Share Market is the financial market where investors buy and sell financial securities like stocks, debt. In India, most trading happens in two stock exchanges:
- Bombay Stock Exchange (BSE)
- National Stock Exchange (NSE)
Let us briefly review these two stock exchanges:
Bombay Stock Exchange(Started in 1875)
Over 5400 companies are listed on BSE’s for trading and the exchange operates from the famous Dalal Street, Mumbai. The key index used at BSE is Sensex (also know as Sensitivity Index). Sensex comprises of top 30 companies from various sectors in India ( like Banking, IT, Healthcare, FMCG and hence its value gives a general idea about the whole market. For example, if the Sensex falls for 1000 points on a given day, it’s most likely that stocks of all sectors fell and hence the overall market fell.
National Stock Exchange(Started in 1994)
National Stock Exchange of India (NSE) is India’s largest stock exchange and world’s third largest stock exchange in terms of transactions. NSE has nearly 1,700 listings. NSE is far more active and day trading does take place on the exchange. The key indices used on the NSE is the Nifty. NIFTY was coined from two words ‘National’ and ‘Fifty’. The word fifty implies that the index consists of 50 actively traded stocks from various sectors.
Now that you have the basic understanding of the two stock indexes in India, let us discuss the steps via which you can start trading/investing.
Steps to start investing in the Stock market:
To start investing, you will need to open the trading account with a stock broker. To open a trading account, you will need following documents.
Step 1 – Get Required Documents
Indian stock markets operate under SEBI ( Securities and Exchange Board of India ). As per SEBI rules to invest in stock market, you should an Indian resident and over 18 years old. Hence, to start investing you will need following documents:
PAN or Permanent Account Number is an essential requirement for entering any financial transactions in India. PAN is required for opening a bank account, investing in mutual funds, filing Income Tax returns and any other financial transaction. If you do not already have a pan card, please click here to apply for Pan Card.
(B)Proof of Identity
Proof of identity( or ID proof ) is the document which establishes the identity and age of the applicant. Hence documents like Passport, Driving license or Voter ID can be used as proof of identity.
(C)Bank Statements or Salary Slips.
The applicant needs to submit six months of bank statements. The bank statement is needed as confirmation of customers bank account number and IFSC code.
Once you have these documents ready, start with the next step.
Step 2 – Open Trading & Demat Account
People like us(you and me) cannot directly buy stocks from stock exchanges(like BSE & NSE). To buy stock, we need to open an account with members of the stock exchange and these members are called Stock Brokers.
Stockbroker is an organization who executes orders (buy & sell) in the stock market on behalf of customers. Hence if you need to buy a particular stock, you will need to tell you broker(online or by calling) and the broker will execute the trade on your behalf on NSE or BSE.
When you contact a stockbroker for account opening for investing in share market, he would open Trading and Demat account.
Is used by us (customers) to interact with stock exchanges via stockbrokers. Customers can transfer funds to their trading account from their savings bank account (using online transfer or via cheques etc). Once the money reaches the trading account, customers can buy stocks as per the amount of money in the trading account.
Is used to keep a record of stocks of individual customers in digital (dematerialized format). In India, we have two Depositary Participant and stock brokers are required to open Demat account of their customers in either of these DP’s (depending upon their tie up). Interested in more details, read our detailed article on demat account.
Now let us take an example of what happens when you execute a trade.
If a customer wishes to buy 100 stocks of ICICI bank. He/she would contact his stock broker either online or via call and submit a request to buy the stocks. The stock broker would pass on the request to stock exchange (along with required amount). Upon receiving the request, the stock exchange would execute the trade (by taking required funds from stockbroker) and they will move the bought stocks to our Demat account. Although the process sounds long, the entire trade execution takes less than few seconds.
Stock brokers are mainly of three types:
We have done extensive research and come up with best stock brokers:
|Broker Type||Suitable if you||Brokerage Charged||Account Opening Link|
|3 in 1 Stock Broker||Need a complete end to end solution for investing (including online IPO's and much more ).||High||Open Trading Account with Kotak Mahindra Bank|
|Full Service Broker||Need stocks tips and cutting edge trading software.||Medium||Open Trading Account with Angel Broking|
|Discount Brokers||are comfortable in using smartphones and computer. |
You can do self analysis of stocks.
|Low||Open Trading Account with Zerodha|
If you would like to learn about various stock brokers in India, read our detailed article.
Step 3 – Account opened, what next?
Once you have access to the trading account, you can start investing in stock market.
Below are 5 golden simple rules which all beginners should follow. We recommend that you follow these rules until you have spent 120 days in the stock market.
- Only invest in Blue-chip(very big company) stocks.
- When you wish to buy a stock, write 4 reasons why you “think” that stock should be bought.
- You should not sell a stock before holding it for at least a week. If you feel like selling it earlier, read reason on the step above and wait!!!!
- Do not fall into the trap of advisors who promise a guaranteed return, do not subscribe to any free or paid services for tips.
- Do not even think about investing in futures and options, no matter how much return your “friend” or “family” member has made.
These golden rules are compiled based on learning which the team members @theindianinvestor & our friends. If you think we should add additional tips, please do share your feedback in the comments section.
Making money from existing money is an art and best of luck in learning this art 🙂