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How to Invest in the Share Market in India

Let us paint you a picture. 

You are on top of your financial planning and future! You are investing regularly, in mutual funds, and at your parents’ insistence, you’ve even got a Recurring Deposit going in your bank account.

At this point investing is no longer a chore for you, but something you enjoy and you are ready to see what all options for investment are out there… And you stumble upon the Indian share market!

What is the Indian Share Market?

The share market is like a subsect of the stock market. The Indian share market is the platform where buyers and sellers will come together to trade on publicly listed company shares in the working hours of the day. 

You might be wondering, “Well, how does this differ from the stock market?” People often make the mistake of using ‘stock market’ and ‘share market’ interchangeably, but while the former refers to trading in securities, bonds, foreign exchange, and shares, the latter refers only to trading in shares in India. However, just like the Indian stock market, the Indian share market is also driven by the two principal stock exchanges – the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). (You can read up more about the stock market, and the stock exchange here.

It is also important to note that there are two main kinds of share markets in India – 

Primary Market – The primary share market is where a company will issue new shares to raise capital through Initial Public Offerings (IPOs) or follow-on public offerings (FPOs). In an IPO, a company is going to issue its shares to the public for the first time, while in an FPO, additional shares are issued to investors by an already listed company. Investors can participate in the primary market by subscribing to either an IPO or an FPO offering.

Secondary Market – The secondary share market is where investors trade previously issued shares of listed companies amongst themselves in the marketplace, typically through a broker or other such intermediaries. The secondary market offers liquidity to investors who wish to buy or sell shares after the primary market issuance.

PS – The primary and secondary Indian share market structure is applicable for trading in not just shares, but all kinds of stock.

We hope you tuck that information away, and we can move onto the next crucial question now!

How to Invest in the Share Market in India

To figure out how to invest in the share market in India, you need to follow a methodical process that can help you navigate the exciting world of share trading!

Some parts of this process are a ‘prerequisite’ for investing in general, and definitely for investing in the share market. But, the second set of steps – let’s call them the ‘actionable tasks’ – is a set of steps that you need to not only take before trading shares, but need to maintain throughout your investment process.

The Pre-Requisites

Here are some of the steps you will need to take to trade in shares in India – 

Investment Approach – What are your financial goals? How much risk are you willing to bear? How long do you want to stay invested for? Determining your investment approach is a lot about introspection and figuring out the why, how, and when of investing in the Indian share market. Each one of these things are important to consider before you even start investing – so give this one some thought!

Research the Stock Market – From the bear and the bull, to individual financial performances of various company stock, there is a lot you will want to know about the stock market before trading in shares. Consider factors such as industry trends, competitive advantages, management quality, and future growth prospects – all of which can have a profound impact on the risk associated with any investment. Due diligence is going to be your best friend in the long run!

Market Regulations – Yes, we could have clubbed it with #2, but the importance of understanding market regulations deserves its own spotlight! Don’t listen to anyone who tells you about ‘no-risk’ investing, or tells you they know ‘just the right time to invest’. Familiarize yourself with the rules and regulations governing the Indian share market, to better understand how the market works. Keep track of changes in regulations, tax policies, and market updates that may affect your investments – because they definitely will!

Professional Advice – We don’t mean internalizing information you hear around the office, or act on unvalidated investing tips – we mean seeking actual professional advice! This is especially helpful for new or young investors just stepping into the share market in India and could benefit from expert guidance. It is smart to  consider consulting with a financial advisor or wealth manager. They can provide personalized advice and can also potentially help you out with #3! 

Seems a bit research heavy… We know. But the Pre-requisites are important to keep in mind because how you tackle these can set the tone for your whole investment process.

Actionable Tasks

Once you’ve checked off everything on the research-driven checklist, you can undertake the following steps to start investing in the share market in India, and to properly chart your investment trajectory – 

Open a trading and Demat account with a registered stockbroker or a brokerage firm. The trading account will allow you to place buy and sell orders, while the Demat account holds your shares in electronic form, giving you complete access to your entire stock market portfolio.

Fulfill the Know Your Customer (KYC) requirements by submitting necessary documents, including identity proof, address proof, PAN card, and passport-size photographs. Bear in mind, you cannot trade without fulfilling KYC – this process is mandatory for all investors in India.

You are now ready to start investing in the share market in India. Once you’ve identified the stocks you want to invest in, place buy or sell orders through your trading account. You can choose from various order types, including market orders (executed at prevailing market prices) and limit orders (executed at specified prices).

You’re in it now! You’re a part of the jungle! But there are still two tasks at your hand – 

Monitor Your Investments – Keep a close eye on your investments by tracking the performance of your portfolio. Follow a sound investment strategy to always make informed decisions regarding holding, buying, or selling stocks. It is also necessary to review your investment portfolio to pinpoint the pressure points of your investments, and make necessary adjustments. This. Is. Permanent. If you’re doing it right, then monitoring your investments will surely be a permanently actionable task.

Diversify Your Portfolio – Diversification is important to manage risk. Invest in a variety of stocks across different sectors to spread out risk – when one company underperforms, another might still subsidize your losses. This helps mitigate the impact of any negative developments in a specific stock or sector, offering you a little bit of security in an otherwise volatile space.

You have to remember that the Indian share market is an ocean of investment possibilities and rewards just waiting to be reaped! 

But, how well you perform in the share market depends on you, and your ability to successfully carry out the ‘Pre-Requisites’ and ‘Actionable Tasks’ laid out for you.

FAQs

What is the Indian stock market?

The stock market refers to the virtual marketplace where you are able to trade in securities, bonds, foreign exchange, and shares.

Is the stock market different from the share market?

People often make the mistake of using ‘stock market’ and ‘share market’ interchangeably, but while the former refers to trading in securities, bonds, foreign exchange, and shares, the latter refers only to trading in shares in India.

Can I invest in shares using my regular savings account?

Nope. You will have to open a trading and Demat account with a registered stockbroker or a brokerage firm in order to trade shares. 

Does share market trading require any registration?

In addition to the trading or demat account, you will be required to undergo the full KYC registration process before being eligible to trade in the share or stock market.

What is an IPO?

IPO or Initial Public Offering is when a company offers its shares up for trade with the public for the first time. 

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