SHARE MARKET BASICS

How to Invest in Stock Market : A Step-by-Step Guide for Beginners

 How to Invest in Stock Market?

Stock market investments are an excellent way to grow money. Long term investors can grow their wealth by investing in stock markets by avoiding volatility. The short term investors can also grow their wealth by taking advantage of the volatility. The bullish market and the bearish market are caused by volatility. But how to invest in the equity market? For that, we need to start with some basics of the share market.



Why be Involved in the Stock Markets?

There are mainly two reasons to be involved in the markets: to invest/trade your savings or to manage/trade other people’s money. In both scenarios, your objective is to make money. Most people will have to invest their savings at one point or another in their lives. Having your money in the right stocks can make all the difference when it’s time for retirement.

Let’s start with some share market investment terms

What is a Stock?

A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. Stocks are also known as Shares or Equity.

Why do Corporations issue stocks?

A short answer is to “Raise funds”.

Why would someone buy stocks?

It’s an excellent way to grow wealth!

How and where can you buy a stock?

It depends if the company for which you want to buy that stock is private or public.

Private company:

 A company owned by a relatively small number of shareholders and which does not offer it’s company’s shares to the public on the stock market. The company’s stock is only traded or exchanged privately. 

In the case of a privately held company, you would have to meet with the owner of that company for him to sell you their stock. Private company’s shares do not trade on  stock exchanges . 

Public company: 

A company whose ownership is dispersed among the general public and their shares freely traded on the share market. In the case of a public company, you can just buy the shares on the stock market through your phone.



What is a Stock Exchange?

Stock Exchange is a place where shares of publicly traded companies are issued and traded. The stock exchange provides companies with access to capital and provides investors with an easy way to have ownership in companies. A stock market is just a place where buying and selling of stocks take place.

Some of the prominent stock exchanges are the NYSE, NASDAQ, London Stock Exchange, Shanghai Stock Exchange, Bombay Stock Exchange, National Stock Exchange, Hong Kong Stock Exchange, Japan Exchange Group etc.

Let’s Start Investing in Stock Markets



Step-1: Open a Brokerage Account

Brokers could be either full service or discount.

Full-Service Brokers:

 As the name suggests, they provide a full range of brokerage services and everything related to money. From financial advice to regular share market recommendations they provide almost every service related to investments. They usually deal with clients will higher net worth and also charge substantially fee.

Discount Brokers: 

Discount brokers provide you with the facility to place your buy and sell orders at discounted rates as compared to full-service brokers. However, they do not provide investment advice on equity markets or any other money-related added features. The internet has brought an explosion in the number of discount brokers as new individuals with small capital are preferring discount brokers.

Step 2: Know the difference between individual stocks, stock mutual funds and IPO

Individual Stocks: You can buy a single share or a group of shares of a particular company on the stock market. You can buy shares of various individual companies to create your investment basket of shares. You can diversify the risk by buying various shares of different companies.

Stock Mutual Funds: Stock mutual funds or (Equity mutual funds) let you purchase shares of various companies in a single transaction. ETF’s and Index funds are some of the stock mutual funds in the stock markets. Example S&P 500 or Standard & Poor’s 500 fund buys the stocks present in the S&P 500 index. Equity mutual funds are preferred to develop diversified portfolio. Since, you buy the shares of various companies of different businesses.

IPO (Initial Public Offering): This is the first time that a stock of a private company is offered to the public. In an IPO you basically buy lots, each lot have a fixed number of shares. It is very hard for regular investors to get shares at the IPO.

Step 3: Specify your budget for share market investment

It totally depends on you and the quantity of share that you want to purchase. If you are a defensive investor then prefer to allocate 50% of your budget in equity and the other half in debt funds. If you are an aggressive investor then you can prefer to invest up to 75% of your budget in stocks and the other half in debt funds.

“Warren Buffett has famously said a low-cost S&P 500 index fund is the best investment most Americans can make — and choosing individual stocks only if you believe in the company’s potential for long-term growth.”

Step 4: Happy Investing!!!

Now that you have the basic knowledge you can start investing in equity markets. You should also take a step ahead to do fundamental analysis and technical analysis of a company before investing for better returns.