A ‘share market’ is a place (actual or virtual) where shares of listed companies are issued and traded. Share markets facilitate raising capital for these companies in exchange for their shares. For a shareholder, it is a way of participating in the growth of the companies’ businesses by owning the shares as well as liquidating those shares to earn profits on their investments.
In India, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two primary stock exchanges.
Earlier, shares had to be purchased or traded on the floor of the markets. Today, it is done electronically. Trading of shares is exclusively done through stock brokers and brokerage firms registered with the Securities and Exchange Board of India (SEBI).
So how does a beginner invest in the share market? Here the steps to follow in order to invest in the markets.
One is required to apply for a Permanent Account Number (PAN) in order to begin investing in the share market. PAN is a requirement by the country’s tax authorities to monitor one’s tax liabilities. So there are chances, that one already possesses a PAN Card.
As mentioned earlier, any trading in the share markets has to be done through brokers and brokerage firms. A majority of the private have brokerage licenses with robust trading platforms, research teams and assistance for trading. The drawback about these services is high brokerage rates. However, in recent times, there has been a growth of discount brokers, firms that exclusively facilitate ‘no-frills’ trading for seasoned investors at exceptionally low brokerage rates. It is recommended that new investors go with assisted trading provided by banks.
Shares cannot be stored physically. Hence, a Demat (De-Materialized) account holds the shares that are purchased and releases them as they are sold in the name of the investor. Demat account provides a statement of the shares held by the investor.
Trading account actually facilitates the purchase and sale of the shares. One is expected to open a Demat account along with a Trading account. Opening one account with the other cannot facilitate a trade in the share market.
Demat and Trading accounts can be linked to an existing bank account if the former is opened at the same bank, which also is a brokerage agency. For example, an existing HDFC Bank savings account can be linked to a newly opened Demat and Trading account with HDFC Securities.
Your broker or brokerage firm will also appoint a depository participant, which acts as an agent between the brokerage firm and the depositories, providing an account of the purchase and sale of shares done by the investor. It is a third-party function, which doesn’t directly involve the investor. The two depositories that actually hold your shares are ‘National Securities Depository Ltd.' (NSDL) and ‘Central Depository Securities Ltd.' (CDSL).
In the case of investors investing over Rs. 1 lakh or more for a single trade, they’re required to obtain a Unique Identity Number.
The investing in the share market is not a walk in the park. One can lose a serious amount of money if one does not make informed choices with the purchase and sale of shares. The returns from share trading are too lucrative. The losses are equally heartbreaking if rash decisions are made.
As an investor, it is absolutely necessary to have complete knowledge of the share market, before making any investment.