Investing in stocks for beginners in India is always challenging. Everyone believes that you can make a lot of money in the stock market if you know a little bit about it or companies. However, it is not advisable for everyone to invest directly in stocks as it is a risky element of investment. Beginners need to understand the ups and downs of stocks or indices, how exactly the market works, and what is fundamental of the stock market. Here we will just focus on some basics of the stock market in layman’s language on how to buy stocks for beginners or how to invest in the stock market for beginners.
Buying stocks for beginners is a little complex process. Looking at the basics, stocks here mean equities sometime also called securities as well. An investor looks for companies’ stocks or equities to invest in that give stockholders or shareholders ownership of that company. As long as you hold the stock or share of that company, you are the owner of a small part of the company. So basically, you are owning a business by purchasing some share of that company. This happens only in the case of public companies which are listed and traded on stock exchanges such as NSE and BSE.
Investing in stocks for beginners in India for beginners – the basics
A stock market is a place where one can get a collection of stocks that can be bought and sold by the general public on a variety of different exchanges.
Exchanges are a marketplace where these equities or shares are traded. Buyers and sellers of these equities come to this exchange the decide the price of that share and it goes on in buying or selling.
In the case of a private company, total equities are held by the promoter of that company. Mean, if my family owns an ice cream company, my family members and I may be the promoters and hold total shares. Once it becomes public and listed in the exchange, the public can hold a part of that company.
How to start investing in the stock market – start thinking
Stock market investing is considered long-term investing. Invest the amount in a good listed company for 3 to 5 years or more and get a decent return. But, in the present scenario, buying stocks and holding for such a long period does not make sense for beginners.
Investing in shares for beginners is a long process and there are a lot of learning curves. Especially, since it is too complex and risky to invest in shares for beginners. The best way to start investing in stocks is to understand the basics of the companies and how their stocks are performing in the market. In simple terms, you need to think like a businessman to invest in such a business where you can see a profit in a long term.
Getting started in stocks
Most fund houses look for a top-down approach before investing in a company. Getting started in stocks requires an understanding of the performance of the global economy to the company’s performance. Below are some basics to understand.
- Stay up to date with changes happening in the global economy, and geo-political scenario. Particularly – the performance of major economies such as the US, China, and the major European countries
- Stay up to date with information about the domestic economy, its political scenario, etc.
- Think about the sector or industry that is emerging domestically as well as globally.
- For example, the specialty chemicals sector was booming for two years in India.
- Now it may be the turn of the electric vehicle segment and ancillary products such as the auto component sector and companies that are exposed to the EV segment, Power station segment, etc.
- Above all keep a close eye on the performance of the companies invested
- Its financial performance
- Company’s promoters background
- Its product portfolio
- Companies plan for strategic growth
- Read annual reports and companies’ presentation from time to time
- Make well-advised and well-researched decisions before investing in any company.
- Create a diversified portfolio
Getting started in stocks investing is not easy. Unless you are sure about the above points and especially about the future of a company, do not jump into that stock. Particularly choosing a stock and investing for the long term needs a separate mindset. Therefore, many smart people are working in this area for their living like fund managers and financial advisors.
One of the best ways to start investing in stocks is an index fund. This can be either a mutual fund or an exchange-traded fund (ETF) or simply invest in index funds. These funds are a collection of dozens or even hundreds of stocks. And each share you purchase of a fund owns all the companies included in the index. However, you need to pay a small token of the annual fee to manage your portfolio.
Keep investing over time as a systematic investment plan (SIP). All mutual funds are offering these kinds of investment options. You need to choose the best return before investing.
Buying stocks for beginners – Large Cap Vs Mid Cap
As a beginner in buying stocks do not jump into the small-cap or penny stocks. Many online fraudsters will influence you for hefty returns in a penny or small-cap stock. My advice is not to go with this advice. Getting started in stocks for a beginner, I will advise you to invest in large-cap stocks or mid-cap stocks after proper due diligence about the company. The best way to start investing in stocks is to start with large-cap and mid-cap.
Large-cap stocks are those with large market caps of above INR 25,000 crore. They are also known as blue cheap stocks. SEBI identifies large-caps as the top 100 stocks by market cap. These companies are the largest in the country by revenue. They are well-established and are usually market leaders in their respective industries. Investing in those stocks usually has low risk and relatively low return as compared to mid or small-cap companies. However, you may get a decent dividend with a lower-risk investment. You can keep these stocks in your portfolio for the long term.
Mid-cap stocks usually imply companies with a market cap in a range between INR 8,000 to INR 25,000 crore. These companies are smaller than large caps. These companies are capable of higher growth and have the potential to disrupt a large company. Usually, a few of these mid-cap companies grow into large-cap companies. These stocks are riskier than large caps but the return is quite high than the large-cap stocks. However, this is one of the best ways to start investing in stocks.
How to buy stocks for beginners – platforms and basic requirements
Getting started in stocks investing – you need to have the following arrangements with you.
- Get ready with your PAN card and Adhar Card
- You must have a bank account in any nationalized bank in India.
- You need to open a Demat account with a reputed stock broker. This is also called a trading account where you “trade” or place buy or sell orders. This account will be linked to your bank account.
- You can open the Demat account online. Apply online and submit KYC documents and verification details digitally
Cost of maintaining or investing in stocks
- Few stock brokers are charging for investing in stocks.
- However, stock brokers such as ZERODHA have zero charges for investing. It only charges INR 300 for annual maintenance. To open a Demat account, you can apply online with the brokers.
- Many nationalized banks are also offering Demat accounts along with saving accounts. You may open it directly with them. But be careful about the charges.
- Other charges of taxes that the government collects directly or through brokers are as below.
- The government charges on each transaction are the Securities Transaction Tax (STT), SEBI charges, and Goods and Services Tax (GST).
- If you hold a stock for longer than a year, you need to pay long-term capital gains tax, which is 10% of the profit.
- If you hold a stock for less than a year, you need to pay short-term capital gains tax, which is 15% of the profit.
- Dividends and profits are also chargeable as income tax if your income is under the taxable range.
The final line – best way to start investing in stocks to make profit
Investing in the stock market for a beginner can be very challenging and complex. However, if you do it carefully and read a lot before venturing into the market, it can be very rewarding. Especially if you avoid some of the pitfalls that most new investors experience when starting. Beginners in the stock market should find a proper investment plan after considerable research work. Once that plan works for them and sticks to it through the good times and bad you will enjoy the journey.
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We endeavor to help you to understand different aspects of a company before you invest in the company’s IPO. To know more information about business overview of each company, here are some suggested readings on company insights BIBA Fashion Limited IPO, SSKL IPO, Mankind Pharma IPO, Upcoming IPOs Review. IPO Companies, DRHP in IPO filing, Confidential IPO Filing in India.