Investing for the first time is always exciting. There is a plethora of information and news in the market which can overwhelm us in the beginning.
Therefore, before we start our journey in the stock market, we need to take note of our investment priorities and make sure that we have all that we need to become a successful investor in the near future.
Let us now read about the five things you should know before you step into the stock market.
Know How to Invest.
To trade, you will need a demat and trading account.
These days, most banks which provide online banking facilities also offer a 3-in-1 account – a savings, demat and a trading account.
If you have a savings account with net-banking facilities, you can open a demat and trading account with the same bank, with minimal cost and no minimum deposit in the demat account.
After fulfilling your KYC (Know Your Consumer) requirements, the bank will provide you with a trading kit with the access details to your demat account.
The next thing that you must know is the capital amount that you wish to invest.
Initial Capital Requirement
It’s a common misconception that you’ll need a lot of initial capital to make it big in the stock market, but that’s wrong.
The amount of capital you need will depend on two things – your risk-taking capacity, and the segment of the market you want to invest in.
For example, if you want to invest in mutual fund but you don’t want to invest too much at once, you can choose to go for a Systematic Investment Plan, or SIP for short.
With SIP, you can invest amounts as small as Rs. 500 in a scheme of your choice on a regular basis.
Similarly, you can start investing in share market with as low as Rs.5000 and then constructively build your capital.
The next thing is to decide on the risk you can take.
Risk taking ability
The most important factor that affects your investment is the risk you’re willing to take.
Risk, in simple terms, is the possibility that you’ll lose all the money you’ve invested.
For example, if you are a risk averse investor, you may choose to invest in fixed-income securities, whereas if you are a risk-taking investor, you can think of investing in equity and derivatives.
A novice requires knowledge to succeed, which comes from constant research.
As a risk taking investor who wishes to invest in share market, try to put in lot of time in learning about the new techniques coming in the market.
There are two ways to study the market – Fundamental and technical Analysis of stocks.
While the fundamental method is more about reading the financial statements of the companies, technical analysis is about studying the charts. As a beginner, you can read books to build your base of knowledge.
Such as books for fundamental analysis – the Intelligent Investor – Benjamin Graham, Learn to Earn – Peter Lynch and technical analysis books such as Japanese Candlestick Charting Techniques by Steve Nison, Technical Analysis of the Financial Markets by John J. Murphy
Now as a first time investor you may find it difficult to choose which method to start with.
Here, you need to see what interest you more and which method cans you excel in.
Having discussed about the basic practical things on stock market above, this point may not seem to interest you, but remember, the state of mind plays a major role in the financial market. The stock market is volatile, which is why the prices move up and down, which decides the profit or loss of the investors.
Now, it’s a fact, that a profit for someone can be a loss of someone else. So you as an investor should have to understand this point and keep going.
Being a first time investor we must always be confident on the financial objective that we wish to achieve.
Once we know as to what is our motive whether it is short-term money through trading or long-term wealth creation through investment in shares, mutual funds or a part of it we want as fixed income by investing in fixed deposits etc. we will be able to channelize our capital in the best possible manner.
Simaran Sinha, is a graduate from a commerce background. Her areas of interest caters to writing on topics related to finance and investing. She is currently working at www.elearnmarkets.com as an analyst.