Stock Market Guide – A Beginners Handbook to Start Your Investment Journey in Stock Market
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Basic Understating of Shares
How to Value a Stock ?
How to Begin Investing in stocks for trading or long term?
Top 5 things to know about Stock Market Trading
7 Golden Rules of Stock Market Investing
How and why does a share price rise and fall ?
How To Read A Stock Market Charts?
5 Best Strategies for Stock Market Investing
The Bulls, The Bears And The Farm
Best Stock Market Apps
Different Types of Stocks You Should Know
Building your ideal stock portfolio and making money
Basics Understanding of Shares
However, before you invest in stocks, you should understand what they are, how they work and their important aspects.
So, here’s a brief look at the concept of stocks and their different aspects –
What is a share?
In simple terms, share is the per unit capital of a company.
If you buy a share, you buy a part of ownership in the company and become a shareholder.
The share is tradeable on recognized stock exchanges from where you can buy and sell them.
Shares are also called equity shares and they form the equity share capital of a company.
Benefits of a shareholder
When you buy equity shares of a company and become its shareholder, you can enjoy the following benefits –
- The right to vote in company’s matters and form the Board of Directors
- Receive dividends from the company which is the profit of the company divided among its shareholders
- Capital appreciation as the value of the shares rise
- Bonus shares when the profits of the company are distributed in the form of shares rather than cash dividends
- The privilege of rights issue wherein you can buy additional shares at a preferential rate
- Liquidity as shares can be sold easily on a stock exchange
- Ownership in a listed company
- Investing in a regulated manner since the share market is regulated by the SEBI
Here’s a complete guide on how to value stocks.
Things to remember when investing in shares
Investment in shares can be beneficial and profitable. However, before you invest, remember these three important things –
Share market investments are prone to high risks because the market is volatile. The value of shares fluctuates wildly. So, you should keep this volatility in mind.
Secondly, you need to invest through authorized stockbrokers who charge a brokerage on the amount invested.
Thirdly, stock market investments should be done after you take out some time to research the performance of the stocks that you invest into.
This would give you an idea of the performance of the stock and what to expect from it.
How does the stock market work?
To understand how stock markets work, the first thing which you should know is that there are two types of stock markets –
Primary market is where the stock is purchased directly from the issuer or company through IPO (Initial Public Offering) when the share is issued for the first time.
Secondary market, on the other hand, is where an already issued stock is bought and sold between shareholders.
The stock exchanges of India, NSE, BSE, etc. are secondary markets. The price of the shares traded on the financial market depends on the demand and supply.
If the demand is high, the price would be high and vice-versa.
Stock Exchange in India
In India, there are two stocks exchanges where stocks are bought and sold – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The BSE Sensex is a free-float weighted stock market index of 30 of the most well-established companies listed on the BSE.
The Sensex, comprising of 30 of the most actively traded stocks in India, give an economic view of India.
The National Stock Exchange, NSE, on the other hand, contains 7 major indices and 15 other indices.
The most popular index of NSE is the S & P CNX Nifty. Nifty 50, short for National Index Fifty, represents the free-float weighted average of 50 of the most well-established companies of India in 17 different sectors.
Investing in Stocks for Beginners
If you are starting your stock investing journey, here are some important tips to keep in mind –
- Invest with a long term goal for good returns
- Assess and understand your risk appetite
- Control your emotions in market fluctuations
- Expect realistic returns
To buy a stock, you would need a saving account linked with a trading account and a demat account.
Buying and selling of shares would be done through the trading account and money for the same should be transferred to the trading account from your saving account.
The bought stock would then be held in a demat account.
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The Concepts of Bull and Bear Market
The terms bull market and bear market are commonly used to define the status of the share market. But do you understand what it actually means?
Bull market is that period, in months or years, during which the stock prices are either rising or are expected to rise.
It applies to all types of securities being traded on the market like equities, commodities, etc. A bull market reflects positive sentiments and involves considerable volumes of share trading.
Learn the concept if Stock Market – Read our article on The Bulls, The Bears and The Farm – Know The Stock Markets
A bull market is indicated by the following indicators –
- Increasing GDP of the country
- Increase in share prices of companies
- Employment rate rises
Bear market, on the other hand, refers to the period when the stock prices are declining or expected to decline. It might last a few months or even years.
The indicators of bear market are –
- Decreasing GDP
- Fall in share prices
- Decreasing employment rate
Bear market is, therefore, a pessimistic market where share trading volumes reduce.
Risks of Stock Market Investing
Stock trading is fraught with different types of risks which affect the returns which you can earn.
These risks include the following –
|Type of risk||Meaning|
|Liquidity risk||The risk of not being able to sell the investment when needed|
|Business risk||Risk of business failure due to poor management, bad business decisions, etc.|
|Taxability risk||The risk of changes in the tax regime which imposes tax on investments|
|Inflationary risk||The risk of inflation which would increase the production costs|
|Regulatory risks||The risk of change in regulations which affect a particular company|
You should understand and keep these risks in mind before investing the stocks.
Though risky, stock market investments can give you attractive returns and help in wealth creation. So, understand the dynamics of the market and then invest.
For a complete guide to stock investing you can also refer to this course and build your knowledge before you invest in stocks.
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How to value a stock ?
But you might be wondering, why would the company’s owners be ready to give up their ownership rights, have strangers vote for critical matters concerning their company and share their profits?
The answer is quite simple – funds! As a company grows, it needs more and more funds to finance its expansion and growth plans.
There are two paths it can take – debt financing or equity financing.
Why do companies need to issue shares?
In debt financing, companies basically take a loan (either from financial institutions or by issuing bonds).
They need to re-pay the borrowed amount along with interest to the lenders. In the equity financing, companies give up a part of their ownership by issuing shares.
One major advantage of taking this route is that companies do not need to pay any fixed interest and can rather share their profits (in the form of dividend), basis for their financial and growth plans.
Moreover, there is no maturity date upon which the company needs to repay the principal amount to the investors.
But it is not a one-sided love affair. Rather equity financing can be a win-win situation for both the parties – issuing company as well as investors.
When the company does well, investors receive higher dividend payouts and the value of their investment appreciates. As a result, they stand to make a substantial gain by selling their stocks in the secondary market.
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What is stock valuation?
Wealth creation is as much science as an art. Investing in the right stocks can truly change your fortunes.
But one of the most common concerns for a lot of investors is to understand the stock’s real value.
Stock valuation is the process of determining the stock’s true or intrinsic worth. The criticality of this valuation is due to the fact it is not derived or has any attachment to the current market price.
If you are able to ascertain the stock’s true value, you would be able to easily determine if the stock is under-valued (a steal deal) or over-valued (waste of your money).
Ultimately, it would help you to make well-thought-through and informed investment decisions, which are in the best interest of your hard-earned money.
But the question arises, how are stocks valued? If you find scratching your head, continue to read as we de-mystify the process.
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There are two ways of stock valuation:
1) Absolute Valuation Method
In this valuation method, the calculation of the stock’s intrinsic value relies heavily on the fundamental financial information available about the company.
Such information is accessed from the company’s financial reports, etc. They take into account aspects such as cash flows, growth rates and dividend payouts.
The two methods used for absolute valuation are:
a) DDM (Dividend Discount Model)
This model is based on the premise that the stock’s value is equivalent to the present value of the company’s future dividend payouts. This calculation remains applicable only in cases where the company distributes dividends on a regular and stable basis.
b) DCF (Discounted Cash Flow Model)
This model follows the theory that the intrinsic value can be calculated by discounting the future cash flows of the company. This method of valuation can be used for companies with unpredictable or irregular dividend distribution.
2) Relative Valuation Method
Albert Einstein laid out the theory of relativity. Little did anyone know, that the concept would apply to stock market investment as well.
Relative valuation stresses on the fact that investing in a particular stock is a choice that is not made in silos.
Hence, to determine a stock’s value, you need to compare certain critical aspects with other similar companies. It takes into account financial ratios to determine the relative worth of stock.
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Some common ways of relative or comparable stock valuation are:
a) Price Earning (P/E) Ratio
The P/E Ratio enables you to determine the stock’s value in relation to the company’s earnings.
In simple terms, it shows you the number of years it will take for you to recover your investment, provided there is no change.
A higher value can be interpreted as the willingness of investors to pay a higher price today basis the progressively larger growth expectations in the future.
It is calculated as:
P/E Ratio = Market value per share divided by Earning per share
However, do remember this caveat – if you are using the P/E Ratio valuation method, make sure that the comparison is between similar sectors, markets or industries.
This ratio is also sometimes referred to as the earnings or price multiplier.
b) Price/Earnings to Growth Ratio (PEG)
This valuation metric takes into account three variables –
- Price of the concerned stock
- Earnings per share or EPS
- The growth rate of the company.
It is calculated by using this formula:
PEG Ratio = P/E Ratio growth rate in the EPS.
When you compare stocks using this metric, you are basically comparing how much you are paying for the growth in each stock.
For instance, if you have stock with PEG of 1, it means that there the stock’s current market value is perfectly co-related to the earning growth rate.
However, if you have a stock with higher PEG (let us say 2), it indicates that you need to pay twice as much for a similar growth trajectory. In simple words, the second stock is over-valued.
c) Price /Sales Value
This valuation methodology helps to interpret the stock value in comparison to the sales or revenue produced by the company.
Stocks with a lesser P/S score are interpreted as cheaper investment options as compared to stocks with a higher P/S value.
One major limitation of this methodology does not take into account other critical factors such as costs or profitability.
Hence it is advisable to look at this value not solely but in combination with other ratios.
It is calculated as:
Price/Sales Value = Price per share divided by Total sale revenue.
Read our article on How to Read a Stock Table/Quote? Understanding Stock Quote
Price / Book Value
The book value of the stock (the difference between the company’s assets and liabilities) is considered a comparatively stable parameter. Hence, using that for a stock’s valuation is a good idea.
The Price / Book Value metric looks at the market value of the stock in relation to its net-worth. It is also known as the price-equity ratio. A stock with low P/B Value is often considered as an under-valued stock.
It is calculated as:
Price/Book Value = Price per share divided by book value per share.
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“Warren Buffett once said – Price is what you pay, value is what you get! Hence, it is important to carefully look at the valuation to make a smart and profitable investing decision.”
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How to Start Investing in Stocks for Trading or Long Term Investments ?
Types of Investing
Wealth appreciation is the shared goal for all investors. However, the routes to this common destination may vary.
Broadly speaking, there are two ways of investing – trading and value investing.
Trading is about frequent stock transactions (buying or selling) over a short period of time.
The objective is to earn quick returns with a focus on stock prices. Investors who adopt this approach (also referred to as traders) jump into and out of investments within a short span of time (sometimes within minutes) with the goal of short-term profits.
They often focus more on the stock’s technical features instead of the company’s fundamentals or long-run prospects.
They are only concerned with the direction of movement.
For individual investors, trading can be extremely dangerous due to the excessive volatility associated with the stock markets.
You need to have a clear investment strategy, be proficient with technical analysis to predict the future price movement and fast enough to take decisions (buy or sell).
This brings us to the second type of investing – Value Investing.
This concept was popularized for the masses by none other than Mr. Warren Buffett. He is not a believer in the concept of short-term profits.
In fact, he is of the opinion that if you are not ready to own a stock for ten years, you should not bother owing it for even ten minutes! Value investing is a long-term investing technique.
Value investors identify stocks whose intrinsic value is significantly higher than their current market value and invest in them.
The rationale being that in the long run, the market will correct its inefficiencies and the stock will get valued at the correct level. So, basically buy low, hold the stock and sell high.
The biggest advantage of this methodology is that you remain unfazed by the regular stock market fluctuations and benefit from the power of compounding! No wonder, Mr Buffett could grow his empire from a mere 6000 USD to 7320 Crore USD in less than seven decades.
Moral of the story – it is better to stick for the long run. Treat it as a test match rather than as T-20 match.
Just before investing in stocks read our article on Top 5 Things to Know About Stock Market Trading
How to invest in stocks in India?
Indian investors can trade on two stock markets
- National Stock Exchange or NSE
- Bombay Stock Exchange or BSE
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There are 5 important terms which you should be familiar with before you invest in stocks in India.
It refers to an entity which holds our financial investments in an electronic or dematerialized form.
Depositories take the responsibility of maintaining ownership or transaction related records of all the investors.
In India, there are two depositories – NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
2) Depository Participants
Depository Participants or DPs are the intermediaries who facilitate the transactions between you (the investors) and the depositary.
They charge brokerage for their services.
3) Demat Account
This account holds all your stocks in dematerialized form.
In simple terms, it helps to convert paper or physical forms into an electronic one. You need to have a Demat account to participate in the stock market.
Think of this account as you bank passbook. It will have details of all your transactions albeit in the stock world.
If you want to open a Demat account, you will need to reach out to a registered DP and complete the formalities (application form, identity proof, address proof, etc.)
4) Trading Account
Your trading orders need to be initiated through the trading account. You can reach to any registered broker (or entity) for completing the formalities associated with this account.
The supporting documents required for a trading account are similar to that of a Demat account.
Once you open a trading account, you get a unique trading ID which can be used for all trading (buy as well as sell) related transactions.
5) UIN (Unique Identification Number)
Want to live life king size? Then get a UIN. If the value of a single trade exceeds Rs. One lakh, then you would need a Unique Identification Number.
It is important to note that PAN (Permanent Account Number) is a mandatory document for stock trading (or rather, any financial investment in India).
Now that you are well-equipped with the necessary information and have completed all the pre-requisites, how do you actually trade? It is quite simple.
All you need to do is to inform your broker or intermediary about the stocks that you want to invest in and the quantity. You can either inform them on the phone or place in your request online on their portals.
Browse trough a complete resource on stock market (Blogs / Guides / Video Courses etc) that will help you become a successful stock market investor.
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Some things to keep in mind while placing the orders with your broker:
a) Trade Confirmation
Leverage technology (emails, SMS, etc.) to get timely updates about trade confirmation.
b) Clarity about the stock exchange
You should always clarify which exchange (NSE or BSE) would you like to trade on. Usually, there is a marginal difference in the stock prices.
c) Risk disclosure documents
Read these documents thoroughly and get an in-depth understanding of the contents. It generally forms part of the registration formalities with the brokers.
Once the broker places the order, the monetary part of the trade (cash inflow or outflow) takes place through the trading account.
The Demat account gets updated with the transaction details. And voila, just like that you have complete your first stock market trade!
The “how” to invest in stocks in India is fairly simple. It is the “why” and the “when” decisions that are more complex.
However, it is safe to say that if you have a clear vision of what you want to achieve in the long run and are through with the basics, you will have a comfortable journey.
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Top 5 Things to Know about Stock Market Trading
But to have a clear vision, you need to be through with the basics.
Here are the top five things that you need to know to get started:
Shares (also referred to as stocks) entitles the holder to become an owner (proportionate to the invested amount) of the issuing company.
Shares can be bought either during IPOs (Initial Public Offering) or in the secondary market (i.e. stock markets).
Primarily, there are 3 types of shares:
i) Preference Shares
Preference Shares, true to their name, give the shareholders a “priority pass” in certain situations. For instance,
- At the time of dividend distribution, preference shareholders are the first ones to receive the same.
- In case of liquidation, these shareholders get priority for capital repayment.
ii) Equity Shares
Equity shares (also known as ordinary shares) are the most commonly traded shares in the stock market.
If you invest in equity shares, you become a part-owner of the company and get the right to vote and receive dividends (as and when declared).
However, equity shareholders receive dividend only after the preference shareholders have been paid their dividend.
iii) Shares with differential voting rights (DVR)
These shares too come with voting rights, however, their privileges are generally lesser than common or equity shareholders.
Such shareholders usually get compensated with a higher dividend payout. Compared to equity shares, DVRs trade at a lower price level.
Dividend refers to the sum of money periodically given by a company to its shareholders as a reward for investing in their venture.
This payment can be made out of the company’s profits or even reserves.
Read our article on to know What are the Benefits of online trading of stocks
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Debentures are issued by a company when it raises money from the public in the form of a loan.
They form part of the company’s debt and hence give no ownership or voting rights. Debenture holders receive pre-fixed interest.
This interest is paid prior to dividend payouts. Debentures come with a pre-determined maturity date.
Debentures can be categorized basis:
Secured Debentures are secured against the company’s assets. In case of insolvency, the debenture loan amount can be repaid from the sale proceeds of the concerned asset.
Unsecured Debentures do not have such protection and remain at par with other unsecured lenders of the company, in the event of a re-payment default.
Debentures can be converted into shares (equity or preference) basis the level of permitted conversion.
On the basis of convertibility, debentures can be classified as Non-Convertible, Partly Convertible, Fully Convertible or Optionally Convertible.
Redeemable debentures are issued with a redemption option – on demand, after completion of a fixed period or through a periodical drawing system.
In the case of irredeemable debentures, the borrower does not have to repay the loan amount within a specified period.
Registered debentures are issued in the name of a specified individual who is registered as the debenture holder.
The name of the person is mentioned on the debenture note or certificate.
They can be transferred after completing all necessary formalities required as per Companies Act. Bearer debentures are made out to a bearer (rather than a particular individual).
They are transferrable by mere delivery.
3) Bull and Bear Market
Broadly speaking, there are two types of market phases – the bull market and a bear market. In a bull market, prices increase or are expected to increase.
In general, there is an upward or growth trend in the market. In terms of investor sentiment, there is widespread optimism, confidence and positivity.
For instance, the period starting December 2011 till March 2015 is characterized as a bull market. The Indian Sensex jumped up by over 98% during this time.
A bear market is the exact opposite of the bull market. Stock prices continuously go down (more than 20%) or are expected to do so in the near future.
These times are usually marked with rampant negative sentiment amongst the investors. For instance, the dot com bubble burst (the early 2000s) and the fall of the US housing market (2008) led to a bear phase.
One important factor in both these market phases is that the trend (whether growth or fall) needs to be for a sustained time period, to be characterized as a phase.
Read our blog on The Bulls, The Bears and The Farm – Know The Stock Markets.
4) Pre-requisites for stock trading
If you are eligible to enter into a contract, you can buy or sell shares as well. In order to do the same, you need to get a
i) Trading Account
Trading Account is the account through which you will place your trading bids in the stock market. It can also be used to make other online investments such as mutual funds, etc.
ii) Demat Account
This account will act as a common repository wherein all your shares are stored in a digitalized or electronic manner.
In our country, these accounts are maintained by Depository Participants – NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
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5) Risk Tolerance
Risk tolerance is one of the most important deciding factors in stock market trading.
It refers to the quantum of fluctuation in returns or principal investment value that you are willing or able to bear. In simple words, how much risk (or losses) can you comfortably absorb.
This factor is influenced by a host of factors –both positively as well as negatively.
For instance, aspects such as education, professional qualification, income levels, wealth etc. generally have a positive impact on your risk tolerance. As these factors witness an increase, your risk-taking ability also rises.
Factors such as age tend to have a negative impact on your risk tolerance. As you grow older (and take on more responsibilities) you tend to be wary of taking risks.
Your investment choice should be in sync with your risk profile. For instance, if you have a healthy risk appetite, you can opt for higher equity exposure. Debt schemes are suitable for conservative investors with low-risk tolerance.
Learning is a never-ending process. But these five aspects will get you started on your stock market trading journey!
Read our blog on 7 golden rules of stock market investment for becoming a successful stock market investor
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7 Golden Rules of Stock Market Investing
There are complex charts, too many options, technical jargons and above all fear of losing your hard-earned money.
We too have been there and completely understanding the pains. Hence, we have collected our wisdom in the form of seven golden rules that you should follow when investing in stock markets.
Rule 1: Run a marathon not a sprint
When it comes to stock markets, you need to have a long-term orientation.
If you are looking to earn just a quick buck (and are not a professional investor) or have a myopic approach to the stock market, you will not be able to realize the optimal potential of the investment.
The aspiration to become an instant millionaire is the root cause of most debacles in the stock market. Stocks are not lottery tickets!
But then what happens in the long run? The answer is compounding. The power of “compounding” is immense. (Remember your mathematics teacher telling you how compound interest is more than simple interest?)
When you hold on to your investment, then you earn interest not only on the principal contribution but also the interest earned thereon. Hence, it is like you can have your cake and eat it too!
The longer you remain invested, higher is the potential impact of the compound performance. As the business tycoon Warren Buffett put it, “Stock markets are a device to transfer wealth from the impatient to the patient”. So, be patient.
Rule 2: Emotions are not bae
Remember Rajesh Khanna saying, “Pushpa I hate tears”. Stock markets feel the same for emotional investing. Emotions cloud your judgement and often lead to wrong decisions.
Whether it is the greed of wanting more (in a bull market) or fear of losing out (during bearish phase), if your decisions are not backed by solid judgement and in-depth research, you are likely to burn your fingers badly.
There have been umpteen cases where investors have gone into a panic mode due to a slump in the market and sold off their investment at rock-bottom valuations. Always remember that markets are cyclical in nature. Even the worst of days are followed by sunshine. So do not take any decisions guided by emotions.
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Rule 3: Know Your Investment (KYI)
Every fund house needs to mandatorily complete KYC (Know Your Customer) of the investor before bringing them on board. Did you know that it makes sense vice versa as well?
Before investing in any stock, you should have detailed information about the company, its USP, competitors, market share or industry positioning, growth plans, management, etc. As they say, you do not invest in a stock, you invest in the business.
Rule 4: Quality over quantity
Stock selection plays a crucial role in determining your investment’s earning potential. Remember that form is temporary but class is permanent. Invest in stocks which are backed by fundamentally strong businesses, led by capable resources and with robust practices. Just because a stock is available at a cheap price does not make it a good investment.
You need to understand the reason for the valuation of the company and then decide accordingly. It is not a bad idea to be a bargain hunter, but you need to see the value.
Value investing (propagated by Warren Buffett) looks for undervalued stocks which are inherently strong and have a higher intrinsic value. It is always better to put your hard-earned money in a good stock which is reasonably priced rather than invest in a reasonable stock available at a good price.
Rule 5: Stay away from the herd
Stock market investments should not be as fashion trends. You should not put your hard-earned money in a stock just because your friend, relative or colleague is doing so.
Following the herd will backfire strongly in the long term. You should stick with your overall investment plan. Do not give in to the temptation of investing in the “popular” stocks if they do not align with your financial goals, risk appetite or investment horizon.
Read a complete guide to financial planning.
Rule 6: Diversification is your friend
A wise person once said, “if you invest and do not diversify, you are literally throwing out your money”. When you venture into stock market investing, the risk is inevitable.
However, there are ways and means to manage or distribute the same. Diversify your portfolio across multiple asset categories (equity, debt, etc.), instruments, market capitalization (large-cap, mid-cap and small-cap), sectors or even geographies to minimize the risk and maximize the returns.
Different asset classes respond differently to market fluctuations and phases and hence under-performance of one can be compensated by others’ good returns.
The only caveat is beware of over-diversification. Too many stocks in your portfolio can become an unnecessary management burden and bring down your earnings rather than protecting them.
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Rule 7: Discipline
Discipline may be rarely enjoyable but is almost always profitable. You might be tempted to “time” your investment decisions to get the best side of the market or skip some of your periodic contributions.
But resist those thoughts. Timing your investments is a utopian concept which does not work out in reality. All it does it justify your need for procrastination and reduce your earning potential.
If you are banking on catching the highs and lows, you are in for a rude surprise. The mantra for success is to adopt a disciplined and systematic approach to investment. Keep calm (or patience) and the rewards will roll in the long run. Slow and steady definitely wins the race when it comes to stock market investing.
In stock markets, there will be ups and there will be downs. But if your investments follow these simple yet effective ground rules, you will be able to cross even the most tumultuous times and accomplish your financial goals.
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How & Why Does a Share Price Rise and Fall ?
As an investor, it is important to understand the reason behind the changes in share prices.
It will help you not only to take well-informed and correct investing decisions, but also save you from a lot of unnecessary panic or heart-burn.
What causes the share prices to go up or down?
Stock markets are known for their volatility and frequent fluctuations in share prices. So, who are the top 3 culprits behind the stock market volatility?
1) May the force be with you!
The primary reason for stock market turbulence is market forces. The duet performance of demand and supply.
Stock prices change (move north or south) whenever the demand and supply equilibrium is disturbed. When demand increases (people want to invest in a specific stock) more than the supply, it causes the share price to go up.
Because, people are willing to pay a premium price for the stock.
Conversely, when there is an excess supply (i.e. demand is lesser than supply), the stock prices go down.
Think of it as a clearance sale for unwanted products!
Let us look at how demand and supply get impacted by company related matters.
Changes in the company’s attributes impact its stock prices.
Better sales revenue, reduced cost of production or operation, debt repayment, etc. lead to higher future cash flows for the company. Investors see such companies as lucrative investment prospects.
This leads to an increase in demand and resultantly stock prices move up.
On the other hand, negative factors such as change or instability in top management, product failures, increase in the manufacturing or operational costs, sharp dip in the revenue, etc. erode investor’s trust in the company.
This leads to a slump in demand and stock prices come crashing down.
Here a complete guide on How to invest in stocks in India for trading or long term investment?
2) Troubles in paradise
Our country’s economic condition plays an important role in share price volatility.
For instance, factors such as change in interest rates, inflation (or deflation), political turmoil, natural calamities or pandemics (the bingo word for 2020!), financial growth (or de-growth), major changes in macroeconomic policies, currency valuation, etc. have an impact on the stock market movements.
Let us look at some examples:
Inflation eats up your purchasing power and also your investing power.
Let us see how. It leads to a swell in the pricing of offerings (goods and services).
As a result, people curtail their buying and spending habits. This in turn leads to a fall in company’s product and revenue and hence brings down their stock prices.
RBI makes changes to Repo rates basis the overall economic conditions. If RBI increases the repo rate, borrowing from it becomes costlier for financial institutions.
As a result, they increase their lending rates which makes loans etc. expensive for businesses.
This leads to a temporary halt or sluggishness in their growth activities and investors start to sell-off their stocks in anticipation of the company’s de-growth.
Massive selling leads to stock price crash. On the other hand, if RBI decreases their lending rates, it leads to a situation of credit expansion.
Perceived as a sign of growth, investors flock to get a chunk of the growth and drive up the stock prices.
Don’t want to loose out money in stock market. Here are top 5 things to know about stock market trading
3) Cons of globalization
Globalization has been a boon for all of us. But as they say to enjoy the rainbow you need to put up with a bit of rain.
Global economic conditions have an impact on our stock markets as well. Indian market has witnessed a large inflow of foreign funds and investment.
If there is an economic unrest in the foreign countries or change in their country’s foreign investment policies, we may see a sudden withdrawal of such funds from us.
Similarly, if foreign stock markets enter a bear phase, investors might anticipate a cascading or ripple effect in India’s stock markets as well.
Market sentiments (sometimes real and sometimes unfounded) carry the potential to cause massive volatility. All such factors will lead to a crash in the share prices.
Stock markets are volatile. Period. But that volatility is overwhelming only when you do not know how to interpret the cause of the turbulence. If you invest in a disciplined manner, you can capitalize on the volatility and optimize your returns.
All you need is solid understanding of the market workings, good stock selection and a robust (yet flexible) investment strategy. As a wise person once said, for the investor who knows what he (or she) is doing, volatility creates endless opportunities.
How To Read A Stock Table?
Stock quotes may seem intimidating at first, but once you understand the data points, you will be surprised with how simple yet effective they are.
Why you should be able to read a stock quote!
You need to know the past, to understand the present. When you invest in a stock, you should have information about how its price has behaved (gone up and down) historically.
After making sure that the stock qualifies on the checklist (Refer Finding Stocks for Investment), you need to decide on your investment timing as well.
Though we don’t believe that there is one “perfect” time to enter the market, investing at a time when the stock prices are reasonable and have not hit their saturation point is important.
One of the most talked about financial strategies is to buy low and then sell high. Stock quotes support you to make these decisions.
Even after investing in a stock, you should keep on monitoring their performance and growth on a periodic basis. Again stock quotes will come handy in such reviews.
Bottom Line: Stock quotes give you important insights about the stock’s performance. Without understanding them, you would not have complete information required to make a good buying or selling decision.
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How to read stock quotes and tables?
In order to read stock quotes, you need to understand its various elements and their implications.
1) Company symbol
Stock tables have limited space that they can dedicate to each stock.
Hence, in order to display maximum possible stocks, they display a symbol instead of the company’s name.
For instance, Infosys limited is denoted as INFY on the stock table. Usually the stock table lists all stocks in alphabetical order (of symbols).
2) Highs and lows
Share prices keep on fluctuating throughout the course of the market working hours. The stock table mentions the two extreme points – the maximum price and minimum price that the stock traded in a particular day.
The price range (difference between these two points) helps you to understand the volatility faced by the stock on a given day.
You can try to co-relate the volatility with the major events that have taken place so as to understand the impact of specific activities on that stock’s market value.
Learn more about How and Why Does a Share Price Rise and Fall?
3) 52-Week High and Low
This column helps you understand the stock’s growth or trading range for a longer time period.
It shows the maximum price and the minimum price at which the stock has traded in the last 52 weeks (one year).
This column mentions the last price at which the stock was traded that day. For next day trading, you can refer to this close price as a ballpark figure of what you can pay for the stock.
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5) Net Change
Net change indicates the growth or degrowth in the stock’s price as compared to the previous day. It is mentioned in absolute terms as well as a percentage of change.
Net change is calculated as:
(Today’s close price less Previous day’s close price) divided by previous day’s close price When the net change is a positive value, the stock is highlighted in green colour. On the other hand, for a negative change, it is shown in red.
Dividends play a significant role in stock selection, especially for long term investors.
Hence, stock tables provide information regarding the dividend per share or dividend yield so that you can compare it against the stock price. (If the dividend field is blank, it indicates that the company is currently not making any payouts)
Dividend Yield is calculated as Dividend per share divided by Stock price. Higher is the value of dividend yield, higher is the return on your investment.
Read How to invest in stocks in India for trading or long term investment.
7) PE Ratio
You would have come across this financial ratio in the earlier articles as well.
It is one of the most commonly used data-point while assessing a stock’s true potential especially in relation to its financial performance.
It indicates how much you (as an investor) are paying for every rupee earned by the company.
PE Ratio is calculated as:
Stock price divided by the EPS (Earning per share)
A high PE ratio indicates that the stock is overvalued(costly). Conversely, a low PE ratio indicates that it is undervalued.
8) Trading Volume
This shows the number of shares that were traded in a day. It is expressed in hundred.
So, in order to get the actual number, you need to append “00” at the end of the mentioned number.
A heavy trading volume is generally followed by a major change (up or down) in the stock price.
Stock quotes are a powerhouse of critical information, which can help transform a newbie investor into a savvy one! Read, understand, draw insights and take smart investment decisions!
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5 Best Strategies for Stock Market Investing
The same rationale applies to your stock market investments as well.
If you find the right stocks your portfolio and wealth is bound to flourish in the long run.
But how do you go about finding the right stocks? Should you simply go for the trending stocks or replicate your colleague’s or friend’s stock picks?
1) Check the fundamentals
Does not matter if you are driving a hatchback or a luxury sedan, if the wheels of the car do not have enough air, you are not going to go far enough. Similarly, in stock investments, irrespective of valuation, market rumours, star ratings, etc.
If the company under consideration is not fundamentally strong, your stock investment is not going to bear fruits.
But how do you check the fundamental strength of a company? You go with numbers.
Financial ratios help you analyze a company from a 360-degree perspective.
They cover a wide range of aspects ranging from stability, operational efficiency, profitability, liquidity, etc. They let you add meaning to raw financial numbers.
Here are the top seven financial ratios that would help you decide whether the company in question deserves your time and hard-earned money.
- Earnings Per Share or EPS
- Debt to Equity Ratio
- Return on Equity or ROE
- Price to Earnings Ratio (P/E)
- Price to Book Ratio (P/B)
- Price to Sales Ratio (P/S)
- Current Ratio
These financial ratios are like the written entrance examination you have to clear before you qualify for your interview round! Once you find that the company has performed well on the above parameters, it is time to move to the other parameters.
You might be wondering, if a company is fundamentally strong, is that not a good enough reason to invest in it.
Why bother with additional steps or efforts.
While the question is valid, the limitation of many financial ratios is that they are a lag indicator.
They tell you how the company has done in the past and not much about its future prospects. Hence, it is important to look at other factors to make sure you choose the right stocks.
We have a complete course on How to Pick Stocks. Enroll Now and learn how to select valuable stocks
2) Your understanding of the company
Do you understand the company? Its products or services, business model, competitors, market standing, etc?
In order to ascertain the future prospects or growth plans of any company, you need to understand it in great depth.
For instance, does the company have an offering which will be required even after two decades?
For example, if someone had invested in a typewriter company’s stocks decades back, where would he or she stand now.
The product has a limited shelf life and is no longer in use.
However, if you take the example of a product like soap, it is going to be in use forever. There may be new versions, but the basic product will continue to exist.
Hence, it is important to choose a company that you understand and whose offerings have a long lifespan.
Stocks of such companies have the potential for superior growth (thanks to the strength of compounding)
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3) Look for the “moat”
If you have visited any fort or castle, you would have noticed a deep and wide ditch around it (earlier filled with water or ferocious reptiles).
The purpose of the moat was to act a defense in times of attaching and protect the kingdom.
When you look for companies to invest in, you need to look for a similar moat. This economic moat arises from a company’s distinct advantage over its competitors.
It helps the business to be sustainable as well as earn higher profits. So, go for a company with a wider economic moat around it.
4) Depth of debt
Remember when Bee Gees crooned How deep is your love! You need to ask how deep is the debt of the company. Debt financing is a great way to generate funds but if not kept within limits, it is as dangerous as a ticking time bomb.
It is extremely important to look at the company’s financial statements such as balance sheet.
Companies with huge debt as they can be a risky proposition. Remember, in the event of the company winding up or becoming bankrupt, creditors will get priority to recoup their money.
Pro Tip: Debt can be worded differently in different sectors. For instance, check for NPAs (Non-Performing Assets) in the financial statement of Banks or NBFCs.
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5) Captain(s) of the ship
You could have the best product/service, strong fundamentals and a great Unique Selling Proposition.
But if you do not have the right people at the help of the company, all the good things will come crashing down. It is crucial to analyze the company’s management and the core team.
Check out video on How Stock Market Works. Watch Now!
Get answers to these questions:
i) What is the strategy of the company?
You should know where is the company headed and what are its goals. The vision, mission, value statements and Employee Value Proposition would give you a fair idea about this aspect.
ii) How stable is the management team
A long and steady tenure is often considered as an indicator of a healthy and robust company.
iii) Promoters and share buybacks
Promoters possess the deepest knowledge of the company. If you find them giving up their shares, it is a red flag. You should dig deep as it may be a signal that the promoters do not have trust in the stock’s potential to grow.
Though that may not be the reason always. They may need funds to start another venture! The idea is to ask tough questions, get the answers and make well-informed decisions.
Again financial ratios come to your rescue. Look at Return on capital employed (ROCE) in addition to ROE (Return on equity) to determine how efficiently are the investments being translated into revenues and profits.
v) Qualitative aspects
Transparency, honesty and integrity may not be quantified but play a significant role in strengthening the management of the company. You can assess these factors by looking at how the core team has handled tough market conditions, bad results or economic sluggishness.
When you consider all these factors (in unison), you will end up with a great stock. Add the concept of valuation that we discussed earlier and you cannot go wrong with your stock investments.
Remember though, all that shines is not always gold. Just because a stock is cheap does not make it a good investment opportunity. Its intrinsic worth should be the determining factor.
Finding the right stocks can be a cumbersome or tiring process. But the result of that hard-word is extremely sweet.
We have listed down 7 golden rules of stock market investments that can help you build a strong portfolio in stock market.
What is The Bulls Bears And The Farm Markets
And just like the real jungle, each animal (read investor) has a unique and distinct approach to investing.
Let us look at what the stock market farm looks like. The lead actors of the stock markets
The two most predominant characters are – The Bulls and The Bears.
1) The Bulls
The bulls are investors who have a positive outlook about the market’s future. They believe that the stock prices will go up in the future and so will their wealth! Bulls are often responsible for driving the stock prices higher. They can be easily recognized from the crowd with their optimistic and their “bullish (go-getter) attitude.
2) The Bears
The bears have a 180-degree opposite approach to investing as compared to the bulls. They are sure that the markets are going to head south in the coming future. Bears are pessimistic and can be often found cribbing about the jungle (read market) conditions to anyone willing to listen to them.
The not-so-famous character actors
While the bulls and the bears hog the maximum limelight in the stock market farm, there are some other (not so often spoken about) characters as well which deserve your attention.
Remember the dashing Leonardo DiCaprio in the movie The Wolf of Wall Street? As much as you like him, no one should be a wolf in the stock farm. This is because these type of investors use unethical or criminal ways to make profits. Wolves are the one who are usually responsible for market scams and frauds. We have had some wolves in the Indian stock market as well. Such as Harshad Mehta – the scamster of Dalal Street.
These investors literally “chicken out” in times of volatility. They are usually fearful of stock price fluctuations and do not prefer to assume risk. Their fear outweighs their desire to earn higher profits. Hence, they stick with conservative investment instruments such as Fixed Deposits, government securities, bonds or such other low-risk, fixed-income generating instruments.
There is a famous quote by Jim Cramer, a famous investment guru – Bulls and bears make money. But pigs get slaughtered!
Pigs are investors who feel that even a 100% return (over a one-year time period) is not lucrative enough. Such investors are always on the lookout for that “perfect” investment opportunity which will make them a millionaire in a short time period. Their investment decisions are based on market grapevine news or hot tips. They get drawn towards high-risk stocks and invest without putting in adequate time or effort in understanding the company or doing a thorough background research. As a result, they are the ones who land up bleeding most often.
Stags invest only through the IPO (Initial Public Offer) stage. Their objective is to not to remain invested for long. They want to make a quick buck by selling the stocks once they get listed in the exchange market.
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Sheep investors follow the herd and invest in the “most popular” stocks. They do not have their own investment strategy. They follow a leader and do not alter their investment style with changes in market conditions.
Whenever faced with a problem, this bird instinctively buries its head in the sand, with the hope that the trouble will go away. This type of investor does the same when there is negative news about their investments. While it may be very tempting to ignore things that are unpleasant to deal with, it is not a great coping (or investment) strategy. This is because you cannot make things better when you refuse to confront them. So, this is one type of investor you should definitely not aim to be.
Just like rabbits who keep on hopping from one place to another, these investors are always on the lookout for opportunities to earn quick money. They hold their investments for an extremely short time period (usually in minutes).
These investors believe in the saying – slow and steady wins the race. They do not make any impulsive investments and trade keeping in mind the long-term. They try to minimize their number of trades and invest significant time and effort in each trade decision. As a result, they are not rattled or worried with short-term fluctuations as they are in it for the long run.
Whales are big investors who have the power to fluctuate the stock price when they trade (buy or sell) in the market. Generally, there are very few such investors. You can benefit a lot by swimming (read trading) along with the whales.
There is no king in this animal farm. Simply because markets are cyclical. For instance, although the bears and bulls are endlessly at odds, both of them get their chance to shine and make money as the cycles change. So, you can choose any investment strategy which is in sync with your risk profile (except wolves and ostrich) and you are bound to be a happy animal in the long run.
Here a complete guide on how to invest in the stock market for a longer run
✔ Knowing your taxes will give you a new perspective towards how much you are earning and whether your financial plan is working out for you.
✔ Take tax-planning seriously and know your rights. The government has certain benefits and exemptions under the sections 80C, 80D of the Income Tax Act.
Best Stock Market Apps for Investment
Stock trading, in the simplest form, means buying and selling stocks from the stock market.
It is a popular mode of investment because –
- It has a high return potential
- It can create wealth over long-term horizons
- It is a highly liquid avenue
Moreover, the stock trading activity is done online through an online Demat account. You can place buy and sell orders through a licensed broker to trade in stocks.
Thanks to the development of technology, the advent of the internet, and the increased use of Smartphones, your trusted brokers are now available right at your fingertips.
Yes, you heard it right! Stockbrokers have developed their own apps that allow stock trading through your Smartphones. This is not only convenient but quite simple too.
There are dozens of stock trading apps on the market. But which is the best stock market app?
Best stock market apps for investment:
Here are 6 of the best app for the stock market which you can consider for your stock trading journey.
You can easily compare and choose the best stock market apps for beginners among them.
Claiming to be the number one broker in India, Zerodha started its operations on the 15th of August 2010.
Popular among traders, 6+ million clients place millions of orders through the application’s powerful ecosystem.
Zerodha contributes over 15 percent of all Indian retail trading volumes. According to Ashley Coutinho’s article written on 5th September 2021, Zerodha has 45,43,870 active clients which capture 19.09% of the market share.
Unique features of Zerodha
Here are some aspects which set Zerodha apart from the other stock market apps for beginners –
- Besides stocks, you can trade in futures and options, commodity derivatives, IPOs, bonds and Government securities, currency derivatives, etc.
- Zerodha was awarded Economic Times Start-up of the Year 2020
- You can learn the technicalities of stock trading with Zerodha’s Varsity, an educational platform for investors and beginners
- All investments that are delivery-based trading are completely free of cost.
- Flat INR 20 or 0.03 percent, whichever is lower will be executed per order for every intraday trades that are done across asset classes such as equity, commodity, or currency trades.
- All direct mutual fund investments are absolutely free.
- Offers you a brokerage calculator that helps you evaluate the fees and other taxes imposed on trading.
- Provides you with trading tools such as Kite, Console, Coin, Varsity mobile, and Sentinel for facilitating your trading.
- Zerodha’s interactive portal ‘Z-Connect’ covers almost every query of the client in form of blogs, illustrations, and interactive articles. Apart from that users can always reach out to Zerodha via email and phone.
- Trading in stocks is affordable if you follow the buy-and-hold approach. You don’t pay any brokerage on delivery trading.
- The account opening process consumes a lot of time.
- Covers only the Indian stock market.
- Credit / Debit cards cannot be used for deposits and withdrawals.
Groww intends to make investments in India, easy, fast, and transparent.
It has 10 million-plus customers handled with 100+ team members. Backed by Ribbit Capital, Sequoia, Y Combinator, Kauffman Fellows, Propel Venture Partners, and Kairos, Groww is operated from Bengaluru.
Unique features of Groww
Here are some salient facts to know about Groww as a trading app –
- Besides stocks, Groww also allows you to invest in gold, mutual funds, US stocks, futures and options, and fixed deposits
- You can download the app on your Android phone, iPhone as well as on your computer and sync your account across platforms
- For any help, query, or feedback, you can connect with Groww’s efficient customer service department online.
- Account opening and maintenance are absolutely free with Groww.
- For equity brokerage, Groww charges INR 20 or 0.05 percent whichever is lower.
- For Futures and Options brokerage, Groww charges INR 20 per executed order.
- It has a simple pricing model.
- The application offers professional management of shares, real estate, gold, bonds, etc.
- Investing via UPI is possible.
- You can have portfolio insights by using Groww via the website.
- The service allows you to compare three mutual funds at the same time.
- Users can view their SIP history on the application.
- Groww’s investment products offer no option to trade in the commodity, and currency segments.
- It offers no call and trade services.
- Groww does not provide any stock tips, research reports, or recommendations.
- There is no margin trading facility or margin against shares.
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Started as an idea to make trading easier and cheaper, Upstox currently has 50,00,000+ investors.
This platform is backed by Mr. Ratan Tata and Tiger Global management.
Upstox Pro platform was launched with a big focus on mobile and powerful trading platforms in 2016.
Since then, Upstox has committedly worked for making investments easy as well as accessible to everyone, not only via the web but also via mobile.
Unique features of Upstox
Backed by reputed names in the industry, Upstox also has the following salient aspects that investors should know about –
- With a single platform, Upstox allows you to trade in stocks, futures and options, NFOs, commodities, IPOs, and mutual funds
- Started in 2016, Upstox has delivered relevant solutions to lakhs of its customers
- You can open a Upstox account online with minimal hassles
- There are hundreds of charts and technical analysis tools that help you pick the right stocks to create a quality portfolio
- Upstox does not charge a single penny when trading mutual funds and IPOs.
- The platform charges INR 20 or 0.05 percent, whichever is lower on Equity Intraday, Futures, and Options, Currency, Commodity, as well as Equity Delivery.
You can check out the detailed brokerage rates on Equity, Currency as well as Commodities on Upstox’s website.
- Complete KYC procedure and IPV is available over the web. So, the work that usually takes one to two days or at times even weeks, gets done within minutes.
- Upstox provides you with all the tools you need while trading such as brokerage calculator, Span calculator, options builder tool, etc. All of these make trading with Upstox extremely easy.
- The platform answers all the queries of customers within a very short span of time. Users can also reach out to Upstox using its online ticketing system.
- Call and trade with Upstox are chargeable at INR 20 per trade.
- A particular order called Good Till Cancelled (GTC) is not supported in the Delivery segment.
Read our blog on The 7 Golden Rules of Stock Market Investments
With 750+ service managers, 3000+ Sharekhan centers in 600+ cities, Sharekhan’s human as well as an online network helps you trade effortlessly.
The platform is backed by BNP Paribas – a French international banking group, the largest bank in Europe, and seventh-largest in the world when calculated based on total assets.
Sharekhan is the 3rd largest stockbroker in India. Its services are not only limited to retail customers but also expanded to institutions.
The platform has designed attractive prepaid trading plans for high volume customer that reduces brokerage fee notably.
Unique features of Sharekhan
Here are some of the notable features of Sharekhan –
- Sharekhan is a full-service broker in India. This means that it charges brokerage on every trade in stocks that you place through it. However, for the brokerage charges, the app offers professional advice and guidance in picking the right stocks.
- You can open an online Demat account within 15 minutes with its hassle-free application process
- You can consult with experts and professionals to learn the skills of stock trading and to build your wealth
- Sharekhan uses fundamental and technical research philosophies to help you invest right
- Sharekhan charges INR 400 for Demat accounts after the first year of free service.
- It offers trading as well as Demat account opening entirely free.
- Other charges depend on the type of account that you open and the security that you trade-in.
- Calling as well as trading is completely free.
- You need to pay absolutely no charges for fund transfers made from banks to trading accounts or the other way round.
- Using Sharekhan users can have online classroom sessions for beginners as well as advance traders without paying a single penny.
- Being a part of Sharekhan is being a part of a huge chain across India.
- Its trading platform, Trade Tiger is available for free.
- You can invest in different types of securities and assets with a single account
- The platform doesn’t offer a typical three-in-one Demat account.
- You cannot place an order after trading time.
- Brokerage charges are much higher compared to other stock market app for beginners.
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5) Motilal Oswal:
Available in Hindi, Gujarati as well as Tamil, Motilal Oswal has 22,00,000+ happy customers.
The company was awarded as the best local brokerage firm in India at the Asia Money Brokers Poll 2020. Founded by Ramdeo Agarwal in 1987.
Motilal Oswal currently has more than 30+ years of being in the Indian stock market. Since its inception, to date, they have burgeoned as a firm that currently serves:
- Retail customers
- High net worth investors
- Institutional investors
- Corporate clients
The firm has its presence in 2200+ locations and invests a significant amount of its profit in research and analysis.
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Unique features of Motilal Oswal
Motilal Oswal also boasts of some unique features that list it among the best trading apps in India.
Here’s a look at these features of Motilal Oswal –
- It offers you good trading platforms that are useful for all kinds of traders.
- The company has a decent amount of franchise network.
- It has a fund transfer facility with more than 60 banks.
- Motilal Oswal is a very established name in the Indian stock market.
- Its research reports are considered to be the best in class.
- The delivery brokerage of Motilal Oswal is 0.5 percent.
- Its Intraday and Futures charges are 0.05 percent.
- Options will cost you INR 100 per lot.
- Commodities will cost 0.5 percent and INR 20 per lot.
- The firm doesn’t charge a single penny for opening a trading/Demat account as well as maintaining it annually. However, its Demat account’s annual maintenance charges are INR 441.
- You can freely open an account and also not get charged with maintenance for the first year.
- You get a free personal trading advisor for choosing the right stocks to buy
- Expert stock recommendations can be availed free of cost
- You can invest in IPOs, NFOs, ETFs, commodities, gold, mutual funds, and futures and options besides stocks
- You get free research reports on leading stocks. These reports help you to make the right trading decisions to maximize your wealth.
- Does not offer a three-in-one Demat account.
- Its brokerage is a little bit on the higher end than other broker firms.
Each one of the above-mentioned applications has its own specialty.
So, ask yourself a very important question before deciding the best stock market app for yourself i.e., what are some of the most vital features a trading app should contain?
Then choose an app based on its benefits, pricing, and the securities that it offers to trade-in.
With these 5 apps, however, you cannot go wrong.
Have you selected your stock market investing app? Then learn How to Pick the Best Stocks for the first investment. Enroll in the Course Now!
How to start investing with these apps
After you select from the best stock market apps in India, the next step is to start investing in stocks.
To do so, here are the steps that you should follow –
- First, select the app with which you want to start your trading journey
- Download the app from the Google Play Store or Apple Store
- Open your account by entering your details. These details include your name, age, address, mobile number, email ID, PAN Card number, Aadhaar card number, etc.
- You also need to mention your bank account name, branch name, IFSC code, and bank account number to link your bank account with your online trading and Demat account
- You would have to verify your details using OTP sent to the mobile number and/or the email ID that you registered when filling in the online account opening form
- If any account opening fee is to be paid, the same should be paid through your net banking account or UPI ID
- The last step is to submit your documents and a digital signature. Most apps allow you to upload your documents online. Your signature can also be uploaded online on the app’s platform
- Once the account opening form is filled and the documents are uploaded, the stock trading app would verify your details and open a Demat and trading account in your name
- Some apps might open the accounts within minutes while some might take 1 or 2 trading days for the same.
Watch Our Video on Stock Market Investing
When you start your stock investment journey with any of these apps, here are few things that you should keep in mind –
- If you are a beginner, check the historic price trends of the stocks before you pick them. Research the stocks thoroughly so that you don’t go wrong in your choice. Many apps offer research reports and recommendations which you can peruse when picking stocks.
- Be patient with stock investments. The equity market is volatile. The stocks that you pick might become bearish. Try and hold onto them. They might recover with time and give good returns.
- Opt for diversification so that you can invest in stocks across market sectors for maximum profitability
- Keep abreast of the latest news and stories of the stock market. This would give you an insight into the right time to buy and sell stocks.
In fact, the last point is quite important.
The stock market is an ever-changing universe.
You need to know what is happening in the market daily so that you can change your position in stocks.
Moreover, you should get your trading queries resolved with the help of experts. One app that lets you do this is the Koppr app.
Read Our Complete Guide on How to invest in stocks in India for trading or long-term investment?
6) The Koppr app – making a difference in stock trading:
With the Koppr app, you can plan your finances and get complete guidance on stock trading. The app also features the latest news that you can use to stay informed. Get access to –
- Trending topics
- Latest news
- Channels, etc.
Also, for any queries and help, you can connect with Koppr Tribes, a platform that brings you together with other stock investors and experts –
Lastly, you can take financial courses, test your knowledge by participating in quizzes, attend live financial workshops and do more with your investment journey. Have a look –
So, besides the apps for stock trading, Koppr can be the best complemental app to enhance your knowledge about the avenue. Download the Koppr app and stay updated with the latest happenings in the market which not only affects stock investments but also other avenues like mutual funds, bonds, gold, etc.
With a diversified portfolio, you need to be an all-rounder investor with knowledge of different avenues and how they are affected by market movements.
Koppr lets you do just that. So download the Koppr app and start stock trading with complete knowledge of the stock market. After all, knowledge is a powerful thing, a factor that can make or break your portfolio.
Different Types of Stocks You Should Know
It is volatile and reacts to various indicators of economic growth such as inflation, GDP, corporate earnings, and more.
Investors invest in the stocks of a company to benefit from the growth of a company. For their investments, they can earn dividends and capital returns.
But to understand the concept of the stock market, you need to, first, understand the concept of shares.
So, let’s explore –
Types of Shares
There are different types of stocks that are traded in the Indian stock market. These shares can be classified on the basis of various parameters.
The parameters of the classification of the stock and the different types of shares under each classification are discussed below:
1. Types of shares on the basis of Stock classes
Stocks classified on the basis of classes are primarily of three kinds. They are as follows:
a). Equity shares
Equity shares are ordinary shares of the company which provide voting rights to the shareholders. These shares are also called common stock. Profits are distributed on equity shares in the form of dividends but the dividend is not guaranteed.
It depends on the profit earned by the company in a financial year. Moreover, in the case of liquidation of the company, equity shareholders are paid at the end.
The assets of the company are used to pay off the creditors and liabilities. Thereafter, preference is given to preference shareholders who are paid off for their investments. Once the preference shareholders are paid off, equity shareholders get the residual assets of the company.
Equity shares suffer considerable volatility and price fluctuations but also have the potential of giving attractive returns too.
b). Preference shares
Preference shares are the shares for which the shareholders receive preferential treatment.
The dividends are paid on such shares at a guaranteed rate before a dividend is declared on equity shares.
The preference share capital is paid before paying the equity share capital at the time of winding up of the company. Preference shares do not carry any voting rights and they cannot participate in the decision-making matters of the company.
However, if the dividend in respect of a class of preference shares has not been declared or paid by the company for a period of two years or more than two years, then such class of preference shareholders will be entitled to vote on the resolutions and shall have voting rights.
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2. Types of shares based on voting rights
Shares might or might not carry voting rights. As such, they can be differentiated on this parameter as well. Here are the types of shares based on voting rights.
a) Differential voting rights shares
Differential voting rights equity shares are the common equity shares that do not have voting rights. These shares are traded in the stock exchange like other regular equity shares but at a discounted value and carry higher dividends in comparison to ordinary equity shares. A company planning to offer differential voting rights equity shares is required to fulfill the eligibility criteria before issuing it.
b) Shares with voting rights
These are equity shares that have full voting rights. Shareholders owning these types of shares can vote on the managerial and executive matters of the company. They can vote at the company’s meetings and play a part in the management of the company.
Check out our blog on How to Value a Stock? – The Definitive Guide.
3. Types of shares on the basis of tradability
Stocks of companies might have different trading features. This, further, differentiates shares. Have a look –
a) Derivative stocks
Derivative stocks are stocks that are offered with an inbuilt derivative option.
These stocks are contracts that derive their value from underlying assets. Derivative stock comes with a ‘call’ or a ‘put’ option.
A call option offers the option of buying back the stock by the company at a certain price on a certain point in time whereas a put option provides the holder to sell the stock to the company at a certain time and a certain price.
b) Hybrid stocks
Hybrid stocks are nothing but preference shares that give you the option to convert them into equity shares after a specified time and if specific conditions are met.
So, when the shares are preference shares, you cannot trade them on the stock exchange.
But, if you opt for conversion and the shares are converted to equity shares, you get the option of trading them on the exchange for a profit.
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4. Types of shares on the basis of market capitalization
Market capitalization refers to companies’ total shareholding. The market capitalization of a company is calculated by multiplying the total number of shares outstanding in the market with the current market price of the stock of the company.
The market capitalization of the company is one of the significant factors to know the financial position of the company.
The Association of Mutual Funds in India prepares a list of companies based on their market capitalization. This list determines which companies are large-cap, which are mid-cap, and which are small-cap.
Then, depending on its classification, the company’s stocks are also classified in the same category. Have a look –
a) Small-cap stock
Small-cap companies are those that rank 251 and above in the market capitalization list issued by AMFI.
These stocks have the potential for good growth in the future and are a good choice for investors who are looking forward to investing their funds for the long term.
Investors who are willing to withstand price volatility and are not particular about current dividends can invest in small-cap stocks and make significant gains.
b) Mid Cap stocks
Midcap stocks are the stocks offered by companies listed between 101 and 250 on AMFI’s list. Such companies are those that are in their growth stages and have the potential to grow in the future.
Mid-cap stocks, thus, provide the benefit of attractive growth potential.
These companies have a good track record of consistent growth. When it comes to volatility, mid-cap stocks are less volatile than small-cap stocks.
c) Large-cap stocks
Large-cap stocks are the stocks of established enterprises which are also known as blue-chip companies with large capital reserves at their disposal. These companies are ranked from 1 to 100 on AMFI’s list.
Large-cap companies have already made a name for themselves in the stock market and they are market leaders.
As such, these companies have the capacity to withstand extreme market conditions without going bankrupt. Large-cap stocks, thus, are stable compared to mid-cap and small-cap stocks.
They offer high dividend income and give moderate returns on your investments.
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5. Types of socks on the basis of risk
Fluctuation in the share price is a determining factor of risk associated with stocks.
The higher the risk, the higher will be return and vice versa.
There are two types of stocks based on risk factors which are discussed as follows:
a) Blue-chip stocks
Companies with stable earnings and fewer liabilities issue blue-chip stocks to their investors. These companies are none other than large-cap companies which are also called blue-chip companies.
Blue-chip stocks offer regular dividend payments to investors and are issued by well-recognized companies having a history of stable financial performance.
These stocks are, thus, comparatively safer investment avenues for the investors who are looking for low risk and good returns.
b) High Beta stocks
High Beta stocks are the stocks that carry higher risk in comparison to blue-chip stocks. The risk is measured through the volatility of the stock price. It is also called beta.
The beta or the risk factor in the stocks can be positive or negative denoting its movement in sync with the volatility of the market or against it.
Higher the beta, the higher will be the risk of the stock, and the higher the returns.
Beta stocks with a beta value of more than one mean that the stock volatility is more than market volatility.
So, if the market delivers a return of 10%, stocks with a beta of more than 1 would deliver a return of more than 10%.
On the other hand, if the market falls by 10%, such stocks would fall by more than 10%.
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6. Types of shares on the basis of price trends
Stocks can also be classified on the basis of the movement of their prices in the market against the earnings of the company.
These stocks are influenced by the earnings of the company. There are two types of stocks based on price trends:
a) Cyclical stocks
Cyclical stocks are the stocks that encounter high fluctuations in their prices with changes in the market and are generally affected, to a great extent, by the economic conditions in the market.
These stocks grow very fast during the boom cycle. These stocks may slow down in changing economy. Stocks offered by automobile companies and airline industries fall under this category.
b) Defensive stocks
Defensive stocks are the stocks which not affected by the economic conditions and as the name suggests, it is used as a defense particularly when the market conditions are slow and poor.
Common examples of defensive stocks are stocks of food and beverages companies.
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7. Types of stocks on the basis of fundamentals
Some investors compare the prices of the shares with various factors such as profit earnings per share to find the intrinsic value of the shares.
These investors believe that the price of the share should be equal to the intrinsic value of the share of the company and based on this intrinsic value share the investors make investment decisions.
Types of shares on the basis of fundamentals are discussed as follows:
a) Undervalued shares
Shares whose price is less than their intrinsic value are referred to as undervalued shares. These shares are quite popular amongst value investors.
It is believed that the prices of the share will increase in the future and the investors may gain when the share price equals or increases its intrinsic value.
b) Overvalued shares
Shares with prices exceeding the intrinsic value are considered overvalued.
These shares are those which are considered valuable among investors. As such, the trading volume is high for such shares.
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8. Types of share on the basis of payment of dividend
The dividend is one of the most significant factors in the share market. They are mainly two types of shares on the basis of payment of dividends. They are as follows:
a) Income stocks
Income stocks pay a higher dividend in comparison to growth stocks. Income stocks show that the company is making a good profit and is stable enough to afford the payment of consistent dividends.
These stocks are named income stocks as the stock pays higher dividends to investors translating it to higher income. These stocks include preferred stocks.
To find the stocks offering higher dividends, investors can use the share dividend yield measure to calculate earnings per share from the investment.
b) Growth stocks
Growth stocks, as the name suggests, are the stocks issued by the companies which re-invest the earnings of the investors enabling the funds to grow faster.
These stocks do not yield higher dividends but offer long-term capital appreciation. The share value increases with the growth rate providing higher returns to the investors.
Growth stocks are a good choice for investors who are looking to invest their funds for the long term and not as a source of income. Risks involved in growth stocks are generally higher.
So, when investing in stocks, assess the type of stock that you are picking. Moreover, here are some stock investing facts that you should know about.
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Facts to know about shares and the share market
- Shares are risky investment avenues that, though have high profit potential, can cause considerable losses too. So, you should have a healthy risk appetite to absorb possible losses. Try and invest with a long-term horizon so that you can reduce the risks of stock trading.
- Have a diversified portfolio of stocks so that you can spread the volatility risks across different sectors of the economy.
- Shares are traded on different types of stock exchanges. The National Stock Exchange and the Bombay Stock Exchange are the two major stock exchanges in India.
- Stocks can be brought through a depository participant by opening a Demat account. Depository participants are intermediaries between an investor and the depository authority.
- There are two types of dividend, interim and final dividend depending on the classification of stocks.
- Shares are freely transferable by the shareholders and can be sold to another party.
- There are two types of shareholders i.e primary shareholders who purchase the stock when the company issues it and secondary shareholders who purchase the stock from the stock exchange in the secondary market.
- Shares are held in electronic mode in a dematerialized form through a depository and a depository participant.
- Companies can issues shares at their face value or at an amount higher than their face value. The difference between the amount of share price and its face value is called share premium.
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Tax treatment of stock trading
Buying and selling of shares, whichever type that you choose to trade in, attracts tax if you make a profit.
Here’s how the tax treatment works –
- If you sell the stock within 12 months of buying it, the profit earned would be called a short-term capital gain. Such a gain would be taxed at 15%.
- If you sell the stock after 12 months of buying it, the profit earned would be called a long-term capital gain. Such a gain would be tax-free up to Rs.1 lakh. However, if the gain exceeds Rs.1 lakh, the excess gain would be taxed at 10%.
- Dividends earned from stocks are taxed at your income tax slab rates.
The bottom line
The stock market is a technical platform where thousands of shares are bought and sold every day. Understand how the market works before you start your stock trading journey.
Also, when picking stocks for your portfolio, do a detailed analysis of the stock to ensure that it is profitable and would give a good bang for your buck.
Also, understand the different types of stocks available in the market and choose those which align with your investment needs and preferences.
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Building your Ideal Stock Portfolio and Making Money
While for budding investors the stock market can prove to be an avenue for quick returns, for seasoned investors, the stock market is an avenue for wealth creation.
In fact, after the pandemic, the popularity of stock trading has intensified further as the numbers indicate.
As per the data furnished by CDSL and NSDL, the two primary depositories in India, active Demat accounts increased by 10.4 million in the year 2020.
Moreover, in the third quarter of 2020, retail ownership of 1500+ companies listed on the NSE jumped by 9%, which was the highest since March 2018.
While the stock market popularity is increasing, its technical aspects should not be ignored. The stock market has the potential of delivering attractive returns but only if you invest in it wisely.
The stock market for beginners might look like a challenging platform and so, there is a need to simplify it.
So, here are some important principles of stock trading for beginners, which should be kept in mind when investing in stocks –
1. Principles of stock trading for beginners
Invest your surplus funds
While investing is good, you need to pay your bills too. So, meet all the necessary expenses to arrive at your disposable income, i.e. the income earned minus the expenses. This disposable income is your savings which you can invest in stocks and other avenues to generate returns. These savings, or surplus, can then be invested in the stock market.
Do not go all in
When you are starting your journey in the world of stock trading, you need to be very careful. Start with baby steps so that you do not expose all your savings to the volatility of the equity market. Moreover, when you start with small steps, you can also learn the ropes without too much to lose.
So, even when you have a considerable disposable income or surplus to invest, don’t go all in. Start with testing the waters of stock trading. Invest in a few stocks at a time.
Do not put all your savings in the stock market. If there is a sudden tumble, you would suffer a considerable loss. Expose a part of your savings to the stock market. The rest of your savings should be allocated to other investment avenues which would give a diversified portfolio.
This would ensure that even if the stock market is in a downturn, other investment avenues deliver returns on your investments.
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Do not borrow to invest
This is the worst mistake that many failed investors have made. When the stock market is giving good returns, many investors want to maximize the growth potential. If they have limited savings at their disposal, they resort to debt to invest. Their belief is simple – they can earn good returns on the borrowed money and make an additional gain.
Does this belief work?
It might not, especially if the stock market turns volatile.
The stock market is highly dynamic. While it might be scaling new heights, a small factor can reverse the trend and make it volatile. Spotting this trend reversal is difficult, and for beginners, it can prove to be impossible.
So, borrowing to make more money is a fatal flaw. Invest only what you can spare from your income. No matter how high the share market is climbing, never get tempted to borrow. You never know when the tables can turn.
Speculate with your money, not with others’ or you might not only suffer a loss but also find yourself in debt when the market tumbles.
Be careful when picking the right stocks
There are more than a thousand stocks trading on the stock exchange. Can you invest in all?
To earn attractive returns from the stock market, you need to choose the right stocks for your portfolio. The choice depends on your investment strategy and the profit-generating potential of the stock. There are three main types of stocks in the share market –
- Large-cap stocks belong to companies that have a high market capitalization. Such companies are established companies that are financially stable.
- Mid-cap stocks belong to companies that have a medium market capitalization. Such companies are in their growth stage or in the stage of establishing themselves in the industry.
- Small-cap stocks belong to small-cap companies, i.e. companies that have just listed on the stock exchange and are on their way to growth.
Large-cap stocks have the most stable profile while small and mid-cap stocks are volatile. As a beginner, you can pick large-cap stocks for lower risks.
Also, when investing in stocks, make a technical and fundamental analysis of the company. In other words, check the stock’s past trends, its previous highs, and lows, growth, etc.
Moreover, check if the company has strong management, has the potential to grow or not, has financial stability, etc. This assessment would help you know which stocks might generate a profit on your investment.
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Do not follow the herd mentality
What is right for your friend, colleague or neighbor might not be right for you. You need to make investment decisions based on your investment strategy, financial goals, risk profile, etc.
You should not be driven by herd mentality. Even if the herd is following a particular stock, assess the stock first before you invest it. Don’t invest because others have done so.
You need to make sure that the stock that you pick matches your investment needs, not others’.
Stock investing is not a magic wand, spin it and you get rich. It needs patience. If a stock is doing well, don’t be in a hurry to sell it off and make a profit. It can deliver higher returns if you allow it to grow.
Similarly, if the market suddenly turns volatile, don’t panic. The stock market experiences cycles of volatility but if you are patient, the market rebounds and recovers. Take the pandemic for instance.
While the market became highly volatile when the pandemic struck, it has doubled up now that the pandemic’s scare is subsiding. You need to be patient if you are investing in the stock market because it is a roller coaster ride with many ups and downs. If you can be patient in challenging times, you would come out the other side a winner.
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Have a long-term vision
Though the stock market can deliver quick returns, time can multiply the returns further. Moreover, if the market becomes bearish, you need to give it time to recoup the losses and enter the bullish trend. Stock market investing is not a short-term game. If you really want to really earn a return from stock investing, give it time and see your portfolio grow exponentially.
Diversification is the golden rule of investing. In simple terms, diversification means allocating your investments into different avenues. While portfolio diversification means investing in different types of assets, when it comes to diversification in the stock market, it is all about the types of stocks that you pick.
To diversify in the stock market, invest in large-cap, mid-cap as well as small-cap stocks. Moreover, choose stocks of companies in different industries like IT, metal, pharmaceutical, FMCG, etc. Do not invest in only one company.
When you diversify, the volatility risk of one type of stock is offset by another. Not all stocks might fall. Some might fall while some might rise. The returns earned from rising stocks, thus, balances out the loss suffered from falling ones.
For instance, during the pandemic, stocks across most sectors fell but the pharma and FMCG sector stocks grew due to high demand.
So, when you have a diversified portfolio, you can mitigate the volatility risks of stock investing by investing in different types of stocks.
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Review your portfolio, regularly
Lastly, monitor and track your portfolio on a regular basis. This is important for two reasons. One, you can see which stocks are performing well and have the potential to grow so that you can make additional investments in them.
Two, you can keep a tab on non-performing stocks and weed them out of your portfolio so that you don’t incur an opportunity cost by staying invested in them.
So, track your portfolio regularly to watch how your investment is performing. It would also give you an idea of the corpus that has been created so that you can plan your financial goals.
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2. How to start trading in stocks?
To start trading in stocks, you need three things –
- A Demat account
- A trading account
- Bank savings account linked to the trading account
The Demat and trading accounts are opened with a depository participant authorized by SEBI (Securities and Exchange Board of India). A trading account is linked with your bank savings account.
Any buying or selling in shares is done through the trading account. The Demat account is like a storehouse wherein the shares that you buy are stored in a dematerialized (electronic) format.
Also, you need a broker through whom you can buy or sell shares. As per SEBI’s rules share trading in India can be done only through brokers.
When it comes to stockbrokers, there are two main types of brokers that you can choose from –
Full-service brokers are those who charge a fee for their services. Moreover, they might also charge a brokerage on each trade that you place. For the fee charged, however, full-service brokers provide their expert recommendations on the stocks that you should pick.
They also help you create a diversified portfolio and advise you on stock investing by picking the right stocks on your behalf. For beginners, full-service brokers can prove to be a good choice for expert guidance on stock investing.
Discount brokers have become the rage in recent times as they charge minimal or zero brokerage on your trades. They only charge a low fee when you join them and after that, no brokerage is charged on equity trading. However, discount brokers might not give you expert guidance on picking the right stocks and help you with your portfolio.
3 Things To Keep in Mind While Investing in Stock Market
3. Tax implication of stock trading
Before you start stock trading, you need to understand its tax implication as well.
Stocks are equity instruments and so, they attract equity taxation. If you sell off a share within 12 months of buying it, any returns earned from the transaction would be called a short-term capital gain.
Such a gain would be taxed at 15%. On the other hand, if you sell off a share after 12 months of buying it, the returns earned from the transaction would be called a long-term capital gain.
Such a gain would be tax-free up to Rs.1 lakh. However, if your gain exceeds Rs.1 lakh, the excess would be taxed in your hands at 10%.
For example, say you bought 10,000 shares of ABC Limited on 1st January 2021 at Rs.50/share. In June 2021, you sell off 6000 shares at Rs.70/share. Thereafter, on 2nd February 2022, you sell off the remaining 4000 shares at Rs.80/share. The tax implication of these trades would be as follows –
- For June 2021, the period of holding is less than 12 months. The gains earned would be Rs.20/share. Total gains would be Rs.120,000 (6000*20) which would be taxed at 15%. So, on the June 2021 trade, you would have to pay a tax of Rs.18,000.
- For February 2021, the holding period is more than 12 months. The gains would, thus, be called long-term capital gains. The gain would be Rs.30/share which would amount to Rs.120,000 (4000*30). Gains up to Rs.1 lakh would be tax-free. The excess gain of Rs.20,000 would be taxed at 10% and the tax liability would come to Rs.2000.
Tip – Long-term stock holding is also beneficial from the tax point of view. It gives you the benefit of long-term capital gains tax wherein gains up to Rs.1 lakh can be claimed as tax-free income. As can be seen in the above example, though the gain is the same in both cases, the tax liability is lower in the case of long-term capital gains compared to the short term.
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4. Stock trading for students and housewives
When it comes to stock trading, there is no restriction on who can trade. You just need to be 18 years and above and have a valid Demat account, trading account and bank savings account to start trading in stocks.
If you are a housewife or a student, you might not have a regular source of income. If you have a part-time hustle or if you save regularly, you can start trading in the stock market.
However, be careful when picking stocks. Choose stocks after understanding their profit potential. Also, be disciplined in your investing habits. Do not panic when the stock market suffers volatility.
Be patient and wait for the volatility to pass. If you exercise patience, you can end up multiplying your investments with time.
Also, students and housewives should invest only what they can spare. Do not invest all your savings into stocks. Keep some aside for other avenues too since the stock market is a risky place. If there is a downswing, you might lose your savings and be in the red, a situation that is best avoided.
5. Stock trading for working professionals
For working professionals, stock trading can be a good way to accumulate wealth for future financial goals. When you are young and you have a source of income, you can set aside a part of your income for stock trading, every month.
Invest small amounts every month and slowly create a diversified portfolio. Since you are young, you can afford equity exposure and create wealth over a long-term horizon.
Follow the aforementioned principles of stock trading whether you are a beginner or a seasoned stock investor. Do not speculate too much but invest in other avenues as well to create a diversified portfolio that does not depend only on the stock market for wealth creation.
6. Making money from stock trading
Stock trading is an avenue that is seen by many as a way to make money. Well, given the recent rally in the stock market, both BSE and NSE, the profit potential cannot be ignored. However, you should also remember the risks involved in stock trading.
When trading in stocks, here are a few tips to make money –
- Choose established stocks that can weather out small volatilities
- Keep an eye out for the quarterly reports of companies to know which company is earning profits and the future prospects
- Keep yourself updated about the latest news and happenings of the stock market. There is something new every day and you need to be updated about the latest developments to ensure that your portfolio remains relevant even in changing markets. Koppr helps you stay abreast of all the latest stock market news. Install the Koppr app on your phone and check the daily happenings.
- Learn the technicalities of the stock market to learn how to spot opportunities and make money. Here too, Koppr can prove to be helpful. There are various learning resources on the Koppr app which can help you learn the nitty-gritty of the stock market
- Ride out market volatilities and invest with a long-term horizon
The bottom line
Trading on the stock exchange is simple. However, before you start your journey, learn the basic principles of stock trading. Know how the stock market works so that you can use it to your advantage to make money. Learn the tips and tricks of stock trading and become a smart investor.
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