M is for Money: Want to play the stock market? Here’s how to start!
I'm no expert on the stock market as I only have six months experience with it, but I do have some tips to help you get started.
People keep telling me that “you have to spend money to make money” and one excellent way to do so is the stock market. But how do people learn how to invest in the stock market, especially those who don’t have a finance or commerce background?
As a 23-year old, I had to figure out the complicated world of the stock market through Google and asking all my knowledgeable acquaintances a million questions. I’ve had a solid humanities background since my school days and didn’t realise how schooling in India doesn’t really prepare you for how to manage your money. There’s no education on how to navigate tax or any details on the stock market in textbooks (even if you pursued commerce). So how are you supposed to figure out the stock market?
While I’m no expert, (I only have 6 months experience with the stock market myself), let me give you some tips to start your investment journey.
1. Create a 3-in-1 DEMAT and trading account.
To be able to trade in stocks, you need to have a DEMAT and trading account. I created a 3-in-1 account which linked my savings account with a demat and trading account in one go. As I opened the account with the bank that I already had a savings account in, the process was very simple. If you already have a savings account with a bank, you just need to speak to either your bank manager or your account relationship manager to inquire as to what documents are required to open this account. For me, my Aadhar card, PAN card, and cheque book were required. I was asked to fill out an additional form and was informed of the charges. These charges and maintenance charges vary based on how much you would be investing in stocks, as well as your bank. This entire process took approximately a week for me, during which I just had to visit the bank in person once.
2. Know the stock market lingo.
With a 3-in-1 account, you can invest in EQUITY, DERIVATIVES, MUTUAL FUNDS, FUTURES, SYSTEMATIC INVESTMENT PLAN (SIP) and any other investment products.
As a beginner, the three items you should focus on are EQUITY, MUTUAL FUNDS, and/or SIPs. What do these terms mean?
EQUITY: In the stock market, equity and stocks are generally used interchangeably. Stocks are shares in the company. When you buy a stock, you are buying a share in the company
MUTUAL FUNDS: Mutual funds are investments that are managed by a fund manager, and the money is used to invest in various stocks, bonds, cash, and other kinds of investments. Instead of investing in one single company, you diversify and invest in many things. Due to this reason, mutual funds are generally considered to be a safer investment option than equity.
SIP: A systematic investment plan (SIP) allows you to invest a certain predetermined amount at a regular interval, generally for a predetermined amount of time. This is generally used to invest in mutual funds. Small investments can be made weekly or monthly, just like you would in a recurring deposit in your savings account.
If you wish, you can start off with investing in mutual funds as the risk is less and you would not need a demat account to invest. A mutual fund account is required; you can ask your bank the process to open the same.
3. Do your research.
Now that you’ve created the account and know the basic lingo, you need to do the research before investing. I made an error when I relied only on Google and bought stocks without any research, or discussing the decision to invest with a mentor. I also bought the stock at the maximum price it was being sold for on the day as I did not know how to check the day’s lowest and highest price.
I would suggest you use the following websites and resources to research how a particular stock or a mutual fund has performed in the past.
● Value Research
● Money Control
● Reports from your bank: Once you start your 3-in-1 account, your bank will start emailing tips and suggestions as to which companies and funds to invest in; you should have a look and read why they are suggesting these investments.
● Find an experienced mentor to guide you for a while: If you’re unsure, don’t invest until you’ve spoken to some people who have been investing for a while.
4. Give your investments time to give a good return.
If you’ve invested at a time when the market is down, give the investments a minimum of three to four months to give a good return. Be advised that if the investment is not giving a good return and is crashing, it might be a good idea to sell it before you start making a huge loss.
5. Try to automate if you don't have time to check the account often.
There are many tools which can be used to automate your investments if you do not wish to spend all your time on the stock market website. If you want a stock to automatically sell if it reaches a certain price there are two options:
● Stop loss: You can use this option to set a price at which you wish to sell the stock before it starts to make a loss. In simpler terms, the stock is automatically sold when it reaches the minimum price at which you would want to sell it.
● Good Till Date (GTDt): This option can be used to set a price at which you wish to sell the stock at a profit. The order is valid for approximately 30 days.
Hopefully, these tips should help you understand how simple it is to invest. If you have any doubts, do not hesitate to call your bank to clarify, as there are often minimum lock-in periods which are not clearly mentioned online. You can also use telecalling to automate and trade in case you need a while to get used to doing it on your own. Just be judicious and careful in your investments and you should prosper.