How To Invest In Share Market
Every investor starts investing in the share market to make hefty profits on low-risk shares in a pre-decided period. Unfortunately, the stock market cannot always guarantee high returns on low-risk stocks. On the contrary, the higher the risk, the higher the possibility of earning increased returns. Then, how to start investing in the stock market? This article lists various ways to invest in the stock market.
Ways to invest in the stock market
The stock market includes numerous investment products with different risk levels and profit potential. The diverse types of stock market investment are as listed below:
● Equities: Investing directly in stocks is one of the most popular and effective ways to invest in the stock market. You can invest in equities by applying to an Initial Public Offering where the company sells its stock for the first time. After the IPO, you can buy stocks of the publicly listed company from the stock exchanges by placing an order from your Demat account.
Furthermore, investing in the stock market equities is not limited to Indian stocks. Reputed stockbrokers also allow investing in US stocks to diversify the portfolio further and make better profits.
● Equity Mutual Funds: Mutual funds pool the investors' money and invest them in multiple stocks of industry-specific companies. Mutual funds are ideal for systematic investing as investors don’t have to identify or regularly monitor their investments, which is the case when investing directly in stocks.
● Bonds: Bonds are debt instruments that allow investors to earn a regular interest on the principal amount. The bonds issuer promises to repay the principal amount with standard interest based on a pre-specified interest rate until maturity. Bonds allow investors to have an alternate source of steady income without taking on a high level of risk.
● Derivatives: Derivatives are financial contracts whose value depends on an underlying asset. The underlying asset can be stocks, bonds, indices, currencies, and commodities. The derivative price is set by two concerned parties: the buyer and the seller. Traders and investors execute derivative trading through Futures and Options contracts to either hedge against losses or make profits based on the price difference.
What is the Primary Share Market? How do you invest in the Primary Share Market?
Understanding how to start investing in the stock market extends to the type of markets where investors can buy stocks to sell them later to make profits. The initial place is the primary market where companies enter through an Initial Public Offering. IPOs, or initial public offerings, are common ways companies raise money by selling their stock to the public for the first time. Investors can apply to a company’s IPO to get the shares allotted, which are then listed on the stock exchange.
However, this is the first step in knowing how to trade in the share market by applying to a company's IPO in the primary market. Investors can apply to IPO through UPI or their bank account using the ASBA procedure.
Once the company receives the application, through UPI mandate or ASBA, the shares are distributed according to demand and availability. If you are allotted shares, they will reflect in your Demat account. You can sell the shares from the primary market once the IPO process is complete and the shares are listed on the stock exchanges, and enters the secondary market.
What is the Secondary Share market? How do you invest in a secondary share market?
Once you know how to start investing in the share market through an IPO, it becomes vital to understand the secondary market. No shares may be allotted to you in the IPO process. However, investing in the share market through the secondary market differs from the primary market and follows the steps listed below:
Step 1: As with the primary market, you'll need a Demat and trading account to invest in stocks on the secondary market. You must connect a pre-existing bank account to each of these accounts to ensure a smooth exchange.
Step 2: Once you have opened a Demat and a trading account, log in to your trading account. Then choose the shares you want to sell or purchase and proceed. Make sure you have enough money to purchase the shares you want. In the alternative, if you want to sell, be sure you have the correct amount of shares before you decide to sell them.
Step 3: Determine whether you wish to purchase or sell a share. Wait for a response from the buyer or seller.
Step 4: You'll get money/shares after you've completed your stock market investing transaction.
Diversify your Portfolio
The more diversified your portfolio, the more secure you are from a financial standpoint. It can allow your portfolio to counteract times of poor returns from a single asset type. Bonds and other debt instruments often balance equity investments. When a portfolio is well-balanced, you will be protected during a time of market turmoil.
Now that you have a better understanding of how to trade in the stock market and the types of stock market investments, you can make better investment decisions. However, the first step is to open a Demat account with 5Paisa. The Demat account opening process is entirely paperless and allows investors to invest in numerous financial products. With 5Paisa’s Demat account, you can trade hassle-free across segments to get more value for your money.
Q.1: What are Financial and Non-financial assets?
Ans: Financial assets can be traded on the stock exchanges, such as shares or bonds, while non-financial assets are those that you cannot trade on stock exchanges, such as land, machinery etc.
Q.2: How to start investing in the share market?
Ans: To begin investing in the share market, you must open a Demat and a trading account with a stockbroker.
Q.3: How do I diversify my portfolio?
Ans: You can diversify your portfolio by spreading your investments across asset classes such as stocks, mutual funds, bonds, derivatives etc.