Share markets have always been promising in the past with high results. Its returns changed the financial position of many. Caution! the share market involves risk. Before a person starts ahead with investing in shares there are basic unsaid rules one must follow. Keep a few things in mind before you invest in the share market. Investments in shares provide high returns because of the power of the compounding effect. How one can invest in the share market without knowing the basics!
Keep the Following Points in mind while thinking of investment.
A Bank Account
You must have a bank account linked with the trading account so that you can transfer money for all transactions in the stock market.
Brokers act as the intermediary between the stock exchange and the investor. He facilitates trade between the buyer and the seller. With the help of him, the trade is carried out. To be on the safer side, it’s better to open a Demat account with a SEBI registered broker.
AADHAAR card is a must as Know Your Customer (KYC) formalities have to be completed before opening the Demat account. And, AADHAR cards become a necessity for this.
PAN card has been made as a compulsory document for all the finance-related transactions. It can be used as an identification proof. The details related to your identification like- Your name and Date of Birth details will be checked against the details mentioned in PAN.
Without any hassle, you can open a Demat Account. Just keep your Bank statement and personalized cheque ready which has to be uploaded during the online account opening process.
8 Basic rules for Beginners:
1. Have defined Investment goals and Choose the financial assets based on your goal and timelines
Be clear with the purpose, why are you investing in shares? Is it to fulfill long-term goals or short-term? Based on your appetite for return and other dependency variables like age, you can try your hands in Share markets. Share markets’ returns are high and so does risk. Higher the risk, the higher the result. If you are looking for regular income and preservation of capital, you can opt for debt instruments like bonds. If you are willing to take up the risk then Equity is the one for you.
2. Never jump blindly into stock markets
Many times it happens we get influenced by the talks of our friends and colleagues. The discussions that roundabout how to invest in the stock market, and how the stock market helps investors make big profits. Never invest in the stock market with any presumptuous information. Do Detailed research about the markets.
3. Educate yourself, handle basics first
Try to learn about the basics of this market. Try to gain the information regarding financial metrics and definitions such as PE, EPS, ROE, Market Cap, or the jargon like market orders, limit order, stop market orders, stop-limit orders, trailing stop-loss orders, and others which traders commonly use. invest in share market
4. Invest only your surplus funds
Never Invest with the money which you can’t afford to lose. Still, if you are willing to take a chance by investing your hard-earn money then think twice. Investment is done to multiply your money not to exhaust your emergency funds.
5. Avoid Leverage
Leverage simply means you use borrowed money to execute your stock market strategy. Banks and brokerage firms do lend you money to buy stocks only in a margin account, it will be beneficial only when the stock market is moving up but consider the vice versa situation. In that case, you would not only lose an initial investment but also you will have to pay interest to the broker.
6. Don’t Follow the Crowd
Often the investor’s decision relies on the influence by the suggestions of his neighbors, relatives, and colleagues. If you don’t want to jeopardize your hard-earned money then make decisions wisely. Learn about the company’s profile, look at the past pattern, and analyze whether the investment would be useful or not. Never investment without taking informed choices.
7. Have Realistic Goals
There’s nothing wrong to hope for the best outcomes from your investment but you could be in trouble if your financial goals are unrealistic.
8. Don’t let emotions drive your investment
Don’t mix your emotion with investing in a particular stock. You can end up losing money in the stock markets due to the inability to control emotions. Refrain from getting into the greed cycle. Do not invest in an unknown stock lured by its past high returns. There is no fixed rule to this gamble. Never invest without understanding the risk involved.
For more information, you can tune in to the Podcasts- Mint Evening Market wrap, FinnovationZ.com, and Paisa Vaisa Delve into the depths of financial markets and explore the limitations of your investment skills.