How and Why to Start Investment in Stock Markets ?
Stock markets also known as share markets or equity markets are one of the various modes of investment available in India. However, investments in stock markets are generally considered risky given its un-predictable nature. However, the other side of the story tells, that smart investments through stock markets can help one create wealth.
For people who are new to markets are at a stage – where they would like to consider options like savings and investment, will find some answer to their questions in this blog.
Firstly one needs to understand the role or importance of the stock exchange in capital formation.
Savings of household person / Individuals finds the ways of Investments to earn higher returns.
There are two broad categories of investments – One is which provides regular returns just as Fixed deposits.
Another type is where investor earns capital gains – after longer span or period to earn returns.
Investments in Gold, Property and in stocks also comes under such category.
To invest in stocks as well in different financial instruments - stock exchange provides common platform to people who have surplus funds to invest and who needs funds to run business.
Stock exchanges are the organized market, Regulated by Regulatory authorities, where the investor finds various kind of instruments to invest their savings and also provide legal structure to source capital and financial needs of companies and financial entities.
Options to invest through stock market :
Stock market provides fundamentally two different types of Investment Instruments namely:
Bonds : Is an instrument which provides Fixed returns offered by companies of a fixed maturity Period and offers fixed rate of interest to investors.
Stocks : Offered by Companies by way of Primary issue to public as companies float shares to the general public as initial public offerings to raise capital.
- or even by Rights issue or a Bonus issue to existing shareholders of the company.
- Stock Exchange also functions as a secondary market which provides platform to buy, sell and re-sell stocks for investors who are already having stocks through company’s primary offer.
What is purpose of invest in share as an asset class?
To invest in fixed deposits have some limitations, Bank Fix deposits, Company Fixed deposits and Non-convertible Debentures are few variant of fixed deposits, which provide fixed and sure returns.
Fixed deposits earns the fixed rate of returns generally ranging from 8 per cent to 13 per cent. However do not provide any type of capital gain and does not provide protection over inflation in the economy.
As against investment in stocks provides you part of ownership in a company’s business, earns you dividends as a regular earnings, and as the companies makes progress the value of the shares grows ,price of the share rise and earn you the capital gains. The investors also earns from higher amount of distribution of dividend or even Bonus Shares that the company may declare.
How to invest through stock exchange & What factors the investor should consider before investing in stocks ?
First step starts with savings, so start saving after allocating your spare funds to contingencies and Insurance.
Start reading about different stocks, fresh issues, Results announcement and other different news regarding companies from financial columns of newspapers, news channels and online news sites like Market on Mobile.
Select a Broker and open a DEMAT and share trading account.
Make a list of companies to invest, Consult the investment adviser and Investment Broker.
Build a small portfolio and keep investing regularly and systematically over a long duration of time.
Finally, consider selling the portion of your holdings as stocks appreciates significantly.