How to invest in Stock Market ?
Do you like creating wealth ?
Who doesn’t like creating wealth and spend money the way they want.
One of the easiest way to create wealth is stock market. True, but it remains pandora’s box for many.
Basically you can do 2 things in stock market – Trading & Investing
Generally people think stock market as trading. Buying and selling of stocks.
Check out the below points on trading and investing, then you can decide which one to do.
What is Trading ?
Imagine a fruit seller, he buys a fruit and sells in the market on the same day. Based upon his marketing skills he can either sell everything in profit or incur some losses on that day. He needs to keep doing this repeatedly to earn money.
In Trading too, you need to buy and sell within a day or trade in Futures & Options by rolling over your trading for months also. At the end you may incur losses or profit not just based on your knowledge level alone and also on International markets, Local market conditions, Monsoon, local politics etc.
As per recent report by SEBI, 89% of the traders(9 out of 10 traders) in F&O segment incurred losses with average loss being 1.1 lakhs.
For the group of active traders, only 6% of individual traders in equity F&O segment made profit with an average profit of nearly 3400 in FY 2022
More about trading losses & profits made by individuals can be seen in SEBI website (https://www.sebi.gov.in/reports-and-statistics/research/jan-2023/study-analysis-of-profit-and-loss-of-individual-traders-dealing-in-equity-fando-segment_67525.html)
So if you have money and time to learn Trading, then try it out. There is a huge known risk of losing money.
If you are working or doing business, then it is a strict NO from my side.
What is Investing in Stock Market ?
Now imagine a land owner who harvests fruits. He keeps farming them with water and takes care of its growth. When it is time to reap, he does that and sends it to the market for making profit.
As an investor you are almost a farmer. You need to analyse a company before investing and then after buying, you need to keep following up with their development. If it grows gradually, you need to stick with it. After few months and years, you can see your profit grow gradually and start seeing wealth being generated out of it.
How stock market works ?
Imagine you are starting a private limited company. You are operating your company for few years then you had accumulated few debts with a vision to expand your business.
Now you can get money from your relations, from banks, as private equity and then there is an option to generate money from general public by listing in stock exchange. BSE and NSE are 2 biggest operational stock exchanges. People can buy your company shares through these exchanges.
By getting listed in stock exchange your company will be more compliant to public shareholders. SEBI regulates all the listed companies and protects general public or investors.
If a company is getting listed in stock exchange for the first time, then it is called primary market. After it is getting also, people can buy from exchange which is called as secondary market.
From secondary market, people can either trade or invest. Trading can be buying or selling stock on same day or investing which means taking delivery of your stock or company.
There is another option called derivative trading which allows you to do Futures & options with available listed stocks. Based on the existing stock price, it can be traded in the future by buying or selling. Hence it is also called as speculative trading and carries a huge risk.
Investing in stock market is understanding the company, its profitability and future cash flows.
Check out the 11 factors which makes the stock price to move up and down over a period of time. (https://ganesanthiru.com/unlimited-wealth/factors-that-affect-the-stock-market-in-october-2021/)
Steps to Invest in Stock Market
Now you know stock market, why a company is getting listed in stock exchange and who regulates it.
Here are the few steps which you can follow to invest in stock market,
- You have a bank account
- You can create demat account with same bank ( Like HDFC demat with HDFC bank)
- You can also create demat account with discount brokers like Zerodha, Groww, Upstoxx etc
- You can transfer amount from your bank account to Demat
- On any day of trading, you can buy any company
Now only thing you need to do is identify the company which you can buy. Checkout this article on “Why you must do fundamental Stock market analysis” (https://ganesanthiru.com/stock-market/fundamental-stock-market-analysis/)
11 point Checklist before investing in stock market
Investing in the stock market can be a rewarding way to grow your wealth over time. Here are some checklist which you can follow,
- Educate Yourself: Before you start investing, it’s essential to understand the basics of the stock market. Learn about different investment vehicles, terminology, market dynamics, and investment strategies. There are numerous online resources, books, and courses available to help you learn about investing.
- Set Financial Goals: Determine your investment objectives and financial goals. Are you investing for retirement, buying a house, or funding your children’s education? Your goals will help you decide how much money you should invest and for how long.
- Build an Emergency Fund: Before investing, it’s crucial to have an emergency fund in place. This fund should typically cover 3-6 months’ worth of living expenses. It acts as a safety net, ensuring you have money available for unexpected expenses or emergencies
- Assess Your Risk Tolerance: Understand your risk tolerance, which is your ability to endure market volatility and potential losses. Generally, younger individuals with a longer investment horizon can afford to take more risks, while those nearing retirement may prefer a more conservative approach.
- Create a Budget: Review your income, expenses, and savings to determine how much money you can allocate towards investing. It’s crucial to have a clear understanding of your financial situation before committing funds to the stock market.
- Open an Investment Account: You’ll need a brokerage account to invest in the stock market. Research different brokerage firms and select one that aligns with your investment goals and offers the features you need. Consider factors like fees, investment options, research tools, customer support, and ease of use. Some of the discount brokers you can consider are zerodha, fyers, groww etc
- Choose Your Investments: Consider a stock, Research the company you are interested in, analyzing factors like their financials, management, industry trends, and future prospects. Some of the websites you can refer for analysing are screener.in, moneycontrol.com, valueresearch.com, trendline.com etc
- Diversify Your Portfolio: Diversification helps reduce risk by spreading your investments across different asset classes, sectors, and geographic regions. A well-diversified portfolio can help mitigate the impact of any individual stock’s poor performance.
- Monitor and Review: Regularly monitor your investments and review your portfolio’s performance. Keep up with news and market trends that could affect your investments. However, avoid making impulsive decisions based on short-term market fluctuations. Investing should be approached with a long-term perspective
- Stay Disciplined: Investing is a long-term commitment. Avoid making emotional decisions based on market volatility or short-term fluctuations. Stick to your investment strategy and avoid chasing quick gains or trying to time the market
- Seek Professional Advice (Optional): If you’re unsure about investing or need personalized guidance, consider consulting with a financial advisor. They can help you create an investment plan tailored to your goals and provide ongoing support