Considering the volatility, Investing in share markets is both an art and a science. So, if you’re an investor curious to know how to invest in the share market, look no further!
Let’s get started!
If you look previously, Indian investors have considered gold and fixed deposits safe-havens. However, the actual rate of returns (post inflation) these assets delivered is minuscule. Many investors have invested in the share market in India to create wealth in the past few years. In the last five years, i.e., from April 2014 to March 19, Nifty has delivered approx. 14.2% CAGR return, much above the returns of other traditional asset classes such as Gold, PPF, Real Estate, NPS, and FDs delivered.
So, the question is – How do you invest in the share market in India and create wealth?
Before even getting into which businesses to buy, there are a few steps that you need to follow before you start to invest in the share market.
1. How to Invest In Share Market In India?
A simple step-by-step guide to help you get started
Here is a 4-step simple process guide to Invest in the Share Market and get the basics right before you invest in share market
- Get a PAN card: It is mandatory to have a 10-digit alphanumeric number assigned to you by the Indian Tax Authorities. A PAN number is required to open your bank account, Demat account, and trading account. If you already have your PAN card handy, move to the second step.
- Identify a broker for you: Brokers are authorized individuals or companies who help you to buy and sell your stock market investments. In India, the Securities Board of India regulates and issues licenses to brokers. Before you hire a broker, try to analyze their creditworthiness, fee structure, reliability, credibility, past record, experience, range of services, etc.
- Open Demat and trading account: Before investing in the India share market, it is mandatory to open a Demat and trading account with your registered stockbroker. The Demat account will hold the securities/shares/stocks in your name, while the trading account facilitates buying and selling stock market investments. With this, you also need to know that there are two depositories in India: National Securities Depository Limited (NDSL) and Central Depository Services Limited (CDSL). NDSL and CDSL have their own depository participants, who act as intermediaries between the depository and the investors.
- Identify the stock market investments that suit your goals: Each investor is unique, and so is their risk appetite, financial goals, and investment horizon. Hence, hiring a stock market advisor or wealth creation expert who considers your risk profile and financial goals before recommending stock market investments is always recommended.
2. Dos & Don’ts While You Invest In Share Market In India
Take a look at the best and most unhealthy investment practices before you get started with your stock market investments.
Now that you’re sorted with how to invest in share market basics, picking up the right stocks can be tricky and cumbersome. Remember, stock markets are moody and volatile, and if you don’t make decisions based on data and empirical evidence, there are high chances of losing money while investing in the share market in India. We do not mean to scare you, but even if you buy high-quality stocks, wrong investment decisions can prove dangerous for your portfolio.
Remember: The world of stock market investing is like a jigsaw puzzle. The good news is that with the proper guidance and data, it is easy to solve this puzzle and create immense wealth for your family and you. However, many fail in doing so because they equate stock market investing to gambling, speculation, or buying a lottery ticket.
A true value investor takes calculated risks based on facts and empirical evidence. For example, we know that the levels of seawater or a pool are dangerous. However, someone with the right swimming skills would know how to sail through it and even enjoy it. Similarly, equity investments are risky. But if you embrace the correct investment methodology, you will not only navigate through the markets’ ups and downs but also achieve your goals by investing in equities.
Also, if an investor believes in the 3 P’s of investing – Patience, Power of Compounding, and Perseverance- the journey toward financial abundance becomes easier.
- Display patience when there is turbulence in the Indian stock market
- Trust the magic of the power of compounding rather than timing the ups and downs in the stock market. The longer you stay invested, the lesser the risks involved and the higher the chances of returns.
- Always remember that stock markets fluctuate, but your goals shouldn’t. Stay disciplined with your goals and financial plan, and keep investing a fixed amount periodically to reach your financial destination.
3. How to identify the shares to buy today in the Indian market?
Here are a few financial parameters you may look at while identifying the Good shares to buy today in the Indian market.
Out of 5,500 stocks listed on the Indian stock exchange, how would you identify the best stocks to buy? Plus, with the continuous barrage of stock tips on WhatsApp, business channels, and newspapers/magazines, how would you know if the stock recommendations are backed by rigorous research?
Research & Ranking helps its investors to invest in high-quality stocks that pass the stringent fundamental test. Fundamental analysis is a method to assess the intrinsic value of a stock. It is based on a host of qualitative and quantitative parameters.
Quantitative parameters to look at while investing in equities
- Screen financial parameters: Research & Ranking looks at various information such as market capitalization, earnings per share, debt levels, shareholding pattern, consistency of cash flows, growth in topline and bottom-line numbers, etc.
- Check financial ratios: Once you are done with screening the basic economic parameters, deep dive into ratios such as debt to equity ratio, price to earnings ratio, price to sales ratio, return on capital employed, dividend yield, return on equity, return on assets, price to book value along with other ratios to gauge the financial health of the company. Remember, don’t look at these ratios in isolation. It is recommended to compare it with peers and the industry average to make a sound financial decision.
Recommended reading: If you find the above terminologies overwhelming, read this story on 8 Common Investment Jargons Simplified For You.
One is advised to look carefully at the various financial statements such as balance sheet, profit & loss account or cash flows to understand if the company has the potential to deliver returns for you over the long term.
Few qualitative parameters to consider while you invest in share market
Many investors fail because they only look at the balance sheet, profit & loss statement, or cash flows statement. However, one can get exhaustive information about the company’s business model, its growth plan, and the pedigree of the leadership team by going through the annual reports. Before you hit a buy button, ask yourself the following questions.
- Does the company have a robust corporate governance policy?
- Is the company well-managed and helmed by a competent, credible, and visionary leadership team?
- Does the company have any unique advantage (technology, process, product, or pricing) compared to its competitors?
- How well-placed is the company to adapt to the technological disruption?
- What are the future prospects of the company?
- Is the company embracing risk management policies?
Read a detailed blog on How Fundamental Research Helps You Identify Potential Stocks.
Even though you’ve identified the best shares to buy today in the Indian market based on fundamental analysis, only invest in businesses/sectors that you understand. Also, since markets are unstable, only invest the amount you’re willing to lose.
Research & Ranking provides a detailed rationale behind each investment opportunity, which helps investors make meaningful investment decisions as well as ensures you’re equipped with answers to the questions that most investors face:
Where should I invest in Share Market?
Why should I invest in Share Market?
When should I invest in Share Market?
How should I invest in Share Market?
Once you have identified the best shares to buy today in the Indian market, how you would know when is the right time to buy, sell or hold a particular stock. Refer to this blog on ‘How You Know it Is The Time To Buy, Sell Or Hold’ that can guide you whenever you’re stuck in your wealth creation journey.
4. Finding The Best Stock Market Advisory Company In India?
Here are some questions that will help you to know whether you are signing up with the right wealth creation expert.
What kind of services does the advisory provide?
This question will help you cut through the marketing hype and give you a clear idea of the services the wealth advisor provides. Many wealth advisors typically deal in multiple products, including direct equity investments, mutual funds, life insurance, fixed deposits, etc.
It also means wealth advisors who deal in all financial products under the sun are most likely to try and pitch those products that give them the highest commissions.
How long have they been in business?
Years of existence reveal the kind of experience a wealth/stock advisory company has. It will also give you the confidence that the wealth advisory is not a fly-by-night operator who will shut shop anytime.
How do they get paid for their services? It is an essential question that can help you avoid paying substantial hidden fees without realizing it. Remember, there is no such thing as a free lunch. So, you must understand all areas of your financial advisor’s compensation.
What’s their investment philosophy?
A good wealth advisor will offer customized advice based on your financial goals and not their perspective on investing.
What investment benchmarks do you use? A good wealth advisor will measure success based on how well your investment portfolio progresses against the goals you laid out when you set it up. The advisor should also be willing to share how you’re performing against a relevant benchmark index.
How accessible is the advisor?
Imagine you need some urgent help with your portfolio, say for rebalancing during a severe market correction, and nobody from the wealth advisor’s side is answering your calls. How would you feel in this case?
What specific deliverables can you expect from their services?
The objective of investing one’s hard-earned money using a wealth advisor is to create wealth. So it is natural for an investor to define his financial goals clearly. Similarly, a stock advisory company should be able to explain the kind of deliverables the investor can expect from their services clearly.
Now the most critical question is how much should you pay your financial advisor?
Before I answer that, let’s take you through an investor’s life cycle in the stock market.
You have Rs. 1 lac to invest. The first step would be identifying the best businesses from more than 5,500 listed stocks. Once you separate the wheat from the chaff, the next step is zeroing down on the best companies that can help you achieve your goals. One needs to invest time in research and introspection, i.e. identifying your financial objectives, risk appetite, and how much you can invest periodically after considering income, expenses, and emergencies.
The job doesn’t end there after you finish the documentation and start investing. You must dedicate time, effort, and energy to stay on top of market/stocks/economy updates. And then you also have to remain calm and make the right investment decisions when you encounter Mr. Volatility and Mr. Uncertainty in the Indian stock market.
Sounds like a stringent plan, right?
Yes, wealth creation is not a comfortable journey by any means. It is not only the journey to create wealth but also to achieve your life goals systematically. With the dreams, aspirations, and goals at stake, it wouldn’t have been great if this process was simple, effective, and hassle-free from all the complexities, volatility, and uncertainty.
So how do you do it? Hire an expert! If yes, how much should you pay him?
The answer is – based on the services or the handholding given, the depth of the research, and how much they help you design a portfolio that meets your risk appetite and goals.
The Benefits Of Joining A Community Of Informed Investors
Here are the Top Benefits:
Wealth Creation through a personalized, balanced, and well-diversified equity portfolio for Indian investors is what you can get.
- Achieve your financial goals by curating a portfolio that meets your financial profile, risk appetite, the longevity of how long you want to stay invested, the amount you want to invest, your age, etc.
- Invest in a personalized portfolio of 20-25 well-researched, fundamentally strong businesses. Click here to unlock these 20-25 high-growth opportunities.
- Know the proper allocation, buying range, research reports, and upside potential for every business you’ve invested in.
- Keep a vigilant eye on your portfolio all the time. Get complete handholding and guidance to sail smoothly, even during volatile times.
- Be a part of conclaves that help you stay abreast of the latest investing trends, markets, economic developments, healthy wealth creation practices, and more.
- Also, if you have any questions, you can contact the customer service team, who will answer your questions within 48 working hours.
Let me share that there are 6 stock market investor types, each with a unique investing style. Click here if you wish to know which category of investor you belong to.