Javatpoint Logo
Javatpoint Logo

How to Invest in Share Market

What is Share Market?

A share market is a place where the shares of various publicly-held companies are bought and sold. These financial actions are performed through Institutional Formal Exchange or Over-the-Counter (OTC) market. The OTC works under several rules and regulations which are formed by the governing authorities like SEBI (Securities Exchange Board of India) in our country.

How to Invest in Share Market

Types of Market

There are two types of markets to invest in shares. They include:

How to Invest in Share Market
  • Primary Market
    The primary market is the place where a company sells its shares for the first time after being public. Those investors who want to buy these shares can apply once the shares open for subscription. An investor must have a Demat account to invest in the primary market. The shares are allotted to the investors by the company as per the response of the market to its IPO. In other words, shares are allotted to the investors as per the concept of demand and availability of the shares. The companies are allowed to sell their shares in the secondary market only after getting listed on the stock exchange and for this, the companies first have to issue their IPO in the primary market.
  • Secondary Market
    A secondary market is a place where a listed company issues its shares to the general public. As discussed above a company can get listed only after issuing its IPO. Generally, the secondary market is considered the stock market. To buy the shares in the secondary market, the investors must have a trading and a Demat account.

Initial Public Offering (IPO)

IPO (Initial Public Offering) is the sale of shares by a privately owned company to the public for the first time. IPOs are a good option for inviting investors. When a company sells its shares in the primary stock market for the first time it is called Initial Public Offerings. After completion of the process and allotment of shares the company gets listed on a stock exchange and gets permission to sell its shares in the secondary market.

Types of Investment in Share Market

Various types of investment in the share market are as follows:

  • Stocks
  • Bonds
  • Mutual Funds
  • Derivatives
  • Currencies
  • Future and Options
  • Commodities

Factors to be considered before Investing

How to Invest in Share Market
  • Investment Objective
    This is the first question that you should ask yourself before investing in the share market. The answer to this question or can say the financial goals can vary from investor to investor because it is not universal. Hence, you should buy stocks only after determining your financial objectives and investment horizon.
  • Risk Bearing Ability
    This is another important factor about which you should be aware before investing in the stock market. You should know how much risk you can bear. If your risk appetite is lower then you should play a safe game by investing in defensive stocks because such shares are less affected by market volatility and they can help you in getting stable returns on investment.
  • Diversification
    The investor can mitigate the risk of having a loss by building a diversified portfolio. In other words, if the investment is done in different sectors then the financial risk associated with the investment will be lower. On the other hand, if you are dependent on only one company for profit then there will be a higher possibility of having lost.

Building a Portfolio

Investing in the share market is an excellent way to earn profits. All you need to do for this is to make a proper portfolio or can say investment plans. A portfolio is a draft of financial assets that are owned by an investor. For having an attractive portfolio, you should keep the given points in your mind:

  • You should always have a proper objective for making a portfolio.
  • You should never rely on a single investment option.
  • You should not spend too many funds on an asset.
  • You should try to minimize the investment turnover by stopping continuous buying and selling of shares within a very short period.
  • You should determine the period for which you want to invest in a particular stock.
  • Also, it is necessary to decide the type of investment, i.e., short term or long term before investing.

Requirements to Open a Demat Account

There are certain prerequisites that you should remember while investing in the shares of any company. These requirements are:

  • Bank Account
  • Proof of Address
  • Proof of Identity
  • Passport Size Photograph
  • PAN Card
  • Canceled Cheque
  • A Stockbroker

How to Open a Demat Account?

The procedure for opening a Demat account is given below:

How to Invest in Share Market
  1. Select an Intermediary
    The first step is to find a well-known and authorized bank or the financial institution or a broker which will be helpful for you in opening an account.
  2. Documentation
    After it, you are required to submit all the above-mentioned documents or any additional documentation that is demanded by your bank, financial institution, or broker. These documents are necessary for the process of verification.
  3. Verification
    The last step is the verification of the documents that are submitted by you. And once the documents are verified successfully, your Demat account will be opened. Then, you will get a Unique Client ID for your intermediary. This ID will be required to get access to your Demat account online. In case, if the intermediary finds any discrepancy in your documents then your application for the Demat account will get canceled.

Steps for Investing in Share Market

Shares or stocks are the most important instrument of the share market. Here, we are discussing the steps that you are required to follow while investing in the share market. They include the followings:

How to Invest in Share Market

Step 1: The first and most important step to invest in the share market is to open a Demat account. It is also required to make sure that the Demat account is linked with a pre-existing bank account so that all the transactions can take place without any hurdle.

Step 2: The next step is to sign in to the Demat account. You can take the help of a mobile-based application or web platform to perform this action.

Step 3: The next step is to choose shares of the company in which you want to invest. For this purpose, you should closely analyze the growth and profit of the company and many other factors so that you can get maximum return from your investment.

Step 4: To invest in a company or to buy shares, you must have sufficient funds. So, you should check that there are enough savings available in your bank account to buy the shares of your choice.

Step 5: Now, you can buy the shares at the listed price and also specify the number of shares that you want to buy.

Step 6: This is the last step in the process of investing in the share market. At this step, the seller reciprocates the request of the investor of purchasing the shares and after it, the order gets executed. Post completion of the transaction, the bank account of the investor gets debited with the amount for which he/she has bought the shares, and simultaneously, the shares are received in the Demat account of the investor in the electronic form.

Youtube For Videos Join Our Youtube Channel: Join Now


Help Others, Please Share

facebook twitter pinterest

Learn Latest Tutorials


Trending Technologies

B.Tech / MCA