Learn to invest in share market – Our guide on how to invest in shares

Invest in share market

Before we discuss how to invest in the share market,t is the as I am a young IT professional working in an IT company in Pune.  I perceived our traditional Indian dream of purchasing a new home and car and what not.

I was working and saving money to achieve my dreams. Afterall, I quickly realized that only saving money may achieve my dreams. I will not make it at the right time. In other words, Target is not only to save money but also grow the money.

I started looking for various options to earn more money as well as grow money. Since I am working as a full-time employee. I wanted to start my side business. That is to say that, I could work on the weekend to earn money. I started doing self-study and google searching.  

I came across the following options.

  • Purchase the flat or shop and give it on rent – but I could not offer due to the super high cost
  • Invest money in cryptocurrency – but it’s too risky and legal issues
  • Start a new business – but it needs a lot of investment
  • Invest in the scheme – but chances of losing money in fraud schemes

And many more..

I tried to evaluate every option. But, there were lot of hurdles.

Above all, I came across the option of investing in the stock market. When I explored this option I was quite surprised by the few facts.   

  • Start investment with very less amount
  • A lot of learning is easy.. (being an MBA!)
  • Profit % is quite more compared to other options
  • Risk factor depends on me!

I decided to give the try to this option. Being I newly started as an investor, I came across many questions related to the stock market!

I opened my first trading account with Edelweiss with the help of a friend and started investing in the stock market. Initially, I decided to play safely with hard earn money. I used to purchase stocks on well know companies like SBI, Infy, Sun Pharma, etc. I made a decent profit with these trades.

After some days I explored futures and options. I failed very badly here. I learned why people lost money in the stock market.

Here we will discuss questions related to share market.

What is share market and how it works?

A share market is place where shares are either issued or traded in.

The Securities Exchange Board of India also known as SEBI is the capital market regulator in India.

A Company which wants its shares to be traded on the stock exchange gets listed in the primary market through an IPO (Initial Public Offering). The Company offer document lists important details on the Company. Investors bid for shares and in case of oversubscription, lottery is used to pick successful bidders.

The shares of the Company get listed and are then traded in the Secondary market. (This is share trading via stock exchanges like NSE and BSE). Buyers and sellers conduct transactions to make profits or cut down losses.

Stock brokers and brokerage firms like Angel Broking Ltd, Edelweiss Financial Services Pvt Ltd, HDFC Securities Ltd, Karvy stock broking limited, Kotak Securities Ltd are quite popular. Stock brokers are an intermediary between you/investor and the stock exchange.

You as a buyer place an order through your broker for a particular share at a certain price to invest in share market. Your order gets processed through the exchange. Your order is passed over the exchange by your broker. it holds a sell order for the same share is found. After a seller and buyer are fixed, a price is finalized. The stock exchange tells your broker that the order has been confirmed. You get the message.

Today, stock exchanges are electronically enabled and the entire trading process (buy/sell) and other transactions take place in seconds. This is electronic trading.

What is the difference between the stock market and share market?

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.

Now the next question is what is the stock exchange? It 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. India’s premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.

How the stock market works in India?

There are two kinds of share markets – Primary AND Secondary market.
Primary Market is where a company gets registered to issue a certain amount of shares and raise money.
Once new securities have been sold in the primary market after that, these shares are traded in the secondary market.
In short, we can say that when a company comes out with an initial public offer (IPO) it is called the primary market. However, The normal purpose of an IPO is to list the stock in the share market. Once the share gets listed it starts trading in the secondary market.

Why Do Companies need to issue shares to Public?

Most companies are usually started privately by their promoter(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors.

The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.

How can I buy a share?

You need to open a trading account with a broker and you can buy and sell shares in the stock market after the trading account is opened.

Send money from your bank account to the brokerage account. Decide on the share you want to buy. Buy that share. Review positions regularly. These are the simple steps to invest in share market by purchasing stocks.

Is the share trading account same as the demat account?

Trading account is used to execute your buy and sell trades. The demat account is used to keep shares in custody. When you buy shares in your trading account then your bank account gets debited and your demat account gets credited and vice versa.

How can I earn from share market?

Investing in the stock market is simple but not easy. It requires passion, patience, and discipline. Plus, one needs to have a sound understanding of the market and the forces at work and also some bit of research capability.
There are two primary ways to earn money from shares – through capital appreciation and from dividends.

Earning from capital appreciation

By investing in shares, you can expect to earn through capital appreciation. On the gains made on the capital (principal invested) when the share price rises. The gains or the profits from shares can go as high as 100 percent or more. There is, however, no guarantee of capital appreciation.

Earning from dividends

A company distributes profits to its shareholders by declaring partial or full dividends. In most cases, the company partially distributes profits and keeps the rest for other purposes, such as expansion. The dividends are distributed per share. If a company decides to give Rs 10 per share, and if the face value of the share is Rs 10, it is called a 100 percent dividend.

How is share price calculated?

The market determines the price of the share. Normally, share prices go up when the company is growing very fast or it is earning very good profits or it gets new orders. As demand for the stock picks up more investors want to buy the stock at higher prices and that is how the price goes up. Price of share is determined by demand and supply.

How can I invest in stocks with little money?

You can start to invest in the share market through a stock broker. Zerodha is my favorite discount broker.  Pay off your debt first.
Invest only surplus money i.e. it should not impact you financially if you lose it. There are high chances of losing money initially due to lack of knowledge.
I would suggest you to start trading with blue-chip companies.
One thing that needs to remember is if you’re investing for a long period of time, it makes sense to own a significant amount of stocks. For instance, if the market drops still make you nervous, remember this: It may be painful for a time, but if the stock market behaves as it has over long periods, you should be able to ride it out. This is why stocks should be owned for the long term.

What is fundamental and technical analysis?

Fundamental analysis is all about understanding the business of the company, its growth prospects, its profitability, its debt etc. Technical analysis focuses more on charts and patterns and tries to find out past patterns to apply for the future. Fundamentals are used more by investors while technicals are used more by traders.

How can I learn share market?

  • First, open the stock broker account
  • Go through articles published by stock brokers.
  • Find a mentor who can guide you and help you to learn to invest in share market.
  • Take classes in your local area.
  • Buy your first stock or practice through online app or simulators

Which stock trading site is best for beginners?

There are best Sites for Indian Stock Market Analysis such as

Money Control

NSE India

Economic Times

Screener.in

Market Mojo