Investing in the stock market allows investors and traders to improve their financial portfolios. It also allows them to gain returns that are higher than any other financial instrument. This is why the Indian stock market has witnessed a growth in investor participation.
The ease of opening a Demat account online has further fuelled this growth. However, it is essential for you to understand the rules and process of investing in the stock market.
The first step towards entering the stock market is opening a Demat account. It is mandated by SEBI and follows set steps. Explore the fundamental knowledge and steps of how to invest in the stock market.
What Do You Need to Invest in the Stock Market?
Individual investors can’t purchase or sell shares on a stock market directly. The support of registered stock brokers, who carry out trades on behalf of investors, is essential. To carry out this trade, an individual investor must have the following accounts:
- Demat Account: Your shares are stored and maintained digitally in a Demat account. Your Demat account is credited with shares when you purchase them, and it is deducted when you sell.
- Trading Account: Using a trading account, you can place orders for purchases and sales on the stock market. It serves as an intermediary between you and the stock market. Orders are placed via your trading account, and the broker carries them out on your behalf.
- Bank Account: To ensure smooth money transfers, you need a bank account. The money you receive when you sell shares is credited to your bank account, along with interests and dividends.
How to Invest in a Stock Market in India?
A Demat account makes stock market investing more accessible and easy. The steps you to buy stocks from the comfort of your home easily are listed below:
Step 1: Open a Demat Account
Having a Demat account is a main eligibility for stock market investment. You must first choose a Depository Participant who manages your securities and handles transactions. Most DPs allow you to open a Demat account online.
Step 2: Open a Trading Account
A Demat account only stores stocks and securities digitally. A trading account, on the other hand, executes trades and transactions in the stock market. Brokers usually open both accounts at the same time. Your trading account and Demat account must be linked.
Step 3: Log into Your Demat Account
Log into your DEMAT account using the website or mobile app provided by a DP. Most DPs allow investors to access the investment platform via an application or website.
Step 4: Select a Stock You Wish to Buy
The stock market is the gateway to growing industries and sectors. Selecting the best stock may be confusing, but after research you should select an ideal stock which fits your investment goals. Consider company accounts, liquidity, and volatility when choosing a stock.
Step 5: Place the Order
Verify if your bank account has enough money to acquire the shares you want to buy. Next, specify the number of stocks you want to buy and the price you want to buy it at. Now, place the order to buy the stocks of a chosen company.
Step 6: Wait for the Order Execution
Your purchase order will be carried out as soon as a seller grants that request. Your bank account will be deducted the necessary amount after the transaction is finished. You will receive the purchased shares in your Demat account.
Benefits of Investing in the Stock Market
From diversification to high return potential, the Indian stock market offers numerous growth opportunities to investors. Here are the primary reasons why you must invest in the stock market:
- High Growth Potential: India’s booming economy provides high growth potential with good returns.
- Beat Inflation: As stock prices increase over time, your investment will continue to have purchasing power and will keep up with inflation.
- Build Long-Term Wealth: Stock market investment provides profits in the long run.
- Diversification: The stock market helps reduce risk and provide portfolio stability by distributing your investments throughout a number of businesses and industries.
- Passive Income: Some businesses pay shareholders dividends or a percentage of profits. This provides both possible capital appreciation and a consistent income.
Factors To Consider Before Making Stock Market Investment
Here are some factors to think about before making stock market investments:
- Investment Objectives: Every investor has a different investing goal. You must choose stocks after considering your financial objectives.
- Risk-Bearing Ability: Low-risk investors should consider buying company stocks that offer steady returns and are less volatile in the market.
- Diversification: A diverse portfolio will help you reduce risks connected to your investments.
- Investigating Stocks and Sectors: For well-informed investment choices, examine financial performance, industry forecast, competitive position, and growth potential.
Conclusion
The best benefit of investing in the stock market is that it allows you to invest in stocks, IPOs, Futures & Options, mutual funds, and ETFs. It also provides a greater means of generating wealth and improving a portfolio.
However, you must understand that your stock market investment experience is loosely based on your DP and its investment platform. This is why you must choose your DP carefully to open a Demat account with.