A good thing that has come out of the lockdown caused by the deadly virus Covid-19 is the increasing interest in the market. Many new investors and traders are coming to the share market and many more are looking for ways on how to make an entry in the share market.
The search ends here. This is a roadmap on how to become an investor/trader.
- Locating a broker:The first thing one needs, in order to, start participating in the market is to find a good and dependable broker before he can start investing in the share market. Stock brokers are those entities who provide an access to their clients to approach the marketplace.But one cannot just walk into a broker’s office and start the transaction. He or she needs to be a customer or client of the broker. There are many online discount brokers in the market who offers the best brokerage plans.
- Account Opening:In order to be a broker’s client, one has to go through an account opening process. Each broker has an account opening process that needs to be followed for opening an account with them.Apart from filling up an account opening form, the client has to provide a set of documentation. While the requirement may change depending on the broker, here are some of the common documents that one needs to be ready with if they intend to start investing in the stock market.
- Proof of identity – a ration card, voter ID or a driving license
- Address Proof – Passport or ration card
- Income proof – this is needed especially when a client wants to trade in the derivatives segment. An income tax return is generally used as an income proof.
- Bank Account – A cancelled cheque
- Bank Statement – A six-month bank statement is needed when a client wants to trade in the derivatives segment.
- PAN Card
- Aadhar Card
- Passport Sized photographs
- Demat account:
Along with opening a trading account, a broker would expect the client to open a Demat account. Since in India shares are traded in digitalised or dematerialized form they need to be stored in a place which is called the Demat account. Just like a bank account a Demat account keeps a record of what you hold and your transaction record. Anyone who wants to invest in the share market needs a Demat account. Those trading in derivatives may not need one, but it is generally better to have a Demat account. It is also better, but not necessary, to have a Demat account with the broker, especially if one intends to trade frequently.
- Trading Account:
A broker opens a trading account for a client with a unique trading code after all the documents have been submitted and verified. The client can transact in the exchange using his code. All buying and selling through the broker can be done after informing the client ID to the dealer.In case of investing in the stock market through an online medium like computer or mobile, the client needs to login into his system using his unique client ID and password. These days most brokers are able to complete the process of account opening within a few days if not on the same day.
- Bank Account:
The client will need to map his bank account with his unique trading and Demat account. This would help facilitate seamless flow of money and shares. It is faster and less cumbersome to use the electronic mode of money transfer.A bank account is needed to transfer money when investing in the share market.Every time some shares are bought money needs to be transferred to the broker. Most brokers, especially, the online broker will allow you to buy the shares only after money is transferred to their account. Similarly, when you sell shares money is transferred back to your account.Many brokers, after taking written permission with their client at the time of account opening, keep the money in the clients account with the broker. This is done especially with those clients who are frequent traders. The money can be transferred back to the clients account on a simple instruction, which nowadays is done online.
After a client has received his unique account code and Demat is mapped, the broker informs the client that he can start using his account to transact. Before placing the first buy order the broker ensures that there is enough money in the account of the client to fulfil his commitment to buying the shares.Similarly, before selling any shares, based on delivery, the broker would ensure that the client has those shares in his Demat account. Only if the client specifically says or mentions in his online trading platform that the trade will be squared-off by the end of the day, will he be allowed to sell shares and later buy them back.
- Investing in the share market:
Opening an account with a broker and getting all formalities done is the easiest part of an investor’s journey. To be a successful investor requires one to have a methodology while purchasing shares.Investing in its most basic form is buying a stock when its value is below the price at which it is available.There are various ways of investing in the market, some of them are value investing, investing in turnaround companies, investing in growth stocks, dividend yield based investing, investing on growth at a reasonable price basis, among many others.It is not necessary that one should know all forms of investing but knowing and mastering a few and sticking to a process is what makes for good investing in the share market.
Investing in the share market gives higher returns than other financial assets. Hope you got a clear idea of how to invest in the share market. So what are you waiting for? Open a demat & trading account and start investing now!