How to Start Stock Investing in India?

How to Start Stock Investing?

To start investing in the stock markets, you need 3 types of accounts – Trading Account (to place buy/sell orders), Demat Account (to hold your shares in dematerialized form), and a Bank Account (for fund transfers).Trading Account Process to Understand how to start investing in stocks

Trading Account

An account similar to a bank account, to be opened with a ‘stock exchange registered stock broker’. This account is used for placing orders in the stock exchange (i.e. to buy/sell shares).

Demat Account

An account where shares are held in a dematerialized form (i.e. electronically instead of the investor taking physical possession of certificates). The demat account is required to receive/transfer shares when you buy/sell shares through your trading account.

Bank Account

Your regular savings or current bank Account should be linked to your trading account. The Bank account is required to transfer/receive money when you buy/sell shares through your trading account.

Typically, if you sign up with a stock broker, they will guide you on not only the opening of the trading account but also the demat account and linking of your bank account. Just like banks provide you with the facility to open and maintain saving accounts, in the same way the Depositories* provide the facility to open and maintain demat accounts. In India, the government has mandated two entities –National Securities Depository (“NSDL”), and Central Depository Services (India) (“CDSL”) – to be the custodian of dematerialized securities.

Most big stock brokers register themselves as a Depository Participant (“DP”) who act as an agent of the Depositories to make its services available to the investors. Effectively both your trading account and your demat account is maintained by your stock brokers (mostly through setting up of 2 different entities). In case of some stock brokers, they use the depository services of other bigger financial institutions or custodians and only provide the front end trading account. As an investor, no one approach is better than the other for you, as typically, it takes the same amount of time for shares to be deposited and withdrawn from the demat account in either case.

To open a trading / demat account, follow the following process:

•     Approach a BSE and NSE registered stock broker.
•     Fill up the KYC form provided by the stock broker.
•     Attach the required documents – (i) identity proof and (ii) address proof.
•     Produce the original PAN card during account opening.
•     For Derivatives segment (i.e. futures and options market), 6 months account statement of your existing bank account is required.
•     One cancelled cheque of the bank account you want to link to your trading account.
•     3 passport size photographs

What you should look at before opening Demat and the trading account schemes:

Account Opening Charges: This is the fee charged at the time of opening demat and trading account.

Account Maintenance Charges: This is the annual fee charged to maintain demat & trading account.

Brokerage Charges for Intraday transaction: If you take a position (buy) on a stock and release (sell) that position before the end of that day’s trading session, it is described as intraday trading. The brokerage charges for intraday transaction are very nominal (mostly between 0.02%-0.05 % on the total cost of transaction).

Brokerage Charges for transaction requiring delivery: If you buy a share and hold it beyond that trading session (i.e. for a term longer than one day) or when you sell a share you own and do not buy it back during a single trading session, the transaction qualifies as a delivery based transaction as the name of the owner of the share is changed with the Depository. The brokerage charges are higher in this case as additional processing is required (mostly they range between 0.08%-0.55% on the total cost of transaction).

Brokerage Charges for Futures and Options transaction: The Brokerage fees applied on the transaction in the Futures and Options segment (mostly varies 0.02 – 0.05% on the total cost of transaction for futures and Rs 25 – Rs 100 per lot for option contracts).

Apart from the brokerage charges, you may want to consider the software/ technology provided by the stock broker for online trading and if the stock broker has a good service standard for call and trade facility (to enable you to place orders over the phone).

Share Market Basics... What is share market?

 Share Market Basics.

What is share market? 

A share market is where shares are either issued or traded in.
A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares.
The key factor is the stock exchange – the basic platform that provides the facilities used to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.

There are two kinds of share markets – primary and second markets.

Primary Market: 

This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange.
A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial Public Offering (IPO). The company thus becomes public.

Secondary Market: 

Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon.
Normally, investors conduct such transactions using an intermediary such as a broker, who facilitates the process.

Basics Of Share Market....Why do we invest?

Basics Of Share Market Explained

Why do we invest? 

To make sure we have enough funds to be prepared for the future. Simply earning and saving is not enough. Inflation – the price-rise beast – eats into the value of your money. To make up for the loss through inflation, we invest and earn extra. This is the investment fundament. The stock market is one such investment avenue. It has a history that goes way back to the 1800s.

Earlier, stockbrokers would converge around Banyan trees to conduct trades of stocks. As the number of brokers increased and the streets overflowed, they simply had no choice but to relocate from one place to another. Finally in 1854, they relocated to Dalal Street, the place where the oldest stock exchange in Asia – the Bombay Stock Exchange (BSE) – is now located. It is also India’s first stock exchange and has since then played an important role in the Indian stock markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian economy and finance is measured.
In 1993, the National Stock Exchange or NSE was formed. Within a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment.
This shows that stock markets in India have a strong history. Yet, at the face of it, especially when you consider investing in the stock market, it often seems like a maze. But once you start, you will realize that the investment fundamentals are not too complicated.

Points to be noted before investing

Points to be noted before investing

Rome was not built in a day

This adage perfectly tells the story of investors who bought shares of Eicher MotorsBSE -1.32 % in 2010 in anticipation of robust gains. Those who sold the stock in the interim have definitely missed the bus. Eicher Motors is one of the companies that have witnessed tremendous growth in market capitalisation since FY11.

On April 1, 2010, the company commanded a market capitalisation of Rs 1,759 crore, which was 4.52 per cent of Hero MotoCorp’s total market-cap of Rs 38,897 crore. At present, Eicher Motors’ market capitalisation is around 104 per cent of that of Hero MotoCorp. The share price of Eicher Motor has surged 3,590 per cent since the beginning of FY10, rising from Rs 659 to Rs 24,333 at the end of Monday’s trade. The Hero MotoCorpBSE 1.68 % stock has rallied 62 per cent to Rs 3,168 on February 27 from Rs 1,947 on April 1, 2010.

There are several examples that have created wealth for investors who gave time to their investment. Another example is SymphonyBSE -1.50 %, which surged 3,835 per cent to trade at Rs 1,337 on February 27, 2016 from Rs 34 on April 1, 2010.

“Three years is the minimum time one should give to a quality stock to grow. If business or industry dynamics looks in favour of a stock, then one can stay invested even longer,” said Anil Rego, CEO, Right Horizons.

Don’t depend on stock trading for daily need

Market experts say a big no to first-time or novice investors who are planning to totally depend on stock trading to meet their day-to-day needs. This is not going to work, as the pressure of your daily requirement is going to take precedence over the fundamental principle of stock investment, which is that you cannot make the market dance to your tune. It’s always the other way around. Expect the market to always go the other way when you need it to behave in a particular manner.

Your risk profile is of paramount importance

Don’t invest in stocks beyond your capacity. You should always check your risk appetite before putting money in equity. Your risk profile is dependent on your day-to-day requirements, number of dependants and your age. “Proper financial planning can help you to check your risk profile. There are online tools that can help you check and understand your risk profile,” Rego said.

Also, there are some thumb rules like the 100 minus age formula, which can tell you how much risk can you take in equities. Going with that rule, if your age is 35, you can allocate 65 per cent of funds into equities. In case of a conservative investor, the rule can be changed to 80 minus age.

Don’t trade with borrowed funds

Market experts believe the domestic market is highly volatile, so investing borrowed money in equity is not a wise idea. However, some professionals at certain point do go for leverage when they are bullish on market conditions and when they understand a business cycle.

Booking profit is important

Many people do not understand the selling part. “It is not possible to get the right price all the time for your holdings. Broadly, the right time to book profit is when the overall dynamics of the industry and a company does not look in favour of the stock. If you want to be a disciplined investor, you should set a target and exit when it is achieved,” Rego said.

Courtesy: The Economic Times