How To Invest In Shares

Want To Invest In Share market ?

Investments in the primary share market are through an Initial Public Offering (IPO). After a company receives all the applications made for an IPO by investors, the applications are counted and shares are allotted based on demand and availability. To invest in both primary and secondary markets, you need to have a Demat account that will hold electronic copies of your shares. Additionally, a trading account is also important which will help in buying and selling shares online.

Know your investment requirements & limitations

First, understand your investment requirements and limitations. Your requirements should take into account the present as well as the future. The same applies to your limitations. For example, you just got a job and earn Rs. 20,000 a month. 

Your limitation could be that you need to set aside at least Rs. 10,000 for instalment payments for your car, and another Rs. 5,000 for your monthly expenses. This leaves aside only Rs. 5,000 for investment purposes.

   Now, if you are a risk-averse investor, you may prefer to invest a larger portion of this amount in low-risk options like bonds and fixed deposits. This means, you have only a small portion left for stock market investing – Rs. 1,000. Further, take into consideration your tax liabilities. 

Remember, making profits on short-term buying and selling of shares incurs capital gains tax. This is not applicable if you sell your shares after a year. 

So, ensure that your cash needs don’t force you to sell your shares on short-term unnecessarily. Better to take a wise well-thought decision, than attract unnecessary costs in the future.

Decide on your investment strategy

Once you understand your investment profile, analyse the stock market and decide your investment strategy. Find out which stocks suit your profile. If we continue the above example, with a budget of Rs 1,000, you can either choose to buy one large-cap stock or multiple small-cap stocks. 

If you need an additional source of income, opt for high-dividend stocks. If not, opt for growth stocks which are likely to appreciate the most in the future. Deciding the kind of stocks you wish to collect is part of your investment strategy.

Enter the market at the right time

 Wait for the right time. Have you ever seen a cheetah or tiger hunt? They lie low for a while waiting for their prey, and then they pounce. Exactly the same way, time is of utmost importance in the stock market. Merely getting the stock right is not enough.

 Your profits will be maximised only if you buy at the lowest level possible. The same applies if you are selling your shares. This needs time. Do not be impulsive. You might be interested to do some analysis while you’re waiting. Here’s your guide to analysing stock market.

Do the trade 

Conduct your trade either online or on the phone through your broker. Ensure that your broker confirms the trade and gets all the details right. Recheck the trade confirmation to avoid errors.

Monitor your portfolio 

Monitor your portfolio regularly. The stock market is dynamic. Companies may seem profitable one moment, and not-so profitable the next due to some unforeseen factor. Ensure you regularly read about the companies you have invested in.

 In the case of some unfortunate situation, this will help you minimize your losses before it is too late. However, this does not mean you panic every time the stock falls. A stock’s price will fall at some point in time, because there will be some investor in the market with a shorter investment horizon than you.

 So, he will sell his stock and pocket whatever profits possible in that shorter time. Patience is a key virtue in the markets.