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2022 Quick Guide: How to start investing in Stock Market?

Jan 3, 2022 | Knowledge Area, Investing

How to start investing in Stock Market?

How to start investing in Stock Market?

Investing is a very good way to build your wealth with the money you set aside while you are busy in life & you have that saving amount that can work for you so that you can fully be prepared for your labor in the future. You can say that the investment is a meaning for your happier ending. If you are new To investing you must have heard about the legendary investor Warren Buffett. He defines investing as”the process of laying out money now in the expectation of receiving more in the future.[1]” The goal is here to put your extra money to work for you & hope of growing your money over the time whine market/company grows,

Let’s assume you have 50,000 Rs that you have set aside & now you are all ready to enter the world of investing. or maybe you only save 500 Rs a week, and you want to get into investing. While reading this article, I’ll take to through getting started your investor journey & show you how can you maximize your growth while minimizing your costs.

KEY TO UNDERSTANDING:

  • Investing is defined as the act of giving your money to a big company or committing your capital gains to an endeavor with the hope of getting additional income or profit by the time company grows.
  • Rather than consuming your savings, invest money for your future, in the hope that it will grow over time.
  • whereas, investing also comes with the risk of losses.
  • Investing your money in the stock market is one of the most common ways for beginners to grow wealth & gain investment experience.

What type of Investor are you?

Before you start to invest your money in the stock market, you should ask this question to yourself: What type of investor am I? When opening a brokerage account with any online broker like INDmoney or groww.They will ask you how much risk you are willing to take & which will decide your investment goals.

INDmoney

Some investors want to take an active hand or say investing geek to manage their money growth while on the other side other people prefer to “Invest it & forget it.” Mostly Online investment brokers, like the two I have mentioned above, allow you to invest in mutual funds, stocks, bonds, index funds & ETFs(exchange-traded funds).

Online Brokers:

Investment brokers could be discounted or full service. Usually, full-service brokers, as we understand with the name, give you the full/complete traditional services, which include financial advice for your retirement, your healthcare or you say everything related to money. They usually only work with the high society clients whose net worth is higher and charge basic fees, which includes a minimum percentage of your bank transactions, sometimes they manage your assets on a yearly membership fee. it is very common to see the minimum account size is 10 lakh and up-to full-service brokerages. Still, traditional brokers charge their high fee by giving detailed advice to your need at the point.

Discount brokers used to be an exceptional case but now they are very standard. Discount online brokers give you very useful tools to select & place your transaction and some of them also do “invest it & forget it”.As we all know that the stock market investing & other financial services have been grown very much in the 21st century, Online brokers like INDmoney & Groww have added many features like educational material on their website or their investment platforms like mobile apps.

INDmoney

In addition, there are so many discount brokers with no or very low deposit amounts, you may face other restrictions and a minimum amount charged to account which don’t have minimum deposits. This is something very important which every investor should look into account if they are investing in stocks.

Robo-Advisors:

After the biggest financial crisis of 2008, a brand new breed of investment advisor was born which is known as The Robo-Advisor. Two betterment advisors are often credited as the first in space[2] Eli Broverman & Jon Stein according to the Wall Street Journal. Their main mission was to use this technology at lower costs for all the investors & streamline investment advice.

Since the Betterment launched, other Robo-advisory companies have been founded & been established as online brokers like Charles Schwab have added Robo-advisory services. In a report by Charles Schwab, 58% of US citizens say that they will use some kind of Robo advice by 2025.[3] If you want to use an intelligent algorithm to make your investment decisions for you, which includes rebalancing & tax-Loss harvesting then you may use Robo advisory in the future. In addition, as the success of your index investing has shown, you may do better with the Robo-Advisory if your goal is to invest for long-term or long-term wealth building.

You may also like: How to: Invest in US stock market from India.

Investment For Employee:

If you are a company employee & you are tight on your budget but still, want to invest in the stock market, try to invest 1% of your monthly salary into the retirement plans available for you at work. You probably won’t miss a small contribution.

when you are investing in work-based retirement plans. Your retirement plans deduct your contributions from your monthly paycheck before taxes are calculated & it will be less painful to contribute to your investment. With the time when you are comfortable with your 1 percent of contribution in your retirement plan, maybe you can increase the investment amount as you get annual raises & in this way you won’t miss any additional contributions. If you are having a 401(k) retirement account at work, then you may be investing in your future already with all allocations on mutual funds and even your own company’s stock.

Minimum Amount to open a D-MAT Account:

Different financial institutions have different minimum deposit requirements. In the other words, they won’t accept your account application if you won’t deposit a certain amount of money in your account wallet. Some firms like INDmoney & Groww do not require any minimum deposit amount or others may reduce the account management fee and trading fees, if you have a balance above a certain threshold amount.  Others offer a certain amount of commission for opening a fresh trading account & starting trading.

Fees & Commissions Structure in the stock market:

An economist once said, there ain’t no such thing as a free lunch. Somehow many brokers have been struggling recently to lower or some minimum commissions on trades, and EFTs offer index investing to every investor who can trade with a brokerage account. In short, all the brokers who are managing your account make money from their customers in one or another way.

In the majority of cases, your investment broker will charge the minimum commission every time you trade in the stock market either you buying it or selling it. trading fees range from 10rs to 1000 rs per trade but it can be high for some discount brokers. There are some brokers who don’t charge a trading commission at all, but they make it in other ways as I mentioned earlier. Bitter Fact: Brokerage Services are not Charitable Organizations.

Depending on how often you make purchases or trade-in stock market these commissions/ fees can add up & affect your profitability. It could be very costly for the investors who hop on their position very frequently, especially if you have a small amount to invest.

NOTE: A trade is an order to buy or sell shares of one company. if you are buying 5 different stocks of 5 different companies you will pay your fees on five shares because this will be seen as five separate trades in the market.

Now let’s understand it better with an example, Imagine you decide to buy 5 different stocks with your 1lakh rs. to do this you will pay at least 5000rs in trading costs-assuming the fee is 1000rs which is equivalent to 5% of your 1lakh rs. if you fully invested 1lakh rs of your account it would be reduced to 95000 after all the costs & cuts of trading costs. This will give you a 5% loss before your investment starts making money for you.

Now, what would you do? should you sell these 5 stocks, once you have already paid 5000rs in the cost of the trade which would be another 5000rs? In the round trip, you invested 1lakh & paid 5000 rs to invest that 1lakh which is now 95,000rs. now if you will sell your holding of 95000rs you will pay another 5000rs which is the complete 10% of your initial deposit of 1lakh rs. If your investment hasn’t made any money to cover this 10% you just lost 10,000 rs by just entering & exiting positions in the stock market.

Loads in Mutual Funds:

If you are investing in mutual funds there are no other costs associated with this type of purchase, you just pay a basic trading fee to purchase a mutual fund. Mutual funds are professionally managed shelves of investor funds that invest in a very professional & focused manner, for example- large-capital U.S. Stocks.

An Investor will pay to incur an amount while investing in mutual funds. One of the major fees is to remember the expanse ratio(MER) of this management,which is charged by the fund management team every year on the basis of assets in the fund you purchase. The expense ratio(MER) usually ranges between 0.05% to 0.7 % per year, depending on the type of fund you are investing in. But higher MER affects the overall returns on your returns of the fund you are investing in.

You may have seen the number of sales charges called loads every time you invest in mutual funds. Some of them are Front-end Load & some of them are no-load & back-end load in funds. Always make sure that you know whether the fund you are investing in carries a sales load prior to buying it.

For the new investors, the fee you pay when investing in mutual funds is actually an advantage in comparison to the commissions you pay when investing in stocks. This is because the fee you are paying is going to be the same regardless of the budget that you are investing in. As long as you meet the minimum requirement to open an investor account, you can invest as little as 100rs to 500 in mutual funds. This term of investment is known as Dollar-Cost Averaging(DCA), & it could be a great way to start your investment journey.

Diversification & Reduce Risks In Stock Market:

Diversification is like having a free lunch in investing. It’s like by investing in multiple assets or stocks, you reduce the risk of one investment performance on the return of your overall investment. Always Remember “Don’t put all of your eggs in one basket.”

Let’s understand diversification in simple words, the greatest amount of difficulty in doing this will come along when you are investing in stocks. As I have mentioned earlier, the cost of investing in a large number of stocks could be hurtful for your investment portfolio. with the amount of 1lakh deposit, it is clearly impossible to keep a well maintained & diversified Investment portfolio, so be careful you may need to invest in 1 or 2 companies. But this will increase your risk at some point.

This is when you see the major benefits of investing in mutual funds or EFTs. Both tend to have a large number of stocks and investments within the funds, which makes a mutual fund more diversified than buying single company stock.

Conclusion:

Do you need to start investing in Stock Market?

Now it is possible for you to start investing with a small amount of money. But at some point, it is more complicated than just picking the best investment, and you have to be very aware of the restrictions you face as a new Investor.

Always do your homework to find the best minimum deposit requirements and then you can compare the commissions to the other brokers. If you are just starting out you should check out the INDmoney App .

INDmoney

Learn More About: How to invest in the US Stock market from India?

Disclaimer: All the information stated above is not meant to be taken seriously, Readers are advised to research, read more information on their own, and invest at their own risk. Some affirmative words in this article suggest various factors. As we all know investments are subject to market risks, and changes happen every day in the global market. 

Team Sahi Hai Bro has researched and contributed to this article, Team Sahi Hai Bro is not responsible for readers’ investments and market risks. Every investment involves a little to a huge amount of risk, this piece of information in this article may or may not be suitable for every investor. Know that numbers in the market go up and down every day as per circumstances, there is no assurance of profit and losses. 

People also read:

Invest in US Stock Market From India 2022 . Learn Here!!

 

 

 

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Written by SahiHaiBro

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