First and foremost, it is important to remember that investing in the stock markets is not an easy game. It is crucial for an investor to learn and cultivate the habit of not getting carried away by the so-called expert advice. It is important to use your own discretion while undertaking investment decisions.
This is why, before starting to invest on your own, arm yourself with adequate knowledge related to financial terms.
Here’s the lowdown on some logical steps and procedures that will help an investor kickstart their investing journey in stock markets.
First, get a permanent account number (PAN) and Aadhaar cards. This is the primary requirement for completing the know-your-customer (KYC) procedure. These documents are also required for opening a bank account, investing in mutual funds, and filing Income-tax returns, among others.
There are entities that are authorized to buy and sell on markets; they are called brokers. They can be either individuals or companies; they could be even online agencies that are registered and licensed by the regulatory authority Securities and Exchanges Board of India (SEBI).
Once an investor has hired the services of a broker, they will now require to open a demat (dematerialised) and a trading account. The demat account will hold the stocks or shares in your name, and the same will reflect in the stock portfolio.
The buying and selling of shares that an investor wishes to have, or wants to sell, will however require opening a trading account. A trading account is like an intermediary that facilitates the process of buying and selling. Usually, it is the broker who takes care of all these formalities. Whether an investor approaches an individual broker, a broking firm or online agencies, the demat and trading accounts will be opened simultaneously, as one without the other is useless for investing in shares or the stock market.
Next, an investor requires a depositary participant (DP). There are two depositories in India: National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). These two have their agents in the form of DPs who will provide an account to store the shares one holds. DPs will hold those shares an investor has bought, and release the shares that are sold. However, all of this is usually taken care of by the broker, who will also guide you through the demat and trading account opening process, as well as registering with a depository participant.
For buying or selling shares, an investor needs to inform the broker of what share, in what quantity, and at what price, they wish to buy.
In the case of an online broker, too, they have customer-care numbers where an investor can place their order if they do not have access to the Internet at that point. When the share reaches that price, the transaction will be made on your behalf. The same is done in the case of selling of shares.
The sell order will be processed at a time when the share reaches that particular price. However, the buy and sell orders remain valid only for a certain time, which is usually the same day or the next. The broker will inform an investor of this. If, during that time frame, the buy or sell price is not reached, the order is canceled, and you need to place a new order.
There are two primary stock exchanges in India: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). An investor is also required to mention the exchange to their broker, as there is usually a slight difference in the price of shares at the two exchanges. However, the broker can guide an investor in case they do not understand where to trade.
Last but not least, do not get carried away as stock markets can be tricky and it won’t take time for an investor to lose money if they make a slight mistake in judgment or follow the stuff blindly.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.