Beginners guide to start investing in stock market
New in stock trading? Here is a guide to learn how to invest in share market for beginners. Check out the below article as a beginners guide to invest in stock/share market and understand the basics to invest in share market in India.
Rising inflation and soaring prices had made our life difficult. Sustaining the existing lifestyle is becoming harder day by day. Now a days, having a single income source is not sufficient. In order to lead a comfortable life, it is very important that one must seek alternate investments or look for alternate income sources to secure his/her financial future. When we are talking about investments, one of the most popular sought after investments is stock/share market which is provides lucrative returns consistently for those who dare to take the risk.
Although investing your hard earn money in stocks is a risky business but if the investment decisions are made with due diligence risk can be minimized and profit can be made. For a beginner in share market, it is very important to know the nature and basics of stock/share trading, what are the types of stocks, how a share market works and the basic do’s and don’ts of it. Below given information will provide you an apt guidance to start investing in the stock market.
What are Stocks?
Stocks are often termed as equities because they represent ownership (equity) in a particular business. In general the term stock represent a type of security that depicts the state of ownership in a corporation and gave the holder a right to claim on the respective part of corporation’s annual earnings and its assets.
Types of Stocks
There are basically two types of stocks:
1. Common Stocks: In common stocks shareholders are entitled for their proportionate share of corporation’s profits or losses. They have right to elect the Board of Directors, which represent them and takes the decisions on the working and future plan of the corporation. They also take decisions on profits utilization, whether to share a part of the profit with the shareholders in the form of dividends or utilize the profit for reinvestment.
2. Preferred stocks: Under Preferred stocks, a shareholder for his investment receive a specific dividend at predefined intervals. Generally, dividends are paid to preferred stocks shareholders before the dividends paid to common stocks shareholders. Under the circumstances when a corporation goes bankrupt, preferred stocks shareholders are favored vis-a-vis common stocks shareholders for reoccupying their investment from the bankruptcy trustee via the sales and recoveries received.
How do the stocks work?
In a company, let’s say if the ownership is divided into 1,000 parts, than we can also divide its profits or losses into 1,000 parts. It can later be decided whether to share a part of profit as a dividend amongst the shareholders or completely reinvested it in the business. If a company is very large and its owners at some point decided to sell some share of ownership. The company can come out with an Initial Public Offering popularly known as IPO in which the ownership shares are sold directly to the public via the primary market. Once the IPO process is completed, company shares are listed on the stock exchanges for the people to buy and sell its shares. The demand and supply method determines the price fluctuation of the stocks. Stock price may also vary depending on how is the company’s management, future prospects and growth.
The Do’s and Don’ts for the beginner traders:
Mentioning below the do’s and don’ts for the beginners which can help them to start investing in stock market efficiently:
Do’s for Beginners in Stock Trading:
- Always prefer SEBI – Securities and Exchange Board of India / Stock Exchanges registered market intermediaries.
- Before investing carefully read the offer documents & risk disclosure documents.
- Make sure you had a clear communication with your agent, broker or any intermediary.
- You should be cautious of stocks that are showing sudden ups and downs.
- Before placing your order via the intermediaries, make sure to check all vital information regarding the company like its credentials, management, and other important information.
- Last but most important do proper due diligence, research and analysis before making any investment related decisions.
Don’ts for Beginners in Stock Trading:
- Brokers, Sub brokers or any other intermediaries, who are not registered with the Stock Exchanges or SEBI, don’t deal with them at all.
- Without fully understanding the terms and conditions of a document, don’t execute it at all.
- Stay always from the herd mentality and don’t blindly follow any media reports or speculations. Do your own research.
- Last but most important never ever let the emotions of greed and fear overshadow your wisdom.
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