How to invest in the share market – a complete guide for beginners
Today share market is getting a massive popularity among people. Most people take share market as their primary source of income while others take it as a secondary source of income. Everyone is fascinated towards share market and wants to know ways of getting into it. In this article we are going to discuss how to invest in the share markets for beginners.
How to invest money in share market?
This is a usual question in an individual’s mind when it comes to investing real money. If you are going to indulge in share market, you should have a valid perspective, if not yet, then find out soon. Because it is a matter of money and not just fun, no one wants to lose his/her hard earned money. However, the share market is an excellent way to generate income, but doing it badly can make you lose all your money. So if you are a beginner, then you should read some important things before getting into it.
Let’s have a look at how to invest in share market for beginners guide:
There are few things that you should know before you start investing in the share market if you are a beginner. A traditional way of getting started is by opening a Demat and a trading account through a physical broker. But this is a digital era, so things have changed a lot. Now, you can avail the broking services online at the comfort of your desktop or smart phone.
Below are the documents mentioned you may require for opening a Demat account online quickly:
- Bank account– You must have a bank account where all your money gets transferred. This account is required to be linked to your trading account.
- Aadhar Card– It is a must-have thing to open a Demat account in India as it is a primary source of identification. The KYC process is entirely based on Aadhar.
- PAN card– You need a PAN (permanent account number) card. For your name and date confirmation, your mentioned PAN card is suggested. In India, a PAN card is a must for financial transactions.
- Personalized cheque and Bank statement– While opening an account, you need a bank statement and a personalized cheque. After confirmation of all the credentials, your Demat account will be opened within few minutes. This process of account opening will take only few minutes, so that you can start investing in the share market.
Now let’s learn how to invest money in share market:
- Make clearly defined goals for investments
- Take professionals’ advice before getting into it
- Keep patience while doing anything
- Don’t take any decision instantly
- Don’t believe in rumours
- Start investing by detailed analysis of the stocks.
- Set the financial assets based on your goals and timelines
- Think before investing in any trade
- Most importantly you should have a regular source of income
So by reading the above-mentioned points probably, you would get your answer about how to invest in share market.
Now moving on, we will see how to invest in share market in India.
Below Are some of our recommended books that will help you in learning the stock market
Step by step guide to invest in share market in India:
According to a famous American financier and philanthropist, Mr. George F. Baker -To make money in stocks, you must have the visualization ability to see them, enough guts to buy them, and most importantly, the patience to hold them.
Factually, there are thousands of companies authorized by NSE (Nifty) and BSE (Sensex), and unless you are knowledgeable enough to filter which company is going to earn more and which is going to lost in the sea.
The investing guide which we are going to share with you is the one which is followed and used by us. Investing money is an ocean in itself, and before investing, people who are investing have to go through a dreary process of analyzing stocks by reading through the financial statements, annual reports, and other different reports containing a financial wealth of a company.
However, based on our past experiences of investing in share market, we have come with following simple steps that you can follow to kick start your share marketing journey, even without having broad financial knowledge.
#1 screening and filtering the right stocks using financials
There are a bunch of stocks listed on the NSE and BSE. And it is impossible to analyze each of them by going through financial details. Therefore for initial consideration, you can use the pre-planned screening criteria to find out the stocks that are fundamentally strong.
- The market cap should be higher than Rs 500Cr
- Sales and profit should more significant than 10%
- For the past five years, EPS (earning per square) growth rate should be increasing
- Ratio of debt to equity should be less than 1 for better results.
- Return to equity should be more significant than 20%
- Price to book value, less or equal than 1.5
- Price to earning , less than 25
- Make sure that the current ratio should be greater than 1
Besides, you can quickly check the financial information online as there are many screener tools available online financial platforms where you can get information within minutes. Also, you can check the other financial ratios by clicking the company factsheet.
#2 Select companies that you understand
After step 1, you have filtered out stocks with good fundamentals, now you have to learn more about these stocks by you have read about the company which they are underlying. For this simply, you can visit the official website of the company and even track the updates of the company on social media platforms or search for the company on search engines and get feedback from past investors.
Mainly there are only three questions that will help you to understand the company business.
- Do I understand the company offered a product or service?
- Do I understand how company business works and make money?
- What of business it has?
It is foremost thing you to do before investing in companies, at least you have some initial information about the company. Doing this, you can ensure your money is not going waste.
If you have significant work experience in the IT field and you are passionate about technology and aware of the latest market trends, then this will going to give you more advantages. By knowing above, you can understand business easily and reasons for growth. You can easily predict how the future could turn out to be the company. However, there are many businesses too where no particular background is required, such as consumer products.
#3 Search companies with sustainable growth
The only test of financial numbers cannot identify the company; there are many other business models to understand one of them is the moat. It is the competitive advantage of the company over the competitor company in the same sector. The high moat means immense competitive advantage and high sustainability of the company.
#4 Look for low debts
High debt levels can cause significant risks to the company. Apart from screening criteria where debt to equity ratio and current ratio is used to filter the stocks, the ratio of these shows how the company is dependent and debt to fund its growth. So while selecting the stocks, look whether the company handling its debt over the past many years.
#5 Use financial ratios RoE and RoCE to find the right stocks
RoCE is the primary measures of a company how it uses all available capital to generate additional profits. Considering these two financial ratios put together with help in understanding:
- How efficiently the company is using resources
- How much profit it earns in terms of investments
A company with high ROE and RoCE has a great chance for future growth in the value of the company.
#6 Transparent, Honest, competent management
One of the primary reasons why people quit trading in the stock market is management fraud with their savings; in the past, there have been many cases where many companies did accounting frauds, misled shareholders, and did shad deals that have caused a lot of monetary loss to investors. So there are a few points that you need to check before choosing any company.
- Read company annual report
- Look out for promoter’s shareholding
- See whether any fraud is done by the company in the past
#7 Right prices for buying the stock
If you have reached this step that means you narrowed down some essential aspects of share market. The only question that remains is how to invest money share market? The answer is found maximum value company by investing a minimum price. No matter how the company good is, paying a hefty amount for the future cannot assure that it can grow as per expectation. So invest an amount as per the worth of the company.
These are the steps on how to invest in shares for beginners. Importantly, you don’t have to be a finance or MBA degree holder to invest in the share market. Some of the most prominent investors across the world come from a very normal academic background.
Hopefully, this how to invest in share market for beginner guide can teach you some important factors of share market so that you can kickstart with it.