nal quotient and price appreciation. Besides gold, the most sought after investment asset class is Equity. This can be attributed to the fact that equities, popularly known as shares, deliver high returns.
As a rule of thumb, the return on equities is approximately equal to the sum of GDP growth and inflation. Investing in equities mandates prudence as market fluctuations in India can get unsparingly brutal.
Don’t worry. This article throws an insight into the process of investing in the Indian stock market.
Here’s how to invest in the Indian Stock Market:
1. Stock broker Account
The first and foremost step is to open a stockbroker account. In other words, you require a Demat account and trading account. A demat account lets you hold shares in electronic form. You can distance yourself from paper certificates.
A trading account lets you trade securities with money. In layman terms, it lets you buy and sell shares.
Needless to say, you cannot do financial transactions if you don’t have a PAN (Permanent Account Number) card. PAN is required not just to invest in stocks but also to assess your tax liabilities.
Stockbrokers can be individuals and companies. They should be registered with SEBI (Securities and Exchange Board of India). More importantly, they should be licensed by SEBI.
Stockbrokers are of two types:
– Full-service brokers
– Discount brokers
Full-service brokers offer a comprehensive range of services –right from stock advisoryto trading services. Full-service brokerage firms have qualified analysts who provide stock tips and nifty tips. Full-service brokers communicate stock tips and nifty tips to clients and keep up their spirits.
Discount brokers don’t offer any advisory services. They provide a trading platform to clients i.e., investors.
More often than not, full-service brokerage firms charge anywhere between 0.3% and 0.5% of the total amount invested by the customer. It is important to compare brokerage rates and facilities offered before availing their services.
3. Depository Participant
India has two depositories:
– NSDL: National Securities Depository Limited
– CDSL: Central Depository Service Limited
Your account should be registered with either of the two depositories. Stockbrokers will get this done.
What do depository participants do? They do the following:
– Hold the shares that you bought
– Release the shares that you sold
4. Paid Subscriptions and Blogs
Many full-service stockbrokers offer paid subscription services. Paid subscriptions will enlighten you on stock market scenario, case studies and help you become successful. Unfortunately, many paid subscriptions in India are a scam and often provide junk recommendations. Use your discretion before blindly following their stock tips and nifty tips
Keep reading headline stories on Money Control. For in-depth coverage, read Yahoo Finance. To comprehend economic concepts and business lingo, listen to CNBC for 30 minutes every day. Attend seminars. Improve your thought process.
Develop a holistic understanding of terms like EBITDA, EPS (Earnings per Share), reserves and surplus, current ratio, the book value of shares, market capitalization, etc.
5. Stock Picking Strategy
Stock picking is an art. More importantly, it’s a science replete with reason, merit and strategy.
There are two strategies:
– Value strategy
– Growth strategy
Value strategy is often deployed in commodities and stocks of automobile companies. Value strategy is all about investing in mature companies that are growing at a relatively lower rate than their respective industry standards.The intrinsic value of such companies often gets unnoticed by many investors.
Growth strategy is all about investing in those companies that are growing at a faster rate than their respective industries.Stocks of such companies are available at premium rates.
6. Stock Market Greats
Aspiring cricketers study the batting greats like ViratKohli, Rahul Dravid, and Sachin Tendulkar. Similarly, ambitious stock market enthusiasts study the stock market geniuses like Warren Buffet, Peter Lynch, Rakesh Jhunjhunwala, etc.
Stock market legends provide diverse, resourceful and profoundly valuable perspectives. Keep yourself abreast of their stock-picking strategies.
Start small. Practice with a simulator. Have patience. Be consistent. Persist in your efforts and learn from your mistakes. Cheers!