What is Equity Market and How do one start investing in the Indian stock market?
An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises.
One has taken a smart decision to invest in Equity, popularly called as shares. Indian GDP is growing at 6%-7% per annum and as thumb-rule equities deliver return which is equal to GDP growth + Inflation. Equities are best asset class for investing to beat inflation.
Welcome to a new world of Shares. Investing in equities is considered risky because it is subjected to market fluctuations, but if invested prudently and wisely, equities are relatively best options to invest, because of the high returns it offers to the investor.
Investing in equities is easy done than said. SEBI, a regulator of financial services industry, has already simplified the process. However, most of us are unaware of this process of investing in equities. We have tried out detail out the process in a simple manner which can guide a layman investor to start investing in Mutual funds-
- Understand your Profile - There are multiple investment products with different risk and return. When it comes to investing, the first step should be to know personal risk profile. An investor should first understand his or her risk profile for investing.
Risk profile depends on following two factors:
- Risk Attitude - The risk one is ready to take
- Risk Capability - Risk one should take as per financial position
Generally higher the age and financial obligations lower the risk profile. However, one can learn risk profiling through various free online tools. Knowing the risk profile helps in knowing the products one should not invest in.
The below helps to understand the basic categories of profiles and meaning-
- Identify Stocks - Most crucial step is to identify shares for investing. There are two major methodologies to choose from.
- Value strategy - Strategy focussed on investing mature companies growing at a low rate that industry, which are available below their intrinsic value is known as value strategy. Generally investors invest in popular stocks which are growing too fast, but there are companies which are already matured in their business and are not fancy with investors due to the lower growth rate in business. Investor gives more importance to the overall value of the company and invests only if it is available at a discount to intrinsic valuation. These companies normally have high dividend yield ratio since they repay profit to investors as dividends and low P/E ratio and Price/Book Value ratio. Generally people follow such strategy in picking stocks of Commodity or Automobile companies.
- Growth Strategy - Investing in companies which are experiencing or expecting faster than average growth is called growth strategy. These can be early growth companies who have brought innovation in the industry and can experience huge growth, like IT companies. Investors give more importance to the future growth of the company rather than valuation. These companies can trade at supernormal valuations. The shares of these companies mostly trade at a higher price than their intrinsic value. These companies generally have high P/E ratio and Price/Book Value ratio on the expectations of high growth. But these companies commonly have low dividend yield ratio since these companies usually invest profits for growth.
It takes a lot of time to learn about investing. Instead, one can follow Market Guru’s who are long-term investors and propagate long-term investing rather than speculation.
- Open a Demat account and trading account - Now comes the next step to execute the plan. For execution, one has to open a Demat & a trading account with a broker. One can open Demat account online or offline with the help of the broker. Nowadays, all the brokers are giving the service of opening Demat account online as a basic hygiene.
- Demat Account - Demat account is a type of account where shares are held in electronic form, thereby eliminates the need for physical paper certificates.
Trading Account - Trading Account is a type of account which allows investors to buy and sell or simply trade in shares. It allows trading of securities with the money deposited with a financial institution or brokerage firm.
Transfer amount you want to invest - Once you have opened a trading account. You have to transfer amount to your trading account. For this one can link bank account with the trading account, if it is done then the user can transfer funds online. Or one can transfer money through cheque into broker’s account offline.
Trade - Once the money is transferred to brokers account; one can put trade online or offline with the broker. The broker will send a bill and ledger account on the date of trade by evening and also investor will get a message on mobile from NSE or BSE for the trade.
Sleep but Track on a quarterly basis - If you have invested in equities with a proper plan, you should not track them on a daily basis. Equities deliver the return in long-term. The only reason to monitor on the quarterly basis is to check for any negative news regarding the company which can affect long-term performance of the company. One should not get worried with one or two bad quarter earnings of the company. When you have invested for long-term, one bad news of the company will not hamper long-term performance.
If you are interested in investing in Equity Stock Market/Share Market, then DhanCreators will help you achieve your goals. As one of the best Stock Market Advisor, Share Market Advisor and Equity Investment Advisor In Indian Stock Market, we offer best stock market tips and advice.