stocks. Once you separate the wheat from the chaff, the next step is zeroing down on the best companies that can help you achieve your goals. One needs to invest time in research and introspection, i.e. identifying your financial objectives, risk appetite, and how much you can invest periodically after considering income, expenses, and emergencies.

The job doesn’t end there after you finish the documentation and start investing. You must dedicate time, effort, and energy to stay on top of market/stocks/economy updates. And then you also have to remain calm and make the right investment decisions when you encounter Mr. Volatility and Mr. Uncertainty in the Indian stock market.

Sounds like a stringent plan, right?

Yes, wealth creation is not a comfortable journey by any means. It is not only the journey to create wealth but also to achieve your life goals systematically. With the dreams, aspirations, and goals at stake, it wouldn’t have been great if this process was simple, effective, and hassle-free from all the complexities, volatility, and uncertainty.

So how do you do it? Hire an expert! If yes, how much should you pay him?

The answer is – based on the services or the handholding given, the depth of the research, and how much they help you design a portfolio that meets your risk appetite and goals.

How Much Money Do I Need To Start Investing in Stocks?

The amount of money needed to start investing in stocks can vary depending on several factors, including the price of individual stocks, brokerage account minimums, and your personal financial situation. Here are some general guidelines to consider:

1. Minimum Investment Requirements: Some brokerage firms may require a minimum deposit to open an account. This amount can range from as low as $0 to several thousand dollars, depending on the broker and the type of account you want to open.
2. Stock Prices: The price of individual stocks can vary widely. Some stocks trade for just a few dollars per share, while others may be hundreds or even thousands of dollars per share. The amount of money you need will depend on how many shares you want to buy and the current price of the stock.
3. Fractional Shares: Many brokers now offer the option to buy fractional shares, which allows you to invest in a portion of a stock rather than a whole share. This can be an affordable way to start investing with smaller amounts of money.
4. Diversification: It’s generally recommended to diversify your investments across different stocks or assets to manage risk. Starting with a larger initial investment allows for more diversified holdings, but you can begin with smaller amounts and build your portfolio over time.
5. Additional Costs: Consider transaction fees, commissions, and other costs associated with buying and selling stocks. Some brokers offer commission-free trading, while others charge fees that can impact the amount of money you need to start investing.

In summary, while there’s no specific minimum amount required to start investing in stocks, it’s advisable to have enough to cover any account minimums and to purchase at least a few shares of stock to achieve meaningful exposure. Starting small and gradually increasing your investments as you become more comfortable and knowledgeable can be a prudent approach.

Are Stock Funds Good for Beginner Investors?

Yes, stock funds can be a good option for beginner investors for several reasons:

1. Diversification: Stock funds, such as mutual funds and exchange-traded funds (ETFs), pool money from many investors to buy a diversified portfolio of stocks. This diversification helps reduce the risk associated with investing in individual stocks and can be particularly beneficial for beginners who may not yet have the expertise to pick individual stocks.
2. Professional Management: Many stock funds are managed by professional fund managers who have expertise in selecting and managing investments. This professional management can help beginners who may not have the time or knowledge to research and manage individual stocks.
3. Accessibility: Stock funds often have lower minimum investment requirements compared to buying individual stocks. This makes them accessible for beginners who may be starting with a smaller amount of money.
4. Ease of Investment: Investing in stock funds is generally straightforward. Investors can buy shares of the fund through a brokerage account or retirement account, and the fund’s diversification and management make it easier to build a balanced portfolio.
5. Cost Efficiency: Many stock funds, especially index funds and ETFs, have relatively low fees compared to actively managed funds. Lower fees can lead to better long-term returns, making these funds cost-effective for beginners.
6. Automated Rebalancing: Some stock funds automatically rebalance their holdings to maintain a desired asset allocation. This can help beginners maintain a diversified and balanced portfolio without having to make frequent adjustments themselves.

Overall, stock funds offer a convenient and less risky way for beginners to start investing in the stock market. They provide diversification, professional management, and accessibility, making them a suitable choice for those new to investing.

What Are the Risks of Investing?

Investing inherently involves several risks, and understanding these risks is crucial for making informed decisions. Here are some of the primary risks associated with investing:

1. Market Risk: Also known as systemic risk, this refers to the possibility of losses due to overall market declines. Factors such as economic downturns, political instability, or changes in interest rates can affect the entire market.
2. Credit Risk: This risk is associated with the possibility that a borrower may default on their debt obligations. For bond investors, this means that the issuer might not be able to make interest payments or repay the principal.
3. Liquidity Risk: Liquidity risk arises when an investor cannot quickly buy or sell an investment without affecting its price significantly. Investments in less liquid assets, such as certain bonds or real estate, can be harder to sell in a timely manner.
4. Inflation Risk: Inflation risk is the risk that the purchasing power of your investment returns will be eroded by rising prices. If the return on your investments does not outpace inflation, the real value of your returns may diminish.
5. Interest Rate Risk: This risk pertains to changes in interest rates that can impact the value of fixed-income investments like bonds. Generally, when interest rates rise, the prices of existing bonds fall, and vice versa.
6. Reinvestment Risk: Reinvestment risk occurs when investors face the challenge of reinvesting returns or interest payments at lower rates than the original investment. This is particularly relevant for fixed-income securities.
7. Economic Risk: Economic risk involves the potential impact of economic factors on investments, including changes in economic growth, unemployment rates, and consumer spending, which can affect company performance and stock prices.
8. Currency Risk: For international investments, currency risk is the risk that fluctuations in exchange rates will impact the value of your investments. A change in the value of the foreign currency relative to your home currency can affect returns.
9. Political Risk: This risk involves the impact of political events, such as changes in government, regulations, or policies, on investments. Political instability or unfavorable policies can affect market conditions and investor returns.
10. Company-Specific Risk: Also known as unsystematic risk, this refers to risks associated with individual companies, such as management changes, operational issues, or poor financial performance. Diversifying your portfolio can help mitigate this risk.

Understanding and managing these risks is essential for successful investing. Diversification, thorough research, and a well-considered investment strategy can help reduce the impact of these risks on your portfolio.

The Benefits Of Joining A Community Of Informed Investors

Here are the Top Benefits:

Wealth Creation through a personalized, balanced, and well-diversified equity portfolio for Indian investors is what you can get. 

1. Achieve your financial goals by curating a portfolio that meets your financial profile, risk appetite, the longevity of how long you want to stay invested, the amount you want to invest, your age, etc.
2. Invest in a personalized portfolio of 20-25 well-researched, fundamentally strong businesses. Click here to unlock these 20-25 high-growth opportunities.
3. Know the proper allocation, buying range, research reports, and upside potential for every business you’ve invested in.
4. Keep a vigilant eye on your portfolio all the time. Get complete handholding and guidance to sail smoothly, even during volatile times.
5. Be a part of conclaves that help you stay abreast of the latest investing trends, markets, economic developments, healthy wealth creation practices, and more.
6. Also, if you have any questions, you can contact the customer service team, who will answer your questions within 48 working hours.

Let me share that there are 6 stock market investor types, each with a unique investing style. Click here if you wish to know which category of investor you belong to.

In case you have any further doubts to invest in share market, you can always write an email to support@researchandranking.com or call on 022 61013818

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