How to start investing in Indian Share Market?

Welcome to the world of Stock market investing. 

Historically it is proven that stocks market or also called Equity investing yields much better return than any other investment type (like property, bond, debt, fixed deposits etc.). We are glad that you have choosen to learn Equity investing.

In order to start investing in stock markets you should have have a DEMAT account in any of the two depositories below. 

1. NSDL - promoted by NSE (National Stock Exchange) 
2. CDSL - promoted by BSE (Bombay Stock Exchange)

These depositories are used by brokerage firm (firm who provides trading account) to hold and safegaurd the securities (mutual funds, company shares etc) bought from brokers' trading account into digital forms.

To open a trading account (demat account is opened along with trading account), you will need to contact a brokerage firm like ICICI Direct, Axis Direct, Zerodha or other brokerage firm. More about this later in this article.

So trading account allows you to trade into stocks, mutual funds; these stocks and mutual funds are deposited into depostitories account ie demat account maintained by NSDL or CDSL.

Lets start with the steps to follow to start investing in Indian stock market.

Step 1 - Learn some financial terms

Before you start thinking about Stock market, try to learn some financial terms like Profit, Loss, Debts, Balance Sheet, ROCE (Return on Capital Employed), ROE (Return on Equity), Debt to Equity, EPS (Earning Per Share), PE (Price to Equity) etc. 

This will help you understand about the company and its health and will be foundation for your success in stock market investing.

Hence forth we will be using Trading account and Demat account interchangibly as both refers to the trading accounts (demat account is opened automatically while opening trading account) opened with brokerage companies.

Step 2 - Be ready with the mandatory document

The second step is to be ready with the Mandatory documents you will need to provide to the brokerage firm to open the trading account. They are

1. PAN card
2. AADHAR card
3. Photographs
4. Income proof (asked by few brokerage firms)

Step 3 - Select the brokerage firm

Once you have all the documents mentioned in 2nd step, you can go ahead with the selection of the brokerage firm.

This is very important step, as if you do not select right brokerage firm; you may end up loosing a lot of money in every transaction you do with your trading account as brokerage charge. Now a days a lot of reliable low cost brokerages (also called discount brokerage) are there that charge almost nothing as brokerage charges. One of them we use is Zerodha. Other good brokerages are also there like HDFC Securites, ICICI Direct, Axis Direct etc.

Please do not run after many other new brokerage firms as we have heard many news recently where customers money and securities were misused by them. So be very very careful while choosing your brokerage firm. Always trust on renowned brokerage or company, people you can trust on.

Step 4 - Be familiar with your demat account apps, website

Once you have opened your trading/demat account, you are provided with following

1. Username
2. Password
3. Demat account details like Depository name, Demat account ID, Demat account ID for IPO application
4. Apps or website you can use to login to your demat account and transact

Download your demat account apps (in case of Zerodha its Kite website and app) and be familiar with different features available in these applications. This is very important step as this will help you avoid last minutes mess.

You can also go through brokerage firms demo videos generally available on YouTube. This helps you to know how to buy and sell shares.

Step 5 - Deposit money in your demat account

While you open your trading/demat account, you are required to provide bank account details. You will require to transfer money to your trading account. Please remember that balance in your bank account and balance in your demat account are two different things.

Please ensure that you have at least few thousands rupees in your trading account always that will avoid your account going into negatives in case your brokerage firm charge their annual maintenance fees.

Step 6 - Select a company to invest in

Once you have money in your trading account, you are good to go with investing. Select a company to invest in. Do your homework.

Following are some of the parameters you should look at for any company to invest in (There is no hard and fast rule, but below parameters are good enough for a novice investors to ensure that they do not loose a lot of money)

1. Company that you see when you roam around or you use their products like HDFC bank, Axis Bank, ITC, HUL, Nestle, Bata, Relaxo etc.
   
   
2. Prefer companies that are in leadership position in their sector or Industry like Honeywell (leader in automation), Maruti (leader in passenger cars), HDFC bank (leader in banking) etc.
   
   
3. Look for good management. Try not to invest in companies whose promoters are involved in money laundring, scandals, very closely related to with political parties or company having high debt as generally these kinds of companies are not considered good for investment.
   
   
4. Prefer less or not debt companies. Though debt is not bad if it is managed property and repaid well within time. Avoiding debt in business is a bit difficult as its very good medium to increase the capacity (capex) of the company and acquire talent or other companies, expand company reach etc. The first choice is always a no debt company, however if you do not find any in the sector you choose, try to go for very less debit company. 
   
   
5. Think long term or futuristic companies. When choosing a company, always look for the company potential 5 to 10 years down the line. Do not select a company or sector that can be desrupted in years to come like company who produce petro or diesel cars, auto part manufacturers etc.
   
   
6. Invest for long term. Stock market investment is for long term, do not invest for time horizon less than 2-3 years as you may end up loosing money when stock price goes down because of some termporary events.

Step 7 - Use mobile apps or stock market related websites

Financial apps or websites help you analyse company, its financial position and other related news. There are many apps and once of the app we like is StockEdge. You can also try other apps availabe. There are few websites too that provide good information on the company, be regular to those websites. This website also provides good information so be regular visitors here. This link has list of websites that helps you to analyse companies.

Best Practices to follow in Stock Market investing

Do not borrow and Invest. 
As stock market investing is for long term, 3-5 years+, never borrow and invest in the market as in short term you many end up loosing money that will give you a lot of mental pain.

Do not invest for short term.
Stocks market movement is unpredictable, no one can predict the exact event and its impact on the market. So try not to invest for the short term or do not invest with the money you need within a year or two.

Do not believe on multibagger SMS, stock market tips etc.
When market is in bullish phase, a lot of SMS, Tips starts coming on your mobile either by some companies or from your friends or relative. Try to avoid them as most of them are a trap to relailers like us. Always do your own basic research based on Step 6 parameters and/or contact your financial advisor before actually investing.

Do not invest in high and sell in low
This trait is very difficult to follow. Generally when market starts going up, a lot of people starts putting money in stock market and when it crashes, people sell in loss out of panic situation. Try to do opposit, invest in low and if you need money in near term then only book profit in high market.

No event is permanent, keep patience.
No event that cause stock market crash is permanent, try to read the history of the stock market for last many decades, you will notice that after every 10-15 years market crashes and again after few months or years it reach to new high. So do not panic when market crashes. Keep patience.

I hope this article has helped you to know how to start investing in stock market in India. Feel free to share this articles with others to help them.

Thanks, keep learning and sharing!