How to Invest in the Share Market ?

Investing in the share market requires some pre-requisites. For instance, you need a trading account to access shares of public companies listed on stock exchanges. Similarly, you must decide on an investment strategy to build a strong portfolio. Let us discuss how to invest in the share market in detail.

Topics Covered :

• What is the Share Market?
• Why Do Companies Issue Shares?
• How to Invest in the Share Market?
• Conclusion

What is the Share Market?

Before discussing how to invest in the share market, it is essential to understand what exactly is the stock market in India . It is a place where you trade shares of public companies in India. Public entities in India issue their shares to the public, including retail investors. On the other hand, private entities do not liquidate their shares for public investors. You can find shares of different companies on stock exchanges, like BSE and NSE in India. The stock market is also divided into two categories, primary and secondary market. Companies launch their shares to the public for the first in primary markets via IPOs ( Initial Public Offerings ). Secondary markets involve investors and traders willing to purchase and sell public shares.

Why Do Companies Issue Shares?

Companies in India require funds for their operations, expansion, and other reasons. They can raise their funds by becoming a public entity and distributing ownership stakes to investors. When a company launches its IPO stocks investors give funds to the company in exchange for shares (ownership stakes). After the closure of the IPO, a company’s shares are permanently available on stock exchanges.

Companies can also take loans to secure additional loans. However, it will increase the debt-to-equity ratio, which is not preferred. When you invest in the share market, you are investing for the company’s improved financial performance in the future. As the company’s financial performance improves, the value of shares also increases. Not to forget, you might get more dividends as the company makes a profit.

How to Invest in the Share Market?

The stock market can provide lucrative returns to investors. However, new investors must understand where to begin in the stock market. Take some time to learn the stock market basics before making investment decisions. Here’s how to invest in the stock market in India:

• Identify Your Investment Requirements

  Investors must identify their needs, goals, and limitations before stepping into the stock market. Analyse your income, savings, expenses, and debts before making trades. It will help you understand the surplus amount, which can be used for stock market trading. Even though the stock market offers lucrative returns, there are certain risks. For the same rationale, you cannot pour your entire savings or earnings into the stock market.

  Recommended Read: Difference between Risk Capacity and Risk Tolerance

  Understanding your risk tolerance is essential before stepping into the stock market. Investors with a high risk tolerance might look for start-ups or value stocks. On the other hand, retail investors might look for stocks of stable companies to avoid any portfolio risks. Some investors might want to benefit from the experience of fund managers by investing in equity mutual funds. Once you have analysed your requirements and limitations, it is time to play the real stock market game!

• Determine the Investment Strategy

  You cannot invest in the stock market without a definite investment strategy. There are multiple types of stocks in Indian markets. You will choose the stock type based on your investment strategy. For instance, some retail investors might prefer a steady income source. In such a case, they can opt for dividend-paying stocks. Dividends are a part of profits paid by the company to its shareholders.

  Some investors might want to hold stocks and wait for capital appreciation. In such a case, they can go for undervalued stocks or shares of start-ups. Investors wanting stability can choose blue-chip stocks belonging to stable and influential companies. Whether you are looking for short-term investments or a longer investment horizon, it is essential to decide beforehand. You cannot step into the stock market and make profits without a predetermined investment strategy.

• Enter at the Right Time

  Timing is essential when you invest in the share market. You must decide on your entry strategy before making a trade. The general rule says that investors must enter when the market is bearish. It means you must enter the market when the stock prices are low. It will allow your stocks to grow with time and offer multifold returns. However, it is not mandatory to enter the market only when the prices are low.

  Investors might invest in undervalued stocks hoping for a price increase. Investors might also invest in high-value or blue-chip stocks, as their prices might rise further in the future. The right time to enter the stock market also depends on your investment strategies. Do not enter the stock market before you completely understand your financial goals, investment strategies, and portfolio risks.

• Execute the Trade

  After completing research and analysis, it is time to place your stock market order. You can execute your stock market trades online or offline. You must visit the stock exchange in person to execute the order offline. Alternatively, you can choose a stockbroker to provide you with an online trading platform. The stockbroker will also provide brokerage and Demat accounts, which are essential for stock market trading. The brokerage account will facilitate the buying and selling of shares, while the Demat account holds the securities electronically. Online trading is preferred by most investors in India, as they do not have to carry physical trade certificates. The purchased shares are transferred to your Demat account in electronic format.

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• Monitor the Portfolio

  You must not sit back after investing in shares of a particular company. You must always monitor the company’s performance to make better portfolio decisions. Let us say the company’s financial performance is continuously degrading. In such a case, you can cut your losses timely only when you always monitor the portfolio. You must also monitor stock price movements to make decisions.

  Intraday or short-term traders must monitor their portfolios closely. On the other hand, long-term investors can check their portfolios once a day/week to make informed decisions. Several portfolio monitoring solutions are available in the market. These solutions generate metrics related to your portfolio, thus assisting with decision-making. When you invest in the share market, it is essential to develop an exit strategy. You cannot develop an effective exit strategy without monitoring the portfolio.

Conclusion

Investing in the share market is not as easy as it might seem. However, you can increase your chances of making a profit by developing a definite investment strategy coupled with entry and exit strategies. You must choose a reliable broker to access India's primary and secondary stock markets. Develop your stock market trading strategy today!