Theoretically, share market investments are high wealth-generating avenues. However, it is quite common to lose or generate low returns from them, especially as a newbie. But you may not get perturbed with the same or doubt their wealth creation potential. With persistent efforts, discipline, and practice, you will be able to sharpen your stock trading and investing skills. This will eventually translate into attractive returns in the long run.
In the successive paragraphs, we have enlisted a few steps that would be particularly useful for amateur investors or those contemplating share market investments.
Steps On How to Start Investing in Share Markets in India
Determine your goals
The first step is to chalk out both your short and long-term financial goals based on your expected returns and risk tolerance. This will help you time your investments and determine your investment duration. Some examples of short-term goals are saving for a leisure trip, setting up a contingency fund, etc. Long-term goals may include saving for a house purchase, children’s education, or marriage, retirement planning, etc.
Choose an investment period
Once you are clear about your financial goals, this step becomes fairly easy. Usually, periods below 1 year are considered as ultra-short-term, between 1-3 years as short-term, 3-5 years as medium-term, and above 5 years as long-term.
Select an investment strategy
Your investment duration will determine your investment strategy. A passive investment style or the conventional buy-and-hold trading strategy is ideal if you can remain invested for a medium or long period. However, if you wish to earn quick bucks or have immediate liquidity needs, you may adopt active trading strategies like intraday or margin trades.
Open a Demat and a Trading account
SEBI, the governing body of the securities markets in India, has made it mandatory to open a Demat and a trading account for investing in the share market. There are many brokers or Demat account service providers in the market. You may choose any of them based on your suitability.
If you don’t know how to create a Demat account, then you may visit your chosen broker’s website for more details on the same. Web search engines will also help you access many sites that explain the Demat and trading account application procedure.
The process is short and straightforward. You just need to visit your broker’s website, fill out the Demat and trading account application forms, upload soft copies of requisite supporting documents, complete in-person verification, and affix an e-signature. Thereafter, you will receive unique Demat and trading account numbers from your broker. You are now all set to start online share trading.
Understand stock fundamentals
Fundamental analysis is the first step towards stock screening. It involves determining a stock’s fair value by evaluating the issuing company’s fundamentals, especially financials, its competitive advantages, and the macro-economic factors impacting its performance.
Some of the financial metrics that you may study are market capitalization, reserves & profits, EPS (Earnings Per Share), and some prime ratios like P/E, Debt-equity, current, price-book value, ROE (Return on Equity), etc.
Study technical indicators
Technical analysis involves seizing trading opportunities and earning profits by studying price & volume movements, price trends & patterns, and market momentum. Some of the popularly used technical indicators are MACD, Relative Strength Index, Bollinger Bands, etc. They are indispensable tools for intraday and swing trades.
Select the right shares and execute the transaction
As a novice, you may begin with blue-chip stocks, as they have strong fundamentals and therefore carry relatively lower risks. Moreover, as a general rule, you may always buy the shares of a company whose business you comprehend well. Once you have selected the right stock for investing/trading, you may execute the transaction. The thumb rule is to go long when share prices are low and go short when prices are high.
Stock selection may seem tricky at first. However, with experience, you will master the same. You may also take professional help to identify the right stocks for investment. Plus, avoiding ‘herd mentality, being pragmatic, and following a structured investing approach may help maximize your share market returns.