How to Invest in Share Market in India? An Ultimate Beginner’s Guide!

By Harshit Patel

July 9, 2021


An investor is someone who invests in such and such a share. “Investing” means buying shares of a company that is traded on a stock exchange.

This article is specially written for those self-confident and enthusiastic individuals who are looking how to invest in Share Market of India and who want to know how and where to start. The ultimate goal is to help the readers build a strong foundation and provide information about what to do, what to expect, and what not to do so that they can easily navigate through the market and ultimately make cash from their investments.

Note that this article may be a little longer because I try to cover all the basics that a beginner should know before entering the world of stock investing. Read the article all the way through, because it’s definitely worth it. Let’s get started.

Requirements before you start investing

To invest in the Indian stock market, there are a few conditions that I would like to mention first. Here are some things you should know about investing in the stock market:

  1. Bank savings account
  2. Trading account and dematerialized account
  3. Computer/laptop/mobile phone
  4. Internet connection

To open a brokerage account and a securities account (usually opened together and called a 2-in-1 account), the following documents are required:

  1. PAN card
  2. Aadhar card (for address confirmation)
  3. Cancelled cheque/bank statement/passport book
  4. Passport photos

You can have a savings account with any private or public Indian bank.

Where to open a securities account and a dematerialized account? – We’ll talk about this later in this post, in the section on choosing a stockbroker (STEP 4).

Get the paperwork in order. If you do not already have a PAN card, apply for one as soon as possible (if you are 18 years or older).

3 important tips before you start investing

If you are new to the stock market, you have many dreams and expectations. Perhaps you are considering investing your savings and getting thousands of dollars in return.

While there are hundreds of examples of people who have made large fortunes in the stock market, there are also thousands who have not.

Here are a few warnings for those entering the investment world.

Pay off high-interest debt first

If you have high-interest debt, such as, personal loans, credit card debt, etc., pay them off first. The interest rate on these loans may even be higher than your market income. It makes no sense to spend your energy giving away all the profits you made in the market to pay off your debt. Pay off that debt before you hit the market.

Invest only your additional/surplus funds

Stop there if you plan to invest in next semester’s tuition, next month’s rent, savings for your daughter’s wedding next year, or other such reasons.

Only invest an amount that will not affect your daily life. Investing in debt/loans is also a very bad idea, especially if you are new and learning to invest in the stock market.

Keeping control of money

Cash is not just an emergency reserve. It also serves as a key to freedom. Only when you have money can you decide to do big things like change apartments, quit a boring job, or move to another city.

Don’t fall into the trap of investing all your money and then losing your freedom. Don’t sacrifice your personal freedom for the sake of financial freedom.

Now that you understand the basic requirements and principles, here are seven steps to learn how to invest in the stock market yourself. Follow the sequence of steps to easily enter the world of the stock market.

How to invest in the Indian stock market

Step 1: Define your investment objectives

It is important that you first determine your investment goals. Start with the end goals. You know what you want.

Do you want to grow your accrued money (capital gains) to beat inflation and earn a higher return? Do you want to earn passive income from your investments through dividends? Do you invest with a specific purpose? Or do you just want to have fun in the stock market and create wealth at the same time?

If you just want to have fun and not learn, that’s fine. But be careful not to over-invest or get carried away by the market. Also, most people start the same way and set their goals later.

When you start investing for your goals, keep in mind that the time frame is different for different investment goals. Your goal could be anything from buying a new house, or a new car, funding higher education, marrying your kids, retiring, etc. However, when you invest for retirement, you have a longer time frame than when you invest to buy your first home.

Once you know your goals, you can decide on the amount and duration of your investment.

Step 2: Making a plan/strategy

Now that you know your goals, you need to determine your strategies. You may need to decide whether you want to invest all at once (a large amount at a time) or use the SIP (systematic investment plan) method. If you are considering a small recurring investment, consider how much you want to invest each month.

There is a misconception in our society that you need a lot of savings to get started. Let’s say 1 lakh or more. But this is not true.  As a general rule: Start by creating an emergency fund and then set aside a set amount of money, for example. B. 10 to 20% of your monthly income, set aside for savings and investments. You can use the rest of your income to pay your bills, mortgage, etc. But even if the amount you allocate is Rs. 3 to 5,000 or more, it is enough to develop the habit of investing.

A quick tip: Stockbrokers like Zerodha enable investors to plan their investments through systematic equity investment plans.

Step 3: Read several books about investments.

There are a number of solid books on stock market investing that you can read to master the basics. Here are some good books I recommend to beginners:

There are also other books that you can read to get a good foundation in the stock market. For a list of ten must-read books for Indian equity investors, click here.

Step 4: Choose your investment dealer

Choosing an online broker is one of the most important steps you should take. There are two types of stockbrokers in India:

  1. Full-service Broker
  2. Discount Broker

Full service brokers (traditional brokers)

These are traditional brokers who provide trading, research, and advisory services related to stocks, commodities, and currencies. These brokers receive a commission for every transaction made by their clients. They also facilitate investments in Forex, mutual funds, IPOs, FDs, bonds, and insurance.

Some examples of full-time brokers: ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal, etc.

Discount Brokers (budget broker)

Discount brokers simply offer their clients the service of brokerage.. They do not give advice and are therefore suitable for do-it-yourselfers. They offer low brokerage fees, high speed, and a solid platform for trading stocks, commodities, and currency derivatives.

Some examples of discount brokers: Zerodha, Upstox, 5 Paisa, Trade Smart Online, Paytm Money, Groww, etc.

More information here: Full-service versus discount brokers: Which one should I choose?

I strongly recommend you choose discount brokers (like Zerodha), because it saves you money on brokerage fees.

Initially, I started trading with ICICI direct (which is a full-service broker), but I soon realized it was too expensive compared to discount brokers. It makes no sense to pay for additional brokerage services even if you get similar benefits. That’s why I switched to Zerodha as a stockbroker.

Zerodha (discount broker) charges a margin of 0.01% or Rs 20 (whichever is lower) for every intraday order executed, irrespective of the number of shares or their price. Zerodha does not charge brokerage fees for deliveries to Zerodha. So, the maximum brokerage fee you have to pay per transaction through the Zerodha platform is Rs 20 and is independent of the transaction volume.

This is much cheaper than ICICI direct (a full service broker) who charges a commission of 0.55% on each transaction. If you buy shares worth Rs 50,000 from ICICI direct, you have to pay a brokerage fee of Rs 275 for a delivery transaction, that is, if you hold the shares in your demat account for more than a day.

Moreover, this amount is charged on both sides of the delivery transaction (buying and selling), so you have to pay a total of Rs 550 for all transactions in ICICI direct (much more expensive than Zerodha).

In summary, if you are considering opening a new brokerage account, I recommend opening an account with a discount broker to save a lot of brokerage fees. If you want to open your account with Zerodha, here is a direct link to fill out an account application!

Step 5: Begin learning about current stocks and investments.

Start noticing the businesses around you. If you like a company’s product or service, dig deeper to find out more about its parent company, for example. B. if publicly traded, what is the current price of the stock, etc.

Most products or services you use in your daily life – soap, shampoo, cigarettes, the bank, the gas station, the SIM card, or even your clothes – have a business behind them. Start looking for them.

For example, if you have been using an HDFC debit/credit card for a long time and are satisfied with it, look for more information about HDFC Bank. Information on all listed companies in India is available to the public. A simple Google search of the HDFC share price will give you a lot of important information. (Try it now!)

Similarly, if your neighbor recently bought a new Baleno, he is trying to find out more about the parent company, i.e. the company. Maruti Suzuki. What other products does the company offer and how has the company performed recently – what are its sales, profits, etc.?

You don’t have to go investing in stocks with hidden gems. Start with the most popular large-cap companies. And once you are comfortable with the market, invest in mid-and small-cap stocks.

Step 6: Choose a platform to track your performance

You can simply use an Excel or Google spreadsheet to keep track of your inventory. Create a spreadsheet with three tables containing the following items:

  1. Stocks that interest you and that you should research or invest in,
  2. You have already researched these stocks and found them interesting,
  3. Various actions – for other actions you want to follow.

This way you can easily keep an eye on the stock. There are also a number of financial websites and mobile apps you can use to track stocks.

Step 7: Do you have an exit plan

It’s always a good idea to have an exit plan. There are two ways to get out of the action. Either lock in your profits or cut your losses. Let’s discuss these two scenarios. Basically, there are only four scenarios in which you should sell a good stock in your portfolio:

  1. If you really need the money
  2. If the fundamentals of the stock have changed
  3. If you find the best investment opportunity and
  4. If you achieve your investment goals.

Once you have reached your investment goals, you can safely exit the stock. Or at least set aside some of the gains in your stock portfolio and transfer them to other, safer investment options. On the other hand, if the stock has fallen below your risk tolerance, get out of the stock again. In short, always know your exit options before committing.

That’s it. Here are seven steps to help you learn how to invest in the stock market. So here are some other important points that every newcomer to the stock market should know:

10 Additional items to note

1. Start small

Don’t put all your money on the market in the beginning. Start small and test what you have learned. You can even start with an amount of Rs 500 or Rs 1000. For beginners, learning is more important than making money. You can invest a larger amount if you are more confident and experienced.

2. Diversify your portfolio

It is very important to diversify your portfolio. Don’t invest everything in one stock. Buy shares of companies from a wide range of sectors.

For example, if you have two stocks of Apollo Tyres and JK Tyres in your portfolio, it is not a diversified portfolio. Although they are different companies, they both belong to the same sector. If the tire industry experiences a downturn or crisis, your entire portfolio could be at risk.

For example, a diversified portfolio may include shares of Apollo Tyres and Hindustan Unilever. Here Apollo Tyres refers to the tyre industry and Hindustan Unilever refers to the FMCG industry. In this portfolio, the two stocks belong to different sectors and are therefore diversified.

3. Investing in blue chip equities (for beginners)

Blue chip stocks are well-known companies that have been in the market for a long time, are financially strong, and have a good track record of growth and consistent returns over the past few years.

For example, HDFC banks (leader in the banking sector), Larsen and Turbo (leader in the construction sector), TCS (leader in the software sector), etc. Some other examples of blue chip stocks include Reliance Industries, Sun Pharma, State Bank of India, etc.

These companies have stable performance and very low volatility. Therefore, blue chip stocks are considered safe investments compared to other companies. Beginners are advised to invest in blue chip stocks. As you gain more knowledge and experience, you can start investing in mid-and small-cap companies.

4. Never invest in free advice

This is the main reason why people lose money in the stock market. They don’t do enough equity research and blindly follow the advice and recommendations of their friends/colleagues.

The stock market is very dynamic as stock prices and conditions change every second. Your friend may have bought this stock when it was undervalued, but it is now trading at a higher price. Maybe your friend has a different exit strategy than you. There are a number of factors that can cause you to lose money.

Don’t invest in advice and do your own research.

5. Avoid following the crowd blindly

I know many people who have lost money because they blindly followed the crowd. One of my employees invested in stocks just because those stocks doubled the profits of another employee at my college in 3 months. He ended up losing Rs 20,000 crore in the market just because of his blind investment.

Related posts: 6 reasons why most people lose money in the stock market

6. Invest in what you know and understand

Would you buy an ABC company that makes vinyl sulfone frames and dye intermediates even if you knew nothing about the chemical industry?

If so, it is like giving a foreigner a lakh rupees and expecting him to return the money with interest. If you lend someone money, ask a few questions, such as. B. what he/she does, what his/her salary is, what his/her background is, etc. But when they invest a lakh rupees in an obscure company, people forget this sound logic.

7. Knowing what to expect in the marketplace

Do not set unrealistic expectations for the stock market. If you want your money in the stock market to double in a month, you have the wrong expectations. Have logical expectations of the market.

People don’t mind a simple 4% interest rate on a savings account, but a 20% return over a year seems like an understatement.

8. Maintain discipline and follow your plan/strategy

Don’t be discouraged if your portfolio does too well or too badly in the first few months of your investment. Many people increase the amount of their investment in just a few weeks when they see that their stocks are doing too well and end up taking losses in the long run.

Similarly, many people leave the market prematurely and do not benefit from the rise in their shares.

 Be disciplined and follow your strategy.

9. Invest regularly and continually increase the amount invested

Equity investments work best when you invest for the long term. You don’t want to invest in a sump pump all at once and wait the next 10 years to see the profits you made. Invest regularly when a good opportunity arises. Keep increasing the investment amount as your savings grow.

10. Continue teaching

Keep learning and growing. The stock market is dynamic and constantly changing. Only by continuing your education will you be able to follow the evolution of the stock market.

There are also a few other lessons that you will learn over time and through experience.

Frequently Asked Questions

How do I begin to invest in the share market in India?

The first step is to find a broker. You can do this by asking friends and family members, or by searching online. Once you find a broker, you will need to open an account with them. This will require you to provide your name, contact information, and some form of ID. You will then need to deposit money into your account. You can do this by transferring money from your bank account, or by using a debit or credit card. Once you have money in your account, you can start investing.

Can I invest 1000 in share market?

Yes, You can invest Rs 1000 in the share market.

How much should I invest in the stock market as beginner in India?

It is difficult to answer this question without knowing your financial goals and how much you are willing to invest. You can start with a small amount and increase it gradually.

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