Today share market is getting massive popularity
amongst people. Most of the people take share market as a primary source of
income, and some make it as a secondary source of income. Everyone is
fascinated about share markets and wants to know leverages of getting into it.
Here in this article, we are going to discuss how to invest in the share markets
for beginners.
How to invest money in share market? This
question is always raised in an individual mind when it comes to investing real
money. If you are going to indulge in the share market should have a valid
perspective, if not yet, then find. Because it is a matter of money and for
just fun, no one wants to lose money. However, the share market is an excellent
way of income, but doing bad practice can lose your hard-earned money. So if
you are a beginner, then you should read some important things before getting
into it.
Let's have
a look at how to invest in share market for beginners guide:
There are few things than you should know before
you invest in the share market if you are a beginner. A traditional way is
getting started is opening a Demat and trading account. Below are documents
mentioned you need to open a Demat account online and quickly are-
Bank
account-
you must need a bank account where all your money gets transferred. This
account should be linked to your trading account.
Adhar- it is a must-have
thing to open a Demat account in India as it is a primary source of identification.
The KYC process is required to complete the account opening process as it is
wholly based in Adhar.
PAN card- also, you need a PAN
(permanent account number). For your name and date confirmation, your mentioned
PAN card is suggested. In India, a PAN card is a must for financial
transactions.
Broker- it works as an
intermediate between investor and stock exchange. The trade-in share market is
done through a broker as he facilitates communication between buyer and seller.
So it is essential to open a Demat account.
Personalized
cheque and Bank statement- while opening an account, you need your bank statement and
personalized cheque. After confirmation of credentials, your Demat account will
be open within minutes. This process of account opening will take only a few
minutes, so you can start investing in the share market.
Now let's learn how to invest money in share
market:
·
Make
clearly defined goals for investments
·
Take
professionals or expert advice before getting into it
·
Keep
patience before doing anything
·
Don’t
take any decision instantly
·
Don’t
believe in rumours
·
Start
investing regularly from starting for significant leverages
·
Set
the financial assets based on your goals and timelines
·
Think
before investing in any trade
·
Most
importantly you should have a regular source of income
So by reading the above-mentioned points
probably, you would get your answer about how to invest in the share market.
Now moving on, see the how to invest in share
market in India.
Step by
step guide how to invest in share market in India:
According to a famous American financier and
philanthropist, Mr George F. Baker -To make money in stocks, you must have the
visualization ability to see them and enough guts to buy them, and the patience
to hold them.
Factually, there are thousands of companies
authorized by NSE (Nifty) and BSE (Sensex), and unless you are knowledgeable
enough to filter which company is going to earn more and which are going lost
in the sea.
The investing guide which we are going to share
with you is the one which is followed and used by us. Investing money is an
ocean in itself, and before investing, people who are investing has to go
through a dreary process of analyzing stocks by reading through the financial
statements, annual reports, and other different reports containing the financial wealth of a company.
However, based on our past experiences of
investing in the share market, we have come with following simple steps that you
can follow to kick start your share marketing journey, even without having
broad financial knowledge.
#1
screening and filtering the right stocks using financials
There are a bunch of stocks listed on the NSE
and BSE. And it is impossible to analyze each of them by going through
financial details. Therefor initial consideration you can use the pre-planned
screening criteria to find out the stocks that are fundamentally strong.
Screening
criteria-
·
The market cap should be higher than Rs 500Cr
·
Sales
and profit should more significant than 10%
·
For
the past five years, EPS (earning per square) growth rate should be increasing
·
Debt
to equity ratio should be less than 1
·
Return
to equity should more significant than 20%
·
Price
to book value less or equal than 1.5
·
Price
o earning should less than 25
·
The current ration should greater than 1
Besides, you can quickly check the financial
information online as there are many screener tools available online financial
platforms where you can get information within minutes. Also, you can check the
other financial ratios by clicking the company factsheet.
#2 Select
companies that you understand
After step 1, you have filtered out stocks with
good fundamentals, now you have to learn more about these stocks by you have
read about the company which they are underlying. For this simply, you can
visit the official website of the company and even track the updates of the
company on social media platforms or search for the company on search engines
and get feedback from past investors.
Mainly there are only three questions that will
help you to understand the company business.
·
Do
I understand the company offered a product or service?
·
Do
I understand how company business works and make money?
·
What
of business it has?
It is foremost thing you to do before investing
in companies, at least you have some initial information about the company.
Doing this, you can ensure your money is not going waste.
If you have significant work experience in the
IT field and you are passionate about technology and aware of the latest market
trends, then this will going to give you more advantages. By knowing above, you
can understand business easily and reasons for growth. You can easily predict
how the future could turn out to be the company. However, there are many
businesses too where no particular background is required, such as consumer
products.
#3 Search
companies with a sustainable moat
The only test of financial numbers cannot
identify the company; there are many other business models to understand one of
them is the moat. It is the competitive advantage of the company over the
competitor company in the same sector. The high moat means immense competitive
advantage and high sustainability of the company.
#4 Look
for low debts
High debt levels can cause significant risks to
the company. Apart from screening criteria where debt to equity ratio and
current ratio is used to filter the stocks, the ratio of these shows how the
company is dependent and debt to fund its growth. So while selecting the
stocks, look whether the company handling its debt over the past many years.
#5 Use financial
ratios RoE and RoCE to find the right stocks
RoCE is the primary measures of a company how it
uses all available capital to generate additional profits. Considering these
two financial ratios put together with help in understanding:
·
How
efficiently the company is using resources?
·
How
much profit it earns in terms of investments?
A company with high ROE and RoCE has a great chance for future growth in the value of the company.
#6
Transparent, Honest, competent management
One of the primary reasons why people quit
trading in the stock market is management fraud with their savings; in the
past, there have been many cases where many companies did accounting frauds,
misled shareholders, and did shad deals that can cause a lot of monetary loss
to investors. So there are a few points you need to check before choosing any
company.
·
Read
company annual report
·
Look
out for promoter’s shareholding
·
See
whether any fraud is done by the company in the past
#7 Right
prices for buying the stock
Eureka!
If you have reached this step that means you
narrowed down some essential aspects of the share market. The only question that
remains is how to invest money share market? The answer is found maximum value
company by investing a minimum price. No matter how the company good is, paying
a hefty amount for the future cannot assure that it can grow as per
expectation. So invest an amount as per the worth of the company.
These are the steps on how to invest in shares
for beginners. Importantly, you don’t have to be a finance or MBA degree holder
to invest in the share market. Some of the most prominent investors across the
world come from a very normal academic background.
Hopefully, this how to share in share market for
beginner guide can teach you some important factors of share market so that you
can kick start with it.
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