Stock Markets and Investing in stock market

According to some sources, only 8 % of the Indian population knows that there is something called stock market and only 4 % invests in stock market directly or indirectly.

During these times, investing in market may seem like a bad word. But historically there is not other investment vehicle that has given more return on investment that stock market. Ace investors enter the stock market during turbulent times and exit when they make good money during good times. There are lot of people who made huge money as well as there are more people who lost all they had. The people who made money are typically investors who spent time and energy learning about stock markets and investing in stock markets and people who lost money are those who just wanted to make quick money.

As any other job or business, there is no easy money available. You have to be patient, work hard, spent time and have sufficient knowledge about what you are doing. During initial years, you have to learn, invest and then earn.

It is very unfortunate that only very small percentage of people do this. So as a first step, here are some basics about stock market.

To invest in stock market, you have two main ways.

1. Invest directly in stocks.
2. Invest in Mutual funds which in turn will invest in stocks.

For investing in stocks, you have to have a DEMAT account and a TRADING account. DEMAT account is something like a bank account in which your stocks will be held. You need to pay/transfer money to your DEMAT account to buy shares. For opening a DEMAT and TRADING account, you need to approach a stock broker. He acts as a mediator between you and the stock market and buy/sell for you. There are lot of players like ICICI, HDFC, Indiabulls , etc which offer this service. They charge a certain percentage of your transaction as a commission or brokerage.

During this internet age, you need not go to a broker or bank for investing in stock market. All can be done online. Once you open an account, the broker will give you facilities such as trade online, transfer money online to and from your bank account to your stock market account – DEMAT/TRADING. You can get live information about the stock market from various websites including those services provided by the stock broker. You can get information about which stocks to invest, which of them are performing well and which are not and all the details and news about the stocks from lot of websites. So, investing in stock market has become very easy and less cumbersome.

For investing in Mutual funds, you need not have a trading account. Your stock broker/ any banks provide this service of buying or selling mutual funds. Nowadays, you can invest in mutual funds online also. But you have to invest through banks or mutual fund offices for the first time.
Now there is a mandatory requirement of PAN – Permanent Account Number for investing in Stock Market or Mutual funds. Read one of my earlier posts to know about PAN.

When you buy a Mutual Fund, the service provider will buy or invest in stock market in different stocks in the stock market ( there are some mutual funds which do not invest in stock market). The mutual funds are evaluated using the variation in the stocks it has invested depending on which it decides its NAV. When you buy a Mutual fund, a certain number of mutual fund units with that day NAV will be allocated to you.

So, if you take good decisions and consider a long term, say 5 – 10 years horizon, there is not other investment vehicle that has given higher returns which beats the inflation. But the catch word is long term and persistent non panicky investment decisions.

If you have not invested in stock markets, this is the right time. Start doing some research on stocks and start investing and start with a very small amount and grow as you gain confidence. Hard work always pays of. This is definitely not gambling unless you gamble with your money.

Check my other blogs to gain more information on stocks and tax implecations.

Cheers
Vinay