Basics of share market investments for beginners.

Investments are a great way to set aside your assets while you are busy with other things in your life and let the money do the work for you. One can enjoy the fruits or rewards of the investments in the future. Investing can be defined as the process of allocating the money in the present and getting more in return in the future. It is a great way to achieve your short term and long term goals. Investing in shares/stocks is a great way to grow wealth. For beginners wanting to start investing successfully, it is necessary to have quality education before investing just like learning to ride a cycle – room for trial and error backed with the ability to keep moving forward. The best part about investing in shares is that it lives for a lifetime. Investors have years to learn and develop their investing skills. The market is ever evolving and one needs to keep learning with the new changes.

What is the Share Market and Stock Market?

Share market or Stock market refers to a place where buying and selling of shares happen. The only difference between a stock market and share market is that the stock market lets us trade financial instruments like bonds, derivatives, mutual funds and shares whereas the share market only lets us trade shares.  One can only buy or sell shares/stocks if it is listed on the stock exchange. Stock exchange is a place where buyers and sellers meet. In India, the top stock exchanges are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).

Types of Share Market :-

There are two types of share markets – Primary and secondary market.

Primary Share Market – This is where a corporation gets registered to issue a particular amount of shares and lift money. This is also called getting listed on a stock market .

A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an IPO (Initial Public Offering).

Secondary Share Market – Once the initial offering of shares is sold in the primary market, they are then traded here – in the secondary market. In the secondary market, investors exchange/trade shares with other investors rather than the issuing company. People also sell their shares to exit an investment. Generally investors perform such transactions through agents/brokers who act help in negotiating and facilitating the process.

How to invest in the share market?

  1. Define goals – The first step to any kind of decision making must be defining goals. Similarly, with investing one needs to define what kind of goals they want to achieve. One must know what they eventually expect from their investments. Ask questions to yourself – Do I want to achieve a short term goal or a long term goal? Is the investment for a specific goal – higher education, children’s marriage, retirement, etc? Is it to build a passive income? Or is it for growing your saved money? Once you’ve defined the goal, it will be easier for you to contemplate a time frame to achieve these goals. Different goals would need a different time frame.
  2. Get educated – Before you start investing, it is very important to have some understanding about it. It is necessary to have quality information about the same. One can learn about the share market through books, learn from a mentor, take some online courses, etc. There is a decent amount of information on stocks and shares on the internet and in books. One needs to make the most of it.
  3. Create strategy – There are several ways to approach investing. Choose the best option that answers how you want to invest, and how involved you’d like to be in picking and choosing the stocks you invest in. When the goal is decided, one should know whether they want to invest in lump sum amounts or in systematic investment plans (SIPs) and how much money they are willing to invest monthly or annually.
  4. Choose an investment account – This step involves choosing a broker. Here, an investor can choose whether they want to invest through traditional brokers or through online budget brokers. Traditional brokers are the ones who provide trading, research, and advisory facilities for stocks. These brokers charge a commission for every trade transaction they execute for their client. Budget brokers only provide trading facilities to their clients. They do not provide any advisory services. Investors can opt for opening a trading account through an investment app which helps in trading and monitoring investments by themselves.
  5. Invest and Track – Once the trading account is all set, one can start trading according to the strategy they planned. It is very important to constantly monitor investments’ performance. Keep a track of market updates and invest accordingly. Know that the market keeps evolving and it is important to keep learning and applying the learnings practically.
Author: Razai