There are different types of Brokerage companies which you can invest in the like Groww , Paytm funds, BSE, NSE, etc. The stock market, or share market. You can invest money online using mobile apps.
When you buy a share of a company from another shareholder, there are many things that can go wrong. Hence, every country has a regulatory body that ensures that the stock transactions are smooth and devoid of fraud.
In India, this body is the Securities and Exchanges Board of India (SEBI). This body has defined a process for share transactions to help ensure maximum protection to all investors that include the following intermediaries:
- Stock Broker – SEBI has mandated that all transactions in a stock exchange must be done through a stockbroker registered with the exchange.
- Depository and Depository Participant – While traditionally, shares were allotted in the form of physical share certificates, this has now given way to electronic or dematerialized shares. Just like you need a bank account to keep a record of your dematerialized money, you need a Demat account for your dematerialized shares. This account is provided by a depository participant.
- Bank – You need money to buy shares and a bank account to receive sales proceeds. Hence, a bank is an essential intermediary in share transactions.
- Clearing Corporation – This body ensures that all transactions are cleared successfully.
How to Invest in the Share Market?
Now that you understand shares and the concept of a share market, we come to the next important question: How to invest in shares?
1. Requirements to Invest in the Share Market
Let’s first look at what you need to begin investing.
- PAN Card – It is mandatory to have a PAN Card to invest in stocks.
- Demat Account – This is the account that will hold the shares in the name of the buyer. You can open a Demat account with any depository participant. Most banks offer Demat account services. New age investment platforms also offer Demat account opening in a hassle-free manner.
- Trading Account – To start making a stock market investment, you need a trading account with a stockbroker. Remember, stockbrokers, register with stock exchanges. While most good-quality stocks are listed on both primary exchanges (BSE & NSE), some might only be available on either of the two. Ensure that you open a trading account with a broker registered with both BSE & NSE.
- Linked Bank Account – Since you are investing in stocks, you will be buying and selling them over time. Hence, you will need a bank account that is linked to your trading account to ensure that money flows in and out of your account seamlessly when you transact.
2. Documents Needed
- PAN Card
- Aadhaar Card
- A cancelled cheque from your bank account with your name on it
- Proof of address (from the list of documents accepted by the bank/depository participant/broker)
- Proof of income
With these accounts in place, you are set to begin your stock market investment journey.
As explained above, there are two markets that you can consider – primary and secondary. We will look at the investment process in both these markets.
1. Investing in the Primary Market (IPOs)
Investing in the primary market involves investing in an IPO. You will need a Demat account to hold the allotted shares and a trading account to apply online. You can also apply through your bank account. Now it’s important to remember the number of shares allotted to you will depend upon the market’s response to the IPO. Once the company receives all IPO applications, it allots shares based on the demand and availability of shares.