Investing in stock markets is always interesting to build wealth. It is not just ups and downs in share prices. There is a lot to learn about it to be a long-term investor.
Most of the things you will learn with experience. But as a beginner, there are few things that you should know to see the stock market with the right perspective like investing in the primary market and secondary market, the role of stock exchanges, information requirements, and documents needed to invest in the share market.
The investing process in the share market starts with an online Demat account to hold your shares. But before knowing about the Demat account, understand shares and markets. When a company needs funds, it can legally raise it through issuing shares.
When a company issues its shares for the first time, it issues an Initial Public Offering (IPO) to the public in the primary market. In the primary market, you buy shares directly from the company through an IPO.
As soon as the IPO finishes, shares of the company are listed on a stock exchange. This is known as the secondary market where one can buy and sell shares of a company from an existing shareholder. But where will you find the existing shareholders and at what price you will get the shares? The answer is stock exchanges. Here is the need for a regulatory body (SEBI) and intermediaries (stock Brokerage firms, depositories) to regulate the markets and check frauds. Intermediaries follow a specific process for share transactions defined by the SEBI to ensure maximum protection to all investors.
You can buy shares in the primary market or secondary market and it’s your investment to share the company’s profit in the proportionate ratio of investment.
How to invest in the share market?
To invest in the share market in India, investors need to follow the following procedure:
It is mandatory to have a PAN Card for financial transactions. Your name and Date of Birth details mentioned will be used for the KYC procedure while opening a Demat Account.
- Get a reliable and registered broker
- You cannot go directly to the stock market and start buying or selling shares. There is a need for authorized brokers. They can be individuals, firms, or companies registered with SEBI and Stock Exchanges. You need to pay a brokerage fee for their services.
- Get a Demat account
You have found a broker and checked its reliability and services, now you can open a Demat and trading account with them to hold the stocks in the dematerialized form.
- Bank account
You should have a bank account and link it with your trading account. It is needed to make transactions to buy/sell shares.
Besides this, a PAN Card, photograph, a cancelled cheque, and proof of address (Anyone: Aadhar Card, Voter ID Card, Passport, 6-month bank statement, utility bill, not more than 3 months old) needs to be submitted at the time of opening a Demat account.
While enquiring about the Demat account, ensure to check about brokerage fee, transaction fees, annual maintenance charges to be charged by a broker.
There are various factors that long-term investors must look at. Before making any investment, ask yourself – are you a trader or an investor?
Can you keep your emotions in check?
Keep on following up on your investments in shares and get assistance, tips, and recommendations from your brokers, at least at the beginner stage.