This guide will help you learn how to invest in stocks in the Indian stock market. You will learn about – online trading platforms, stock brokerage firms and exact steps on how to start investing.
To become a successful investor, you should have strong motivation. First few paragraphs will help you increase your confidence and motivation. Later you will find share trading tools, procedures and steps to start investing.
Below is a “table of contents” to help you navigate between sub-topics. (If you click a sub-topic, you will directly go to that section.) Feel free to omit topics which are less important to you. If you get doubts in this guide, you can clarify using the comments section (at the bottom).
Let’s begin now…
Table of Contents
- How Stock Investing Can Change Your Life Forever
- How To Train Your Brain For Stock Investing
- Common Terms You Will Find In This Guide
- Online Trading Tools To Invest In Stocks
- Popular Online Stock Trading Platforms
- Demat Account, A Must To Invest In Stocks
- Share Market Tips
1 How Stock Investing Can Change Your Life Forever
If you are looking to invest in stocks, your only goal should be growing your wealth. You can succeed if you are truly motivated and have a never-ending hunger for achievement. Do you want to know how exactly stock investing can benefit you in the long run? There is no direct answer. Any simple answer will limit what you can truly achieve. The answer lies in what some greatest investors have achieved…
You should be knowing Warren Buffett, one of the greatest investors world has ever seen. Do you know his initial investment? Merely around 220$ in 1941 at his age of 11. He made a small profit but missed big gains for not waiting enough. His learning started there. He learned the importance of timing and patience in stock trading. From there on, he went on to become one of the greatest investors of all time. His current net worth stands at about 80 billion dollars. In Indian Rupees, his net worth is about 8,000 crores.
2 How To Train Your Brain For Stock Investing
Stock investing is not for the weak-hearted. You will see gains and losses. Even great investors like Warren Buffett faced setbacks. During 2008 recession, Berkshire Hathway, Warren Buffett’s company suffered a setback. The shares plunged by over 30%. The loss was in billions of dollars. Buffett remained calm and seized opportunities that others didn’t see. He pumped billions of dollars into several affected companies like Goldman Sachs. Those investments gave huge returns after the recession. The learning is: Even if you face setbacks/failures, remain cool and hunt for new opportunities.
3 Common Terms You Will Find In This Guide
A detailed step-by-step guide on how to invest is about to follow. Here are some common terms you will find in this guide. If you are an absolute beginner, read this first before reading the guide.
- 1. Securities:
- Securities are assets purchased or sold on stock exchanges. In India, the two popular exchanges are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). All the assets like stocks, bonds and mutual funds are called “securities”.
- 2. Trading:
- Trading is a common term for buying and selling securities.
- 3. Demat Account:
- Demat stands for “Dematerialized”. Demat account holds (electronic form of) shares, bonds or other securities. If you are confused about a Demat account, here is a simple explanation. A bank savings account holds money while a demat account holds shares, bonds, mutual funds, etc. Using a bank account you can transfer or receive money. Similarly, using a demat account you can buy or sell shares.
- 4. Stock Broker:
- Individuals cannot directly buy/sell shares on a stock exchange. All buys and sells happen through brokers. For example, “ICICI Securities” is a popular investment broker. You can transact using the tools provided by the stock brokers.
4 Online Trading Tools To Invest In Stocks
What Troubled Stock Investors Before 1985
Before 1985, stock investing was a time-consuming process. The internet was in its early stages. A person who likes to invest in stocks has to do things manually. He has to visit a broker in person and buy shares. Also, he had to maintain documents/receipts for the shares purchased.
An Online Revolution In Stock Investing After 1990
During 1985, the first-ever online trading platform was offered by a US concern in the name of Trade Plus. All it took was 5 years from there for a large scale adoption of online platforms worldwide.
3 Benefits of Online Share Trading Platforms
- 1. Ease of Use
- Buying and selling stocks is just a matter of button clicks – No physical travel and no wasted time!
- 2. Online Reports and Charts
- Trading platforms provide charts and reports for your stocks. You can evaluate your performance anytime. For example, you can visually see graphs on how your stock has grown over time. You will also find reports on profit/loss, the total worth of stocks, etc.
- 3. Timely Decision Making
- To succeed in the stock market, you have to buy/sell at the right time. Online trading platforms help you execute your decisions on time.
5 Popular Online Stock Trading Platforms
Many online trading platforms are available today. You can choose one based on factors like brokerage fees, ease of use, charting tools, etc.
3 Popular Trading Platforms
- ICICI Direct
You will see a brief description of each of them. You are absolutely free to choose any. In case you are not sure of which one to use, start with any platforms and switch later based on your experiences.
The “About Us” section of Zerodha conveys an important point:
“We pioneered the discount broking model in India.”
Keenly note these words – “discount broking”. Zerodha promises lower fees than its competitors.
As a beginner, two costs you should care about are
- Account opening fees
- Brokerage on Share Transactions
You will pay a lower account opening fees compared to the competitors like ICICI Direct. The fee is just Rs. 300.
Brokerage for transactions is different for different types of transactions.
There are two types of share transactions:
- Equity Delivery – when you hold a stock more than one day. You will pay “zero” fees (nothing!) for equity delivery.
- Equity Intraday – when you buy and sell on the same day. For equity intraday, You will pay a flat fee of Rs. 20 or 0.01% (whichever is lower).
Government and SEBI (Securities and Exchange Board of India) will charge additional taxes. These taxes are common for all stock broker firms. So don’t consider the taxes when comparing stock brokers.
Is Zerodha Good?
A simple and flat fee structure resulted in a huge growth in the number of customers. Do you know how many clients Zerodha has now?
Started in 2010, Zerodha now has over 5 lakh clients in 2017. If this achievement is not enough, the website proudly claims 5% of total volume of trade in NSE, BSE and MCX happen through their platform.
A stockbroker is not a faceless firm. As a beginner, you would expect the firm to be supportive (by phone or in person). Zerodha is known for a strong support team of over 900 people. Also, you can discuss your issues with other traders in the community forum.
2. ICICI Securities
ICICI Securities is the largest retail stock broker in India. ICICI direct is the online platform of ICICI securities. The website doesn’t say about the features and nuts and bolts of the platform. But, if you ask anyone who uses ICICI direct, he will certainly say that the platform is easy and simple to use.
Another important benefit is this: You can link both your Demat account and savings account to the ICICI direct account. This simplifies your account management.
The only drawback that many traders complain is the high brokerage charges.
ICICI Direct Brokerage
The account opening fee in ICICI Direct is Rs. 975. You will be charged percentage based commissions for both equity delivery and equity intraday. These charges are higher compared to most of the peers.
To understand the fee structure, you have to visit the pricing section of ICICI direct. You have to spend time to understand the different plans and different pricing structures. Two popular plans are I-Saver and I-Secure. Both these plans charge percentage-based brokerages unlike flat fee of Zerodha.
For example, in the case of I-Saver plan (the most popular plan) the brokerage is as follows – For trade values between Rs. 4667 and 25 Lakhs, you will be paying 0.75% of transaction value. The percentage is same for both equity delivery and equity intraday. (Remember, Zerodha charges nothing for equity delivery.)
For more details on pricing, you have to visit the pricing section of ICICI Direct. However, you will get more clarity by visiting any ICICI Direct branch office.
Is ICICI Direct Good?
In spite of higher fees, most Indian traders prefer ICICI direct. The top 3 reasons are:
- Powerful and easy-to-use interface.
- ICICI brand name and reliability.
- In-depth research by finest analysts, timely tips and guidance.
Sharekhan is the third largest stock broker in India. First two are ICICI and HDFC securities.
Is Sharekhan Good?
Sharekhan has a distinct advantage over online peers like Zerodha. The advantage is a strong physical presence in most cities in India. Hence, while you can use the online platform for trading, you can walk into one of their branches and meet friendly advisors for guidance. The culture of helpful assistance is a distinguishing feature of Sharekhan.
Like ICICI Direct, Sharekhan too provides different types of plans. The most popular one is Classic. The account opening charges for the Classic plan is Rs. 750. The brokerage for equity delivery is 0.50% and that of intraday is 0.10%. Generally, the charges are lesser than that of ICICI Direct but higher than that of Zerodha.
There are many other stock broker firms – HDFC Securities, India Info Line, etc, to name a few.
If you are confused about choosing a stock broker, remember this one simple rule:
So your advice is this:
Without any second thought, start with any broker you feel comfortable. As you gain experience you may decide to switch.
A demat account is a must for any online stock investor. Below you will see how to open a Demat account and the documents required.
6 Demat Account, A Must To Invest In Stocks
To invest in stocks (shares), a Demat account is required. If you do not already have one, you have to open a new account.
How To Open A Demat Account
After deciding your stock broker, visit their website. Find the phone number of support and call them. They will explain you the process of opening a Demat account. Many websites now have online forms. If you submit your details in the form, a representative will call you back.
Documents Required For Demat Account Opening:
Any stock broker will ask you two types of proof documents.
- Proof of Identity (POI) and
- Proof of Address (POA)
1. Proof of Identity:
A proof of identity is a document issued by the state or central government and has your photo. You want to carry one of these to open a demat account. Some documents in this category are –
- Aadhar Card
- Voter Id
- PAN Card
- And any other document that has your photo.
2. Proof of Address:
Regarding proof of address, the document should carry your address. Some examples are –
- Aadhar Card
- Ration Card
- PAN Card
- And any other document that has your address printed.
You may produce any document for proof of address and proof of identity. But never forget to carry PAN and AADHAR CARD.
How Long It Takes To Open A Demat Account
Due to the processing involved, demat account opening may take 2 to 4 weeks. Hence, in a month of visiting a broker, you should start your share trading!
7 Tips To Invest In Stocks And Succeed
Below are few useful tips for beginners who want to invest in stocks.
1. Never put all your eggs in one basket. To be safe, maintain a balanced portfolio of different stocks.
2. Do not invest all your money in stocks. Many have found consistency by investing in different assets like real estate, gold, mutual funds etc in addition to stocks.
3. Time your buy and sell in stock markets. Timing is everything in the stock market. A good analysis will help you identify the right time to invest in stocks (that you have indentified). Timing is important during selling a stock as well. In simple words, buy when a stock is underpriced and sell when overpriced (or at least fair priced).
4. Don’t get misled by market sentiments. The stock market is volatile in short term. People’s sentiments play a major role in determining stock prices in short run. Hence don’t sell just because everyone is selling or don’t buy just because everyone is buying. Do your analysis and buy/sell only if it makes sense.
5. Analyze thoroughly before making decisions. There are two major types of analysis.
- Technical Analysis
- Fundamental Analysis
6. Be always up to date with finance and business news. Pay close attention to events like changes in tax, government policies, etc that affect share market.
Conclusion: Let Your Dreams Come True
Hopefully, this guide will help you to begin investing. You will learn a lot while you invest in stocks and observing and analyzing the results. Have a strong passion towards investing, maintain your calm and work with confidence. Your dreams are not far.
Do not forget to leave your feedback on this guide in the comments section below.