Understand stock market investing for beginners: What is stock market investing? How do they work? Why should you start investing? What is the difference between investing and trading?
Today we’re going to answer some of the most common questions about stock market investing for beginners. If you’re just starting out and don’t know how to move ahead, or you’re just curious about how to move about the capital markets then keep reading ahead!
Why Should You Invest?
You might be wondering why you should start investing, instead of saving money. The rising cost of goods and services vs. the purchasing power of money is reaching all-time highs. This is true not only in India but across every major economy.
This is called inflation, where the value of money you hold today is not the same as it will be in one year’s time. So if saving money and holding onto it does not protect you from inflation, you must seek out other pathways to protect your wealth.
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Stock Market Investing for Beginners: What is a Share?
To better understand the stock markets, we’re going to go to the bare bone basics.
When you purchase shares you also receive part ownership of a company. Each share is a unit of ownership. Based on how much percentage of the company you own, you are eligible for the profits and losses the company makes.
For example – The company Moon Industries has a market capitalization of 5 Lakh Rupees. Each share has a market value of Rs.50, which brings the total shares to 10,000.
If you invested Rs.50,000 into Moon Industries, you would own 10% of the company.
Investing Vs Trading – What is the Difference?
The example above is the most basic form of investing that an investor can make.
Before going further ahead, let’s understand what investing means and how it differs from trading.
When you bought a 10% stake in Moon Industries, you essentially own a stake in the business. Your wealth appreciation is directly dependent on the performance of the company. This is investing in a company or asset. The value of your investment appreciates as the company expands and makes more income.
Trading is the buying and selling of stocks before the market cut-off time. When the market closes, all positions are squared off. The gains made from day trading are through the price fluctuations that occur within that trading day. Short-term gains through buying and selling securities are one way of defining trading. In India, the two main exchanges to participate in trading are the BSE and NSE.
Stock Market Investing for Beginners: What are the Types of Shares
There are 2 types of shares that exist –
Preferential Shares
A Preferential share is issued primarily to generate capital without losing ownership over the company. Investors who hold these shares get first preference over receiving profits and dividends than equity shareholders.
Equity Shares
Equity is the stake in a company. Each share represents one portion of the company. Equity shares provide shareholders with voting rights, ownership, and control over decisions made by the board of directors.
How to Start Investing as a Beginner?
Know the steps on how to start investing as a beginner –
Starting Small
While this tip might seem simple, it’s also quite important. While starting out in the stock markets, you should only invest using funds that you can afford to keep aside.
Going into debt for investments could almost always backfire on investors, especially if you’re new to stock markets. Think of investing as a marathon – Your goals are to gradually increase wealth and earn a passive income that could be vital during your later years in life. If you fall into a debt trap and make losses in your first investments, then that marathon is cut short to a hundred-meter sprint.
Demat Account
The first practical step to begin investing is to open a Demat Account. Online trading platforms like Zerodha, Upstox, and Groww offer Demat account opening features to all new investors, along with a list of stocks, IPOs, and SIPs that you could choose from. The charges are nominal and one-time. For those of you who don’t know, a Demat account is a facility that allows you to hold shares and stocks in digital form.
Goal-Setting
When you start your investment journey, especially in stock markets, it’s imperative to keep realistic expectations and goals. There are always going to be risks associated with your investments. So a self-assessment of your risk appetite is a top priority.
Learning Basic Terms
Some basic terms to keep in mind while investing are NIFTY, SENSEX, market cap, EPS, IPOs, etc. Apart from these terms, there are also certain tips and guides that can help get you started. You can check out joinfingrad.com/courses for beginner courses on stock market investing to equip you with the knowledge required to understand markets better.
Learn About Risk
Every single investment, conservative or otherwise, is associated with some level of risk. Some investors are comfortable with huge risk/reward ratios while most tend to steer towards stable returns. There are tons of websites that provide free risk assessments that help you learn about your own risk aversion.
ALSO READ: Top Books For Learning Stock Market!
Key Takeaway
Now we’ve gone through some of the basics of stock market investing, we hope you learned more than you knew before reading this article on stock market investing for beginners. To get a better understanding of stock market investing, check out our free course below. As always, Happy Investing!
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