Especially for beginners, investing in the stock market can be challenging. There are two categories of stock markets: primary and secondary share markets, which you should be aware of if you wish to invest in stocks.
Investing in the Primary Share Market
A key means of investing in the stock market is through an Initial Public Offering (IPO). Following receipt of all investor applications for an IPO, a company counts the applications and allots shares in accordance with demand and supply. You require a Demat account with electronic copies of your shares in order to invest in the primary and secondary markets. A trading account is also necessary because it will facilitate online share purchases and sales.
In exceptional circumstances, a trader may also be able to apply straight from their bank account. Application Supported by Blocked Amount (ASBA) is a procedure that simplifies IPO applications filed through net banking.
According to the ASBA procedure, if someone asks for shares for Rs. 1 lakh, the money will be blocked into their bank account rather than being given to the company. The exact amount will be debited after you receive your share allocation, and the remaining funds will then be made available. This process must be adhered to by all applications submitted to IPOs. Within a week of being distributed to traders, shares are listed on the stock exchange and can then be traded.
Investing in the Secondary Share Market
The routine buying and selling of shares or stocks is referred to as secondary share market investing or trading. Before you begin investing in the secondary share market, there are a few easy procedures to take.
- Step 1: Open a trading and Demat account.The place to start investing in the secondary market is here. For a smooth transaction, both of these accounts should be connected to an existing bank account.
- Step 2: Choice of shares.To sell or purchase shares, go into your trading account and select the shares you want. Make that you have the necessary funds in your account to buy those shares.
- Step 3: Choose the price range.Set a price at which you want to purchase or sell shares. Await a response from the buyer or seller to your request.
- Step 4: Finish the transaction.When the deal is done, you get paid in shares or cash depending on whether you bought or sold the stocks.
Make sure to keep in mind both the length of time you plan to have your investments in place and the financial objectives you hope to accomplish with them.
Documents required for opening a Demat/Trading Account
To begin investing in the share market, you need to have the following documents:
- PAN Card
- Aadhaar Card
- Name on a cancelled cheque from their active bank account showing IFSC Code, account number, Account holder’s name, and signature.
- Documents detailing that the applicant earns a steady income.
- A proof of address that is based on a list of documents that have been accepted by your broker, depository participant, or bank
- Passport-sized photographs of the applicant.
Things to keep in mind before investing
Even if stock trading isn’t as challenging as it may seem, it is possible to get caught up in the world of trading without ultimately benefiting from it. Keep the following things in mind before investing to avoid this result:
Diversify your portfolio
A good portfolio is one that is diverse. If one asset class makes up the majority of your portfolio, you won’t receive a consistent flow of cash when that instrument has a downturn. Financial gurus advise adding different asset classes to balance out the low points of one asset class. For instance, investments in bonds or other debt instruments frequently used to offset equity. A portfolio with this balance can protect its owner from a period of market catastrophe.
Understand your investor profile
Your investor profile might help you choose the instruments that fit your risk tolerance the best. This enables you to be sure that the level of risk you are accepting is appropriate for your lifestyle.
Create an investment plan
If you have an investment strategy that specifies the amount of revenue you want to generate from your investments and the time frame you might need to remain invested to generate that amount, you can prevent potential issues down the line.
Conclusion
A few important factors should be kept in mind when investing in the stock market. These include organizing your investments, determining your level of risk tolerance, and making sure your portfolio is diverse. Reach out to our skilled traders at IIFL and take advantage of our stock advice services right away if you’re having trouble choosing the proper shares, planning your investments, or establishing goals in accordance with your degree of acceptable risk.
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