This article is written by Shivani Garg, pursuing a Diploma in Business Laws for In House Counsels from LawSikho.
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.” – Warren Buffett
Table of Contents
Introduction
Has anyone ever gotten stuck with the words “STOCK EXCHANGE or STOCK MARKET’’ in their lives? Don’t get me wrong with the word ‘stuck’, what I mean is, getting both excited and confused to wrap your head around at the same time. Well, I have been there too, so I am counting there must be many like me who want to know it like the back of the hand yet it seems like an alien world to them. Especially today’s generation who wants to make BIG (get on the top of money game) in return for small and investing in stock seems like one of the easy ways out. Let me pop the bubble, investment in stocks is both a long term and a short-term goal depending upon the kind of returns you are looking forward to. Most of the people like their money rolling and like to play a big game.
There is no doubt that the stock market is the seventh heaven to invest your money yet a strange place with a longstanding history. For your insights, I just want you to know, October is considered as the most volatile month for the stock market while September counts as the worst one, beware. Well, today I walk you through what it is that you need to know about trading on the stock exchange. I know New York Stock Exchange gets attention and eyes rolling, you can play your cards there someday, today it’s all about India, whose stock market is the 7th biggest in the world as BSE m-cap surges $2.7 trillion and second-best performer among the top 15 countries in 2021. Investing in the stock exchange is one of the most interesting things one can ever learn and thank yourself for the rest of your life.
Why should you invest in stock market?
That’s one good question, right? After all, living in India gives you many other options for investment, then why to go for something that’s risky and frankly, not everyone’s cup of tea. Unlike countries like the USA and others, where investing in stock is the only option people have to begin with and leave off. In India, the thing is people believe more in saving than in investing. If you just have a look around, a very few people know how to actually invest their money intelligently and honestly, those are the ones making good use of their money to make money. How many millionaires do you know who have become wealthy by investing in savings accounts?
Investment in all about patience and having ultimate goals. Investment in stock is of two types – Short term and Long term, depending upon the choices and goals of the person. There is no doubt that stocks and fluctuations go hand in hand. You just can’t go blind eye towards that, but you should literally ignore short-term fluctuations when you have invested for the long term. Short term investment is usually not advisable as the return of investment is quite low as compared to the long-term investments. At the end, it’s you who have to decide what you are looking for.
Terminology
- BEAR & BULL ANALOGY: It’s interesting to know that the entire stock market works on the analogy of Bear & Bull. Yes, two animals, and the entire stock. So, if you are planning to step into the entire new world called STOCK, you need to know about it.
BULL MARKET is when the market is going upward over a period of time, you can say the prices start to rise. It is characterized as positive growth and optimism.
BEAR MARKET is the exact opposite of a bull market. When the market prices sweep down about 20% quarter after quarter, that’s bear market. Well, it scares people so much that they don’t feel like putting money into the stock market.
Guide to invest in stock exchange
Step by step guide for India stock exchange:
- DEMAT ACCOUNT: First requirement is to open the Demat Account which you can open through Zerodha (https://zerodha.com/open-account)
Documents required to open a Demat Account:
- Pan Card
- Aadhar Card
- Aadhar Card
- Mobile Number linked with Aadhar
- Bank Statement/Cancelled Cheque
- Photo or scanned copy of your signature proof
- Income proof if opting for F&O
- TRADING ACCOUNT: It is opened with a stock broker in the share market. It acts as a bridge between your Demat and bank account.
- Link up your trading account with your bank account for all the transactions.
- Select your investment broker (choose wisely) having valid registration with SEBI.
- Select your risk tolerance limit and you are good to go. Start investing.
- Choose low risk products initially as you are a beginner.
- Eventually, diversify your portfolio.
When should you start investing in stock?
You know it usually takes money to make money. I would say the sooner you start investing, the better it is. Since you don’t have to worry about how much you need to invest to begin with, you can even start at 18. Basically, there is no barrier. But you need to know how to go about everything. Even if you invest a small amount like 200 INR when you are a college student, it will hurt to lose it just like that knowing deep down you could have just made it more if you researched thoroughly rather than just investing for the sake of investing. Invest time in knowing before investing even a single penny.
One tip that always works, only invest what is surplus.
Will you be taxed for stock money?
You know the government can never take its hands off from something when people are gaining more finances and not sharing. So yeah, you share some portion of your profit with the government. Tax on stock money is not off limits which is to say that you need to pay 10% of capital gains on your long-term plans and 15% of capital gains on short-term plans if the gain is more than INR 1 lakh on the sale of equity shares or equity-oriented units of the mutual fund.
QUESTIONS YOU NEED TO ASK BEFORE TRADING ON STOCK MARKET
Still confused where to invest? I got it covered for you. Ask these questions while when planning to invest in any company:
- What does the company offer?
- Who runs the company?
- Does the company have a sustainable competitive advantage?
- How much is the company profitable?
- Are the assets of the company growing over time?
- Does the company have any history of fraud or was the management involved in past fraud or scams?
- How is the stock valued?
- The kind of debt the company has.
- Who all are the key competitors?
If you still can’t find answers to these questions, you don’t need to worry as there are places to learn which also got most of your problems sorted!
Brush up your knowledge on reading stocks!
Many of you must be naïve about Mr. John Bolge. Wonder who that is? Well, known as the ‘father of index funds’, once said, “If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.’’ If we go buy this, it simply implies doing your homework diligently before putting your money in any company. To save you from trouble, I have laid down a bit of resources that are probably of great help for anyone finding their way out. Check it out:
- Zerodha
- Money Control
- Investing.com
- Screener
- Yahoo Finance
- Trade brains
- Economic Times
- Dow-Jane stie by Tamara Abualhsan
Impact of COVID-19
To begin with, COVID-19 not only put chaos in everyone’s life, but it was also chaotic for stock exchange as well. The market crashed very badly not just in India but all around the world. Although few people that are smart in getting good returns for their investment still made a good fortune despite the prevailing conditions, it’s not the same for everyone. The word is that the Indian market was a bit boring before the pandemic. Since the arrival of COVID-19 in India, the RBI has been actively putting in efforts to support the economy like central banks globally. That is to say Indian pulled itself pretty much nicely in such a dreadful situation where everybody was still in shock and went numb. Currently, due to the upsurge in COVID-19 cases, people were often fearing about another stock market crash, as per what goes inside the minds of not just common man but also people investing in stocks. Well, you’ll feel a lot better after hearing this- Indian stock market is already prepared for any scenario, don’t take my word on this one, I am telling you just what experts have to say. Guess what? The 2020 market crash did teach a lot and gave room for corrections. Well guys, you have nothing to fear.
Conclusion
Colin Powell once said, “A dream doesn’t become reality through magic; it takes sweat, determination, and hard work”.
There is no doubt that the world of investing in the stock market is brutal, tough and risky all the way along yet there is no denial that it’s worth the shot. With eight active exchanges in India: BSE Ltd., NSE of India Ltd., Calcutta Stock Exchange Ltd., Indian Commodity Exchange Limited, Metropolitan Stock Exchange of India Ltd., Multi Commodity Exchange of India Ltd., National Commodity & Derivatives Exchange Ltd. and NSE IFSC Ltd., one can actually have pretty good options to look for investing. Securities and Exchange Board of India (SEBI) being the regulatory body keeps check on the stock market and was primarily established to protect the interest of investors.
Additionally, don’t just invest in stocks as a layman, you will ultimately end up losing it and at the end, find yourself stupid enough for doing in the first place. Stock Market demands discipline, a plan and continuity as the price for good returns. Understand and then invest. One should never ignore that. So, what are you guys waiting for, wake up and make some smart choices when it comes to finances!!
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