How to Start Investing in Stock Market

This article aims to help new investors who are planning to enter stock market. I will be discussing stock investment process in Indian market together with a brief idea about stocks. This article will be followed with a lot of other articles aimed at equipping new investors with tools needed to be a professional investor. So let’s start with the first step.

 


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What are Stocks?

Theoretically speaking stocks mean an ownership in a company but this definition is significant for large investors. Retail investors (who are having capital less than 50 lakhs) should stick to a more practical definition according to which “stocks are meant to provide alternative source of income”. You achieve this by buying the stocks at low price and selling them at higher price (Sounds simpleJ). Going by this definition stocks are products which can be bought and sold in a market known as stock exchanges.

 

How to buy a Stock?

As per the definition above stocks are financial products bought and sold in stock market. So to buy or sell them you need to have access to stock market i.e. stock exchanges. There are few basic requirements which you need to fulfil so as to get fully operational in stock market. The basic requirements are listed below

 

  1. Opening a DEMAT account – Almost everyone is familiar with savings bank account which is used to hold money. Similarly you need to have a Dmat account for holding stocks you buy. Dmat account can be treated as saving bank account for holding stocks.
  2. Opening a Trading account – Socks are bought using money and you receive money once you sell them. How the flow of money takes place? The money you pay to buy stocks and the money which you receive after selling the stocks flows through a trading account which you need to open for being an active participant in stock market.
  3. Transferring and receiving money - Once the above accounts are opened you can transfer money to your trading account from your savings account and start buying stocks. If you sell stocks from your dmat account money will come back to your trading account. You can use this money to buy another stock or can transfer it back to your saving account.

 

Proliferation of internet technology has made things so easy that you even need not move out of your house to be a buyer or seller in stock market. All the three requirements described above can be fulfilled sitting at home. You just need to make a phone call to the bank which provides dmat/cum trading account facility. Almost all the banks provide this facility now a day.If still in doubt we at equityfriend can help you out. Please refer to Equityfriend section at the end of this article.

 

How much money you need to start investing in stocks?

The answer to this question might be surprising as the theoretical minimum amount needed is something round Rs 25. This amount mainly goes as brokerage fee and if there were no brokerage fee the amount would have been much lower. For the time being consider brokerage as cost of doing business in stock market. We will cover it in detail in another article. As theories are for books let’s figure out the practical amount you need for being operational:

 

Action

Amount (Rs)

Opening Dmat cum Trading Account

0 to 1000 (One time charge- varies bank to bank)

Buying a Stock

Stock Market Price (Varies from less than Rs1 to more than Rs 1000). For Practical calculation let’s say stock price is Rs 100.

Transaction Cost + Other charges

1 % of total amount (Depends on the broker you choose but will never be more than 1% )

 

Doing the maths

Let’s use the data above to calculate the final amount you need for being operational

Maximum amount needed to Buy your First Stock = 500 + 100 + 1*100/100 = 601

So for your first buying activity in a stock of price 100 you only need Rs 601. This initial investment amount varies with the stock price and the number of stocks you choose to invest in.

 

How much money I should start with?

If you are a beginner it’s recommended to start with a capital of Rs 10000. If the amount is less than Rs 10000 transaction cost gets higher. Treat this investment as cost of learning the new skill.

Two things might happen with this investment. First, you lose some amount which should not dishearten you as it’s the fee you are paying to learn how to make money in stocks. Second, you gain some amount which again should not make you overconfident as it will prompt you to make bigger mistakes.

 

How to select good stocks for investment?

Wait for another article as it’s the trickiest part. We will be covering it in details.

 

What are other options of entering the stock market?

You can also start investing in stocks through mutual funds where your money is pooled with other investor’s money and invested into stocks. The buying and selling is done by a fund manager and you are just a spectator. You can choose this route if you are a beginner and do not have much time for doing research on stocks. More on this in another article.   

 

Equityfriend – We are there for you

We provide sub broking and advisory services through ICICI Securities and if you need personal assistance and advisory in starting your investment journey please drop us a mail at This email address is being protected from spambots. You need JavaScript enabled to view it.This email address is being protected from spambots. You need JavaScript enabled to view it.

As we genuinely want you to master the stock market we do not charge any fee for this service.

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