High returns are among the top reasons to invest in the stock market. It encourages individuals to save and invest money carefully. Let us explain the process of how to start trading in India.
Open Brokerage Accounts
The foremost step is opening brokerage accounts – demat and trading accounts online with a stockbroker. As the stock market operates online, these two accounts are mandatory to start investing in the stock market. We need a trading account to place trade orders to buy or sell securities in the stock market, and the demat account will hold all the financial securities. Your trading account is linked to your bank account and records the flow of all your trading transactions.
How to open Trading Account Online with Demat Account
Demat and trading accounts can be opened simultaneously. Leading discount brokers facilitate a 100% digital process. They offer free demat accounts and hi-tech trading platforms for an easy and smooth online trading process. In the online application form at the official website of the broker, enter your basic details, upload your PAN card, ID proof, address proof, and income proof and submit it. The broker will verify the details and documents to create your accounts. You will get the login credentials after the verification process.
Determine investment objectives
An investment should be based on defined financial goals. The objectives are unique for every investor. It is necessary that the investment horizon and goals are aligned. Therefore, you should decide the investment horizon first.
Determine risk-bearing capacity
You should know what amount of risk you can withstand. The risk appetite of an investor is influenced by several factors, including age, objective, current liabilities, and capital. A younger investor without dependents can have a high-risk appetite and can bear higher exposure to equities.
Understand the Primary and Secondary Market
The primary market refers to an initial public offering (IPO). It is the first share of a company to be traded at the public stock exchanges. Every company now or then has to go public through IPOs and have huge profit potential for investors. Investors can hold these stocks for the long term or sell them after the completion of the IPO process of the company. You can invest in IPOs using your demat account. The share allotment will be based on the demand for shares.
The secondary market is the market to trade stocks of listed companies on stock exchanges after their IPO process. In the secondary market, you can buy or sell the stocks of companies that have completed the IPO process.
Build a diverse portfolio
This is the basic rule of investing – building a well-diversified portfolio across a range of assets. It minimizes the bad impacts of certain assets or stocks in your portfolio. It may be a temptation for investors to park all their funds in an industry showing a swing upward, but there should be a balanced investment portfolio. Depending on your risk appetite and investment horizon, you can invest in equities, bonds, mutual funds, exchange-traded funds (ETFs), or derivatives.
Rebalance your portfolio
With time, your financial goals or asset path may change. It requires you to rebalance your investment portfolio. You should rebalance your portfolio every couple of months. It helps you not be over or underexposed to an asset class.
Now you can log in to your demat account, choose the right stock or other investment avenue and start investing.
The Bottom Line
Anyone can invest in the stock market, no matter how much capital they have or what their financial goal is. Stock market investing requires skill, patience, dedicated time, and continuous learning. You need to make thoughtful decisions to invest your money to achieve your defined goals.