The stock market is a wide platform where buying and selling of shares by public limited companies takes place. These financial actions are performed via a market which functions under a set of rules by governing authorities.
Stock market investments can be precarious if not understood properly. To be able to invest in the market, it is necessary for anyone to understand the basic concepts, functioning of the market and how to invest in stock market. Stock market is of two types- primary share market and secondary share market.
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How To Invest In Primary Share Market
Primary share market is that segment of the market where the public limited companies, governments, banks and other financial institutions sell debt and equity based-securities and obtain funds. Any investment in the primary stock market is initiated through Initial Public Offerings. As soon as the IPOs are applied for by the investors, the respective shares are allotted to the respective companies on the basis of their availability and requirement. This process of raising funds by selling new stock to investors through IPO is called underwriting.
This process requires the investor to have a Demat Account which is not any normal bank account and keeps the shares in their electronic form. Along with this, a trading account is also required for buying and selling shares online. Nowadays, IPO applications through Net Banking are simplified via a process Application Supported by Blocked Amount(ASBA). So, if a person applies for shares whose value is Rs. 1 lakh, the funds are blocked into the account of the company. As an investor buys shares, the required amount is debited from the account. As soon as the shares are allotted to the traders, they are listed on the stock exchange.
How to Invest In Secondary Share Market
Secondary Share Market refers to the regular trading where people can trade shares on a regular basis. The following steps need to be understood before investing in stock markets:-
Step 1- Open a Demat and a Trading Account
These are the most important prerequisites for opening doing online trading. These accounts should be linked to some primary bank account for all the transactions.
Step 2- Select the shares to be bought or sold
After logging into the Trading Account, look for the shares which you wish to sell or purchase. If you wish to purchase shares, make sure that your bank account has the required amount of funds for the activity.
Step 3- Choose your price
After the selection of shares, choose a particular point where you wish to buy or sell the shares. The next step is the waiting period, where you indeed have to wait for some potential customer to reach out to you for the transaction.
Step 4- Buy or Sell the share
As soon as you get the required customer, if you wish to purchase the share, you can buy the share as soon as you see that the price offered is upto your expectation. If you wish to sell the shares, you can get the money into your account.
Some examples of Share market Assets
There are numerous investment options such as :-
- Stocks
- Bonds
- Mutual Funds
- Derivatives
- Currencies
- Commodities
What are the Documents required for Opening a Demat Account?
The following list of documents come in handy when you are ready to invest in the share market:-
- PAN Card of the applicant
- AADHAR Card of the applicant
- A cancelled cheque from the active bank account
- Bank Account statement of the applicant which is not older than 3 months
- Valid Address proof of the Applicant
- Passport sized photograph of the applicant
Things to Consider Before Investing in Stock Market
Stock market, unlike other financial institutions, is a risky affair. You need to keep yourself updated to understand the market trends. Before investing in stock markets, it is essential to understand these basic points:-
- Make a diversified portfolio
As rightly said, all eggs should not be kept in one basket. To balance the loss of one class of funds, it is necessary that money should be invested in all classes so that in the event of a crisis, all the money is not lost. For e.g. if you wish to invest in Birla sun life Midcap Growth Direct plan, you should also try investing In Mahindra Mutual fund for a diversified growth.
- Make an investment plan
A plan helps in maintaining the outflow and inflow of money. Make a proper investment plan to get an idea about the amount you can invest and the time period for which you wish to invest the required amount.
- Understand your Risk Appetite
Your investor profile is the best judge when you are considering investing in the stock market. It can help you manage the amount of risk associated with investment and how capable you are in overcoming that risk.
Conclusion
Investment in the stock market is a blessing, but if not planned properly, it can burn holes in your pocket. Make a thorough plan to be able to cope with the risks associated and then dive into this vast pool of opportunities.
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