Disclaimer: This article is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other financial professional to determine what may be best for your individual needs.
When it comes to saving for retirement or making extra cash, few things rival investing in stocks – particularly as part of National Pension System-NSDL or EPFO programs. Many Indians partake in such efforts today for retirement purposes via NPS (National Pension System-NSDL) or EPFO investments.
But investing in stocks doesn’t need to happen exclusively through brokerage firms and employee-sponsored accounts such as EPFO. You can invest directly in Indian stocks – often at much reduced costs than working through broker dealers – by going it alone.
Mastering the market takes time, so this article focuses on teaching beginners how to invest in stocks.
What is stock investing?
Stock investing refers to investing in the stock market.
Company stock can best be understood as a fractional share in ownership for any given company, meaning if Company A has 1000 stocks and you purchase one on the stock exchange, that equates to owning 1/1000 of that company.
Why invest in stocks in the first place?
Once a company enters the stock market, each stock has a set price based on demand; as it becomes more valuable over time, so does its associated stocks’ value rise accordingly.
Company A enters the stock market with an initial stock price of Rs1,000 and experiences an incredible fiscal quarter; their stock could potentially appreciate by Rs1,200 after which you could potentially sell that same share at its original cost to make an easy Rs200 profit!
However, this doesn’t work both ways: If you purchase stock but it performs poorly or experiences other unfavourable circumstances, its stock price could go down and force you either to hold onto or sell at a loss.
Success with long-term investments involves selecting stocks at competitive prices at the appropriate time and then selling them off when it is best. Of course this is easier said than done, but that is generally how successful investing works.
Additionally, you can buy more than stocks on the stock market; such as mutual funds (basically a grouping of stocks) or exchange-traded funds/ETFs. However, the general principle behind purchasing and selling assets or securities on this marketplace remains unchanged.
How to invest in stocks as a beginner
Even without much experience in stock investing, even beginners can successfully invest in stocks with proper preparation and brokerage account selection.
Step 1: Decide your goals
Your first step should be defining your stock market investing goals. Most individuals who invest in stocks have either of two goals in mind for themselves:
- Make money in the short term.
- Make money in the long term.
In general, market research and investing in stocks with rapid growth should be your main priorities; however, short-term profit potential stocks tend to be riskier or volatile, making the riskier ones potentially riskier and increasing chances of loss over gain.
Additionally, investing too heavily in one stock increases your exposure to market fluctuations and poses the risk of under diversification.
In this latter scenario, market research remains essential; however, your investment decisions will focus mainly on low-growth, stable stocks that won’t drop substantially in price.
Most investors choose established, stable companies with strong, steady growth portfolios that don’t spike every year – yet yield significant dividends over decades – when selecting stocks for retirement savings purposes. This form of stock investing typically follows this formula.
Before opening an investment account, establish an investment strategy by:
- Study the different investment products such as index funds, stocks, bonds and fractional shares.
- Utilising an online brokerage account that offers excellent investment advice from both robo-advisors and people is key for newcomers to the stock exchange, such as yourself. The top brokerage services will have online broker advice resources dedicated to newcomers like you who may need assistance getting their feet wet in terms of stocks and shares.
- Establish clear investment objectives before entering the stock market, such as your financial goals and type of investments you plan on making.
Doing this will enable you to build an easier-to-manage investment portfolio.
An important step in investing wisely lies in understanding your risk tolerance level. Stocks come in various categories – such as large capitalization stocks, aggressive growth stocks, small cap stocks and value stocks – each one has different risk associations associated with its price and investment risk profile.
Those with higher risk tolerance are likely to select riskier stocks while those looking for retirement savings might opt for lower risk ones instead.
How much should you invest?
Before investing, it is also necessary to decide how much of your savings should go toward stocks. While each person should come up with their own investment amount, in general:
- Young investors could benefit from investing their savings heavily into the stock market as their ability to bear losses should likely allow for plenty of opportunities in that arena.
- As you get older, investing your savings should still be done strategically and safely to avoid using up all your funds before retirement.
Reducing risk by investing only what is affordable should always be your goal when investing. Remember your other accounts such as NPS, EPFO and savings/holiday funds as potential liabilities in addition to investing more than necessary on stocks or shares.
As your stock investment experience improves, your portfolio can expand accordingly.
Step 2: Choose an investment platform
Now it is important to select an investment platform. Angel One, Zerodha and Alice Blue all provide platforms where investors can trade stocks on the stock market.
Your investment platform or app, such as Angel One, allows you to select stocks and purchase them through brokers – market professionals who submit orders on your behalf to purchase or sell stocks on your behalf without you needing to physically be present at their desks.
What to look for in a good platform
Make sure that the investment platform matches both your needs and budget, such as:
- Asserting excellent success and customer service to achieve lasting business partnerships.
- Provides financial advisor and robo-advisor services.
- No hidden or high fees such as annual subscription charges apply here.
Step 3: Fund your account
Once you select an investment platform, fund it by linking either your checking or savings account – using bank account number and routing number information as needed to do this step.
Many stock investing platforms require at least Rs.100 in order to invest; however, you are often allowed to put much more in.
Step 4: Do your research
At this stage, conducting thorough market research to select stocks best suited to meeting your goals is critical. Market analysis can be challenging at first; therefore purchasing some books or taking classes on how to identify potentially lucrative stocks could prove extremely helpful in making wise purchasing decisions.
Investigate each stock or company you consider
Before purchasing stocks, always conduct extensive research. Take time to familiarise yourself with each company or stock that interests you before determining their potential purchase value. Review metrics of each firm in question as this can provide clues as to whether its shares make good investments.
Valuation is crucial when picking stocks. Valuations includes factors such as company profitability, earnings growth prospects and quality of company management among others. Furthermore, stock price may differ significantly from an asset’s intrinsic value.
Typically, stocks represent good investments if:
- Recently, its affiliated company has experienced solid growth.
- Has an excellent leader.
- Inherits an advantageous market position (i.e., its products are profitable and cannot be easily substituted by others in its niche market).
Consider asset allocation
Asset allocation refers to how your portfolio is split among different stocks and assets. As you get older, stock holdings should become less of an investment focus as their values fluctuate regularly – instead opting for more predictable investments like bonds or high yield CDs instead.
Young investors benefit by diversifying their stock investments without risking too much to their long-term financial wellbeing.
Step 5: Buy stocks
After thoroughly researching your options and making informed choices, purchasing stocks using any platform or app may be daunting at first. But with careful preparation and research behind you, buying stocks should become simple! Simply look up their price before placing an order at your trading platform before waiting patiently until the purchase goes through.
Note that stock purchases usually don’t happen instantly; rather, there may be an interval ranging from minutes to several hours between placing the order and its fulfilment.
Market order purchasing
When buying stocks, market order buying is the preferred method of acquisition. In other words, when placing such an order with your stockbroker you direct him or her to buy immediately at whatever price the stock might be available – for instance when opening on Monday morning when prices could differ greatly than they closed Friday evening!
Step 6: Monitor your portfolio and trade or sell as needed
Now it is your job to manage and monitor your portfolio by buying or selling stocks as you see fit. Remember that investing is an ongoing journey so be ready to adapt as necessary, learn from previous experiences, make smarter choices and more money in future years!
Tips to invest in stocks successfully
If you want to get a head start on investing in stocks successfully, check out these essential tips.
Buy investments you're confident about
First and foremost, only purchase investments you are certain about. Conduct extensive research prior to investing.
Spend some extra time investing in stocks with promising growth potential that could bring significant rewards later down the line. Your wallet will thank you.
Diversify your portfolio
Starting out your investment career right is also key; diversifying means not committing too much of your funds to any single company or stock. Instead, try purchasing shares from multiple businesses.
So if one company becomes unprofitable and its shares decrease in value, you won’t suddenly risk all your money on the stock market – there will still be stable and lucrative stocks generating income for you to continue drawing income from.
Market downturns happen — don't panic
Periodically, the stock market experiences significant dips or recession. When this happens, it’s essential not to panic: If your investments give you confidence then stick with them!
Panicking could cause you to waste money that doesn’t need to be lost; while by remaining patient the stock market may recover and your chosen stocks could return to or exceed their original values.
Start investing early
Early investment tends to yield better results; even if it means only investing a modest sum like several hundred dollars during your 20s, you will gain invaluable experience and potentially generate returns compared with only exploring it during later decades.
Take profits when they make sense. While investing can be tempting to leave all of your cash sitting in the market in hope for consistent price growth, taking profits whenever appropriate is always smarter and can reduce stress on both ends of the spectrum.
Decide when and how you will sell stocks that reach certain price targets to take a profit, then implement that plan and sell when they meet them; when this occurs, sell and take cash; later on you could reinvest some of it back in other ventures.
Your money sitting in the stock market never realizes itself and becomes inaccessible for other uses.
Keep this in mind as an invaluable lesson: with experience comes greater mastery over investing stocks.
As your investments mature and you gain money, be mindful to take profits rather than risk losing it all down the line.