How to invest in Stocks?

How to invest in Stocks?
07/08/2017

We all have at least that one Uncle or Aunty, who keeps on giving advice to our families on investing in the share market. Over the years, he/she has made money out of thin air and as a kid I have always been amazed by this sorcery. This was what pushed me into understanding finance and now even after completing 15 years in the share market, I am nothing close to being a seasoned trader.

I am sure like me many others would be struggling to find out things about the stock market on their own. However, in today’s world, thanks to the internet, you have the information on your finger tips and it’s relatively easy to find out about ‘Investing in stocks’ and how to go about it. Below I have tried to list down in a very simple way what does a person needs to know to begin trading in the stock market:

Introduction
Most of the trading in the Indian stock market takes place on two stock exchanges: The Bombay Stock Exchange (BSE) and The National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE was founded in 1992 and started trading in 1994. Both exchanges follow the same trading mechanism, trading hours, settlement process, etc. There are 7,000 + stocks listed on the BSE which is the larger of the two exchanges in terms of the number of companies listed. However, only 3,000 of these stocks are actively traded.

To start investing in the stock market, you need 3 types of accounts – Trading Account (to place buy/sell orders), Demat Account (to hold your shares in dematerialized form), and a Bank Account (for fund transfers).

Trading Account
An account similar to a bank account, to be opened with a ‘stock exchange registered stock broker’. This account is used for placing orders in the stock exchange (i.e. to buy/sell shares).

Demat Account
An account where shares are held in a dematerialized form (i.e. electronically instead of the investor taking physical possession of certificates). The demat account is required to receive/transfer shares when you buy/sell shares through your trading account.

Bank Account
Your regular Savings or Current Bank Account should be linked to your trading account. The Bank account is required to transfer/receive money when you buy/sell shares through your trading account.

Typically, if you sign up with a stock broker, they will guide you not only in the opening of the trading account and a demat account but also help in linking them to your bank account. Just like banks provide you with the facility to open and maintain saving accounts, the Depositories provide the facility to open and maintain demat accounts. In India, the government has mandated two entities –National Securities Depository (“NSDL”), and Central Depository Services (India) (“CDSL”) – to be the custodian of dematerialized securities.

Most of the big stock brokers register themselves as a Depository Participant (“DP”) who act as an agent of the Depositories to make their services available to the investors. Effectively, both your trading and demat accounts are maintained by your stock brokers (mostly through setting up of 2 different entities). In case of some stock brokers, they use the depository services of other bigger financial institutions or custodians and only provide the front end trading account. As an investor, you can’t really say that the first approach is better than the second for you. This is because in both the cases, typically it takes the same amount of time for shares to be deposited and withdrawn from the demat account.

To open a trading / demat account, follow the following process:

1) Approach a BSE and NSE registered stock broker.
2) Fill up the KYC form provided by the stock broker.
3) Attach the required documents – (i) identity proof and (ii) address proof.
4) Produce the original PAN card during account opening.
5) For Derivatives segment (i.e. futures and options market), 6 months account statement of your existing bank account is required.
6) One cancelled cheque of the bank account you want to link to your trading account.
7) 3 passport size photographs

Nowadays there are brokers who offer complete online services for the same. So the hassles of getting the above formalities done off-line have been reduced to nil. Infact, some sites like 5paisa.com give a complete trading solution.

What you should look at before opening a Demat and a trading account scheme:

1) Account Opening Charges: This is the fee charged at the time of opening the demat and trading accounts.
2) Account Maintenance Charges: This is the annual fee charged to maintain the demat & trading accounts.
3) Brokerage Charges for Intraday transaction: If you take a position (buy) on a stock and release (sell) that position before the end of that day’s trading session, it is described as intraday trading. The brokerage charges for intraday transaction are very nominal. In fact, nowadays you have flat brokerage rates for whatever amount of trade you do.
4) Brokerage Charges for transaction requiring delivery: If you buy a share and hold it beyond that trading session (i.e. for a term longer than one day) or when you sell a share you own and do not buy it back during a single trading session, the transaction qualifies as a delivery based transaction as the name of the owner of the share is changed with the Depository. The brokerage charges are higher in this case as additional processing is required.
5) Brokerage Charges for Futures and Options transaction: The Brokerage fees applied on the transaction in the Futures and Options segment (mostly varies 0.02 – 0.05% on the total cost of transaction for futures and ?25 – ?100 per lot for option contracts). The rates mentioned here are just tentative and we would urge you to check with your broker.
6) Apart from the brokerage charges, you may want to consider the software/ technology provided by the stock broker for online trading. And also check if the stock broker has a good service standard for call and trade facility (to enable you to place orders over the phone).

These days, most big commercial banks provide trading and demat account services and link it to your savings account. However, their brokerage charges are higher than specialized stock brokerage firms.

Many people consider having a trading account with a Bank (like HDFC, ICICI, Kotak, etc.) as an advantage as these banks provide a three-in-one-account (i.e. savings account, trading account and demat account which are all linked to each other). However, the brokers provide integration with multiple bank accounts, wherein one could use any of their bank accounts to transfer money for the transactions. Having all these accounts linked to each other ensures that you get a complete paperless mechanism for trading. Thus, now those days have gone wherein one could say that the beginners and low volume investors/traders should better have their trading accounts with a bank.

It is advisable to open your account with a broker who gives you the best service at the lowest price and helps you make money and in turn ‘Builds Wealth’ for you.

Next Article

How To invest In Stock Markets

How To invest In Stock Markets
by Nutan Gupta 08/08/2017
New Page 1

We all have, atleast that one Uncle or an Aunty, who keeps on giving advice to your family to invest in the share market. Over the years he/she has made money out of thin air and as a kid I have always been amazed by this sorcery. This was what pushed me into understanding finance and even after completing 15 years indulging in the share market, I am nothing close to being a seasoned trader.

I am sure like me many would be struggling to find out things on their own. However, in today’s world wherein you have information on the finger tips, its relatively easy to find out about, ‘Investing in stocks’ and how to go about it. Below have tried to list down in a very simple way what does a person need to know to begin:

Introduction

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, was founded in 1992 and started trading in 1994. Both exchanges follow the same trading mechanism, trading hours, settlement process, etc. There are 7,000 + stocks listed on the BSE which is the larger of the two exchanges in terms of number of companies listed. However, only 3,000 of these stocks are actively traded

To start investing in the stock markets, you need 3 types of accounts – Trading Account (to place buy/sell orders), Demat Account (to hold your shares in dematerialized form), and a Bank Account (for fund transfers).

Trading Account

An account similar to a bank account, to be opened with a ‘stock exchange registered stock broker’. This account is used for placing orders in the stock exchange (i.e. to buy/sell shares).

Demat Account

An account where shares are held in a dematerialized form (i.e. electronically instead of the investor taking physical possession of certificates). The demat account is required to receive/transfer shares when you buy/sell shares through your trading account.


Bank Account

Your regular savings or current bank Account should be linked to your trading account. The Bank account is required to transfer/receive money when you buy/sell shares through your trading account.

Typically, if you sign up with a stock broker, they will guide you on not only the opening of the trading account but also the demat account and linking of your bank account. Just like banks provide you with the facility to open and maintain saving accounts, in the same way the Depositories provide the facility to open and maintain demat accounts. In India, the government has mandated two entities –National Securities Depository (“NSDL”), and Central Depository Services (India) (“CDSL”) – to be the custodian of dematerialized securities.

Most big stock brokers register themselves as a Depository Participant (“DP”) who act as an agent of the Depositories to make its services available to the investors. Effectively both your trading account and your demat account is maintained by your stock brokers (mostly through setting up of 2 different entities). In case of some stock brokers, they use the depository services of other bigger financial institutions or custodians and only provide the frontend trading account. As an investor, no one approach is better than the other for you, as typically, it takes the same amount of time for shares to be deposited and withdrawn from the demat account in either case.

To open a trading / demat account, follow the following process:

1. Approach a BSE and NSE registered stock broker.
2. Fill up the KYC form provided by the stock broker.
3. Attach the required documents – (i) identity proof and (ii) address proof.
4. Produce the original PAN card during account opening.
5. For Derivatives segment (i.e. futures and options market), 6 months account statement of your existing bank account is required.
6. One cancelled cheque of the bank account you want to link to your trading account.
7. 3 passport size photographs

Now days there are brokers who offer complete online services for the same. So the hassle of getting all the formalities done off-line has been reduced to nil. Infact some sites like 5paisa.com give a complete hassle free solution online.

What you should look at before opening Demat and the trading account schemes:

1. Account Opening Charges: This is the fee charged at the time of opening demat and trading account.
2. Account Maintenance Charges: This is the annual fee charged to maintain demat & trading account.
3. Brokerage Charges for Intraday transaction: If you take a position (buy) on a stock and release (sell) that position before the end of that day’s trading session, it is described as intraday trading. The brokerage charges for intraday transaction are very nominal. In fact now days you have flat brokerage rates for whatever amount of trade you do.
4. Brokerage Charges for transaction requiring delivery: If you buy a share and hold it beyond that trading session (i.e. for a term longer than one day) or when you sell a share you own and do not buy it back during a single trading session, the transaction qualifies as a delivery based transaction as the name of the owner of the share is changed with the Depository. The brokerage charges are higher in this case as additional processing is required.
5. Brokerage Charges for Futures and Options transaction: The Brokerage fees applied on the transaction in the Futures and Options segment (mostly varies 0.02 – 0.05% on the total cost of transaction for futures and ?  25 – ?100 per lot for option contracts). The rates mentioned here are just tentative and would urge to check with a broker.
6. Apart from the brokerage charges, you may want to consider the software/ technology provided by the stock broker for online trading and if the stock broker has a good service standard for call and trade facility (to enable you to place orders over the phone).

These days, most big commercial banks provide trading and demat account services and link it to your savings account. However, their brokerage charges are higher than specialized stock brokerage firms.

Many people term this as an advantage, that having an account with a Bank (like HDFC, ICICI, Kotak etc) is that they typically provide a three-in-one-account (i.e. savings account, trading account and demat account are all linked to each other). However, now day’s brokers provide integration with multiple bank accounts, wherein one could use any of their bank accounts to transfer money for the transactions. Having all these accounts linked to each other ensure that you get a completely paperless mechanism for trading. Thus now those days have gone wherein one could say that for beginners and low volume investors/traders having an account with a bank is better.

It is advisable to open your account with a broker who gives you the best service at the lowest price and helps you make money and in turn ‘Build Wealth’ for you.

Next Article

Important Points you should see before investing in shares

Important Points you should see before investing in shares
by Nutan Gupta 01/09/2017

An individual invests in a stock in order to earn profit. It is very disheartening when you invest your hard-earned money in a stock which doesn’t give you desired returns. It is really important to do all the research before you choose to invest in a particular stock.

Here are a few things to check before you choose to invest in a stock.

1. Company background

Read about the company that you want to invest in. Find out what their business is. Visit their website, read news articles related to the company.

2. Financial performance of Company

It is important to analyse the past performance to understand how the company has grown over the years. Read the balance sheets to see how their balance sheets have grown in the past.

3. Stock value

There are ways to find out whether a stock is over or undervalued. Some basic methods would include Price to Earning ratio (P/E ratio), Price to Sales Ratio that helps one understand if the market value of the stock is in line with the growth trends of the company.

4. Industry outlook

Read about the competitors and peers of the company. Finds out what competitive edge your company has over the others. Find out if the advantage is sustainable. Find out about the market share, and overall performance of the industry that they operate in. Look for regulatory, political factors that may impact the industry.

5. Promoter check

Always read about the people who are running the company. Find out their background and how long they have spent with the company. Frequent changes in the top management, inexperienced top managers may be poor indicators while picking the right stock.

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The ABC’s of Investing

ABC's of Investing
by Nutan Gupta 25/09/2017

The money that you earn is partly spent and the rest is saved for a rainy day. Savings refer to the funds that are kept aside in safe custody, such as a savings account. Instead of keeping this money idle, you can invest your savings in various financial instruments which will pay you a hefty return in the near future.

The question that arises now is how and where to invest this money. Potential investors can always take the help of a financial advisor and an investment advisor, both of who are capable of providing detailed knowledge on the subject on investment and investing money. Investors can start investing after fulfilling the following simple steps:

  1. Obtaining documents relating to Personal Identification Proof and Address Proof.
  2.  Approaching intermediaries like a broker, RM etc.
  3. Filling up the KYC form and furnishing the details required.
  4. Filling up of the broker-client agreement.
  5. Opening a DEMAT Account and linking it with a savings account.

As soon as these steps are completed, an investor can start investing in the financial market.

The investment options can be well classified into 2 parts. They are:

  1. Physical assets: It comprises of tangible items like real estate, commodity, goldand silver in the form of jewelry and even antiques. 
  2. Financial assets: It comprises of FDs with banks, small savings instruments with the post offices, provident fund, pension fund, money market instruments and capital market instruments.

The money market gives the scope of short term investment options. It deals with debt instruments such as bills of exchanges, commercial bills, treasury bills, certificate of deposits etc. These have relatively low risk and relatively low returns. However, they are one of the safest investment options, especially for those investors who want to play safe.

A capital market is an option for long term investment. The various instruments of capital market are shares of companies (equity), mutual fundsSIP investmentderivatives market, IPOS, etc. These have a higher risk and higher returns in comparison to the instruments of the money market. Although stock investing is considered to be more rewarding, the high risk factor associated with it can result in loss if there is a downswing in the activities of a company.

The investment strategies of an individual depend on certain factors, such as:

  1. The risk taking appetite of investor
  2. The time horizon of investment
  3. Expected return
  4. Need for investment

Investments make our fund grow over a period of time whereas savings is just idle cash. Our short term needs can be fulfilled with the help of our savings but for the achievement of our long term financial goals, investment is a must. This is only possible with financial planning.

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Tax Saving Investments and their Features

Tax Saving Investments and their Features
by Nutan Gupta 01/10/2017

This is the time of the year when you start getting calls from the HR of your company asking for investment declarations. If you have not made any investments yet, here is the list of instruments where you can invest.

Instrument Investment Section of IT Act Lock-in Period Returns Risk Taxation at Maturity
ELSS ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products. 80C 3 years Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%. Carries some risk Tax-free
PPF It is a type of investment which is provided by the Government of India 80C 15 years The rate of returns changes as per government policies.

Current returns - 8.1% compounded annually
Risk-free Tax-free
NSC NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices. 80C 10 years The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds.

The current interest rate is 8%.
Low Risk Interest is Taxable
Pension Mutual Funds Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments. 80C Until you reach the age of 58 The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period. Carries some risk Tax-free
Tax Saving FD It is a special fixed deposit made with any bank. 80C 5 years The interest rate varies from one bank to another. It usually ranges from 6.5-7.5%. Risk Free Interest earned is taxable
Rajiv Gandhi Equity Saving Scheme Exclusively for first time retail investors. Individuals with an annual income below Rs. 12 lakh can invest. 80CCG 3 years Depends on the performance of equity markets. Carries some risk 50% of the invested amount
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What is the right age to buy a term life insurance cover?

What is the right age to buy a term life insurance cover?
by Nutan Gupta 01/10/2017

Death comes knocking at the door without any prior notice. The death of the only breadwinner of the family brings the family into severe financial crisis. This is the time when you realise the importance of a term insurance policy the most. A term insurance plan secures the life of your loved ones and helps them to meet their day-to-day expenses. It is always better to buy a term insurance plan early in life as an individual gets immense benefits for starting early. Also, the premium charges are also low when you are young.

Let’s take a look at the different ages and factors that one should consider while buying a term insurance.

20’s

During the 20s, an individual just steps into his professional life and is relatively debt free. He has lesser family responsibilities and buying a term cover at this age can help him pay off his education loans if any. Moreover, term insurance premiums are less expensive when an individual is young.

30’s

An individual, in his 30s, tend to have family and kids. While his income is higher at this age, the responsibilities are much more. He may have financial liabilities like home loan, car loan etc. The premium will tend to be slightly higher, given the family responsibilities.

40’s

During this age, an individual’s long term financial liabilities like a home or car loan is paid-off. However, he may have higher responsibilities like his child’s higher education or his own retirement planning. It is better to opt for a cover which provides a greater coverage and financial protection. The cover should be able to take care of your family expenses after your death.

50’s

When an individual reaches this age, his children already start earning and most of the debts are paid-off. Family members are not financially dependent on your earnings. During this age, what an individual is most concerned about is his retirement. At this age, the best option for an individual is to buy an endowment plan which will help him save and give him a lump sum amount on maturity.

Term Insurance Premium amounts for a cover of Rs. 50 lakh

Age Premium Amount
22 Rs. 4,270
32 Rs. 5,455
42 Rs. 9,606
52 Rs. 17,534

The above table shows the difference in premiums as per the age of an individual. As the age increases, premium increases.

Conclusion

Age plays a major role in deciding the amount of your term insurance. The biggest mistake an individual makes is to not opt for a substantial cover for the family. One should make sure that the term cover takes care of all the basic necessities of the family in case of the sudden demise of the policyholder.

Get a Term Insurance Cover Now!