How to Start Investing in the Stock Market?

Many people put off investing because they think investing in the stock market needs a lot of money to start. But, this is just not true. You can just start your investment with as little as Rs. 500/- per month. The key to create wealth is developing good habits like regularly investing small amount in the share market every month. If you make a habit of investing regularly you will be in a much stronger financial position in the future.

Find the right broker -

In India, people trade stocks on the following two platforms:

a) Bombay Stock Exchange(BSE) -Established in 1875, it’s the oldest stock exchange in Asia.

b) National Stock Exchange(NSE) - This is the largest stock exchange in India.

However, to gain access to these exchanges, retail traders need to register with brokerage firms or Depository Participants(DPs) first. It is important to find the right DP as retail investors will buy, store, and sell stocks through them. They will provide the interface through which you will interact with the share market. It is preferable to open an electronic 2-in-1 Demat and trading account with a DP as these accounts let you trade in stocks from the convenience of your home. An electronic account is also helpful as it lets you see all your positions at a single glance.

Certain DPs provide real-time market data to registered users. In the stock market, information is money, and the latest research can mean the difference between a profitable or a loss-making trade. Therefore, choose your broker or DP thoughtfully before you start trading.

Once you have zeroed in on a DP of your choice, keep the following documents handy.

Pre-requisites Before You Start Investing

For investing in the Indian stock market, there are a few prerequisites that I would like to mention first. Here are the few things that you will need to invest in the share market:

1. Bank Savings account
2. Trading and Demat account
3. Computer/laptop/mobile
4. Internet connection

Thanks to Reliance Jio, everyone has a 4G internet connection now..

For opening a Demat and trading account (usually opened altogether and called a 2-in-1 account), the following documents are required:

1. PAN Card
2. Aadhar card (for address proof)
3. Canceled cheque/Bank Statement/Passbook
4. Passport size photos

You can have your savings account in any private/public Indian bank.

Where to open your trading and Demat account?– This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 4).

Get your documents ready. If you do not have a PAN card, then apply as soon as possible (if you are 18 years old or above).

Educate yourself:  

one of the most important aspects of becoming an expert trader is the knowledge that goes with it. Do your homework, read up about the stock market, do your research on the companies you want to invest in, check their performance reports and keep an eye out for news stories, policy changes, and newsletters. The more research you have on your favorite stocks, the better informed your decisions will be.

Decide how much you will invest in stocks

First, let's talk about the money you shouldn't invest in stocks. The stock market is no place for money that you might need within the next five years, at a minimum.

While the stock market will almost certainly rise over the long run, there's simply too much uncertainty in stock prices in the short term -- in fact, a drop of 20% in any given year isn’t unusual. In 2020, during the COVID-19 pandemic, the market plunged by more than 40% and rebounded to an all-time high within a few months.

• Your emergency fund
• The money you'll need to make your child's next tuition payment
• Next year's vacation fund
• The money you're socking away for a down payment, even if you will not be prepared to buy a home for several years

Build a diverse portfolio -

While investing in the stock market, it is important to maintain a diverse portfolio. As a trader, you must mix up different sectors in your portfolio so that your portfolio is not uniquely vulnerable to the ups and downs in one sector. Traders should also look to invest in large-cap companies for stable but small returns, and small-cap companies for large but more unreliable returns.

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