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Effective Steps before starting Investments in the Stock Market
Today we are going to discuss one of the most basic topics – to make investments in the Stock market. I have been planning to write this post for several days because there are many people who are willing to invest, however, they do not know how to invest in the stock market.
Please note that this post may be a bit longer as I am trying to cover all the basics that a beginner should know before entering the world of investing. Make sure you read this article till the end, as it will definitely help you in investing.
Prerequisites before starting investments in the Stock Market:
For starting investments in the Stock market within the Indian stock market, there are some stipulations that I want to point out earlier. Here are some issues that you must maintain earlier than making an investment in the stock market.
Basic 3 tips before starting investments in the Stock Market:
When you might be new to the stock market, you enter with plenty of desires and hopes. You are planning to invest your savings and make millions in return. However, there are hundreds of examples, who made huge wealth from the stock market and there are thousands who did nothing.
Here are some points of caution for those who want to enter the world of investment.
Pay your high-interest loan first before starting investments in the Stock Market:
If you have any type of high-interest loans such as personal loans, credit card outstanding loans, etc., pay them off first. The interest of these loans can also be equal to your returns from the market. There is no point in wasting your energy to give all the returns you have made from the market as interest on your loan. Pay off these loans before entering the market.
Invest only your surplus fund:
Stay away from these investments if you are asked to invest in your next semester tuition fee, next month’s flat rent, or savings for your daughter’s wedding which is going to happen next year for all these reasons. Invest only that amount that does not affect your daily life. Also, investing by taking loans is a really bad idea, especially when you are new and learning to invest in the stock market.
Keep some cash/funds in hand before starting investments in the Stock Market:
If you have cash in hand, then in case of emergency, like your job is lost or if you are in need of change due to some reason, then at such a time, cash serves as the key to your freedom. Do not invest money to lose all your freedom. Do not sacrifice your private freedom within the title of monetary freedom.
Now that you’ve got understood the pre-requisites and fundamentals, listed below are seven steps to learn to put money into the stock market by yourself. To enter the stock market world and comply with the beneath step sequence for a simple strategy.
How to make investments in the Stock Market?
Define your investment goals to start investments in the Stock Market:
It is important to start by defining your investments goals. Start with the end goals in your mind. First Know what you want.
Do you want to increase the money-saving to beat inflation and get higher returns? Do you want to build a passive income from your investment through dividends? Are you investing in a specific goal? Or do you just want to create wealth and have fun in the market?
If you just want to have fun and learn, that’s fine. But make sure that you do not invest too much or get attracted to the market too much? In addition, most people start in the same way and later define their goals.
Anyway, if you are starting out for a goal-based investment, remember that the time frame will vary for different investments goals. Your goals can be anything like buying a new house, a new car, money for your higher education, children’s wedding, retirement, etc. When you know your goals, you can decide how much you want and how long you have to invest.
Create a plan/strategy:
Now that you recognize your objectives, you must outline your methods. You may need to find out if you want to invest from a lump sum (a large amount at a time) or SIP (systematic investment plan) approach. If you are planning a small-term investment, then analyze how much you want to invest monthly. Keep in coordination with your investments and savings.
There is a misconception in investing in India that you need big savings to get started. Meaning, 50 thousand or above. But this is not true. First of all, deposit an emergency fund and invest a fixed amount of 10-20% on top of your monthly income and invest the same income in the market. You can use part of your emergency earnings to pay your bills, mortgage, etc. However, even if your fixed amount is 1 thousand or 3 thousand or more, it makes it an investment habit. is sufficient.
Read some investment books:
There are many decent books on investing in the stock market, which you can learn the basics by reading. Some good books that I would suggest beginners should read:
Stock Market Investing for Beginners
How to Avoid Loss and Earn Consistently
Apart from this, there are some other books that you can read to make good stock market basics. You can find a list of ten must-read books for Indian stock investors.
Choose your Stockbroker:
One of the biggest steps is to decide on an online trading broker that you have to open an account with. There are two types of stockbrokers in India: full-time-service brokers and discount brokers.
Full-time-service brokers (conventional brokers):
They are conventional brokers that present buying and selling, analysis, and advisory amenities for shares, commodities, and forex. These brokers cost a fee on every commerce executed by their clients. They facilitate funding in overseas alternate, mutual funds, IPOs, FDs, bonds, and insurance coverage. Some examples of full-time brokers are ICICI Direct, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal, and so on.
Discount Brokers (Budget Brokers):
Discount brokers present buying and selling amenities to the clients. They don’t supply mentors and are subsequently appropriate for the kind of do-it-yourself. They provide low brokerage, high speed, and a decent platform for trading in stocks, commodities, and currency derivatives. Some examples of discount brokers are Zerodha, Upstox, RKSV, Trade Smart Online, Alice blue, etc.
I would highly recommend you to choose brokers (like Zerodha) as this will save you a lot of brokerage charges.
Initially, I began buying and selling with ICICI Direct (which is a full-service dealer), however quickly realized that it was way more costly than low-cost brokers. There is no point in paying additional brokerage fees even if you get the same benefits. And that’s why I transferred to ZERODHA as my broker.
If you want to open a Demat account in ZERODHA, you can create a new account by clicking the link below.
Zerodha account opening link – https://zerodha.com/open-account?c=UI9404
The brokerage of ZERODHA (Discount Broker) is 0.01% or Rs.20 (whichever is less) as per the order executed on intraday regardless of multiple shares or their prices. For delivery, Zerodha has zero brokerage charges. Therefore, the maximum brokerage you want to pay per trade when using the Zerodha platform is Rs 20 and does not depend on the amount of trading.
Start doing research and investing in common shares:
Start to notice the companies around you. If you like the products or services of any company, do an in-depth search to find out more about its parent company, such as whether it is listed on the stock exchange, what its current share price is, etc.
Most products or services that you use in day-to-day life – ranging from soap, shampoo, cigarettes, banks, petrol pumps, SIM cards, or even your innerwear, all have a company behind them. Start researching about them.
For example- If you have been using a State Bank of India debit/credit card for a long time and are satisfied with the experience, then check more about the State Bank of India Bank. Information on all listed companies in India is publicly available. Just a simple “Google Search” of the State Bank of India share price will give you much important information.
Likewise, if your neighbor has recently purchased a new Swift car, they will try to find out more about the parent company ie Maruti Suzuki. What other products does the company provide, how is the company performing currently – like its sales, profits, etc.
You do not need to start investing in stocks of small companies. Start with popular large-cap companies. And once you specialize in the market, invest in mid and small-cap.
Select a stage to track your performance.:
You can simply use an Excel spreadsheet to track your stock. Create a spreadsheet of three tables:
- The stocks you are interested in and need to study/investigate
- Stocks you have already studied and found worth investing in.
- Miscellaneous Stock – For other stocks, you want to track.
In this way, you can easily follow the shares. Apart from this, there are many financial websites and mobile apps that you can use to track stocks. However, I find using Excel spreadsheets the easiest way to track my stock.
Make an exit plan:
It is all time good to have an exit plan. You ought to understand how many funding threats you need to take. There are two methods to get out of the stocks. Either by reserving a revenue or deducting a loss.
Let us talk about each of these eventualities. Basically, there are solely 4 eventualities when you must promote a very good inventory in your portfolio:
- When you badly need money.
- When stock prices have changed.
- When you get a better investment opportunity
- When you have reached your investment goal.
If the stock is meeting your investment goals, then sell those shares happily. Or at the very least, book a portion of the profit from your stock portfolio and transfer it to other safer investment options. On the other hand, if the stock falls below your risk level, then exit the stock immediately. In short, always know your exit options before buying shares.
That’s all friends. These were the seven steps that will help you to know how to invest in the stock market.
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