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Things You Must Know Before Entering The Stock Market In India

Stock Market In India

December 27th, 2017   |   Updated on April 6th, 2018

Once considered the mainstay for wealthy to invest, stock markets in India are now increasingly becoming popular among the middle and upper income working class of this country. This is because stock markets provide an excellent opportunity to build wealth quickly.

However, playing on stock markets is no cakewalk: it requires good knowledge about how the country’s two share bazaars: Bombay Stock Exchange and National Stock Exchange and factors that can impact your investments.

Here are some basics you need to know before entering the stock market in India.

Who Can Invest?

Any resident citizen of India, Non Resident Indian (NRI) and Overseas Citizen of India can invest at BSE and NSE. Investing in stocks can be done online or through bank, Asset Management Companies (AMCs) and other Non Banking Financial Companies (NBFCs).

For investing in Indian stocks, you need to complete the mandatory Know Your Customer (KYC) formalities. These can be completed online through agencies designated by the Indian government, through your preferred bank in India, AMC or NBFC.

In India, you can complete formalities in two different methods: e-KYC meaning you can complete the process online by using your Aadhar card and PAN. However, the mobile number and PAN have to be linked. Additionally, you will also require the mobile number and email given at the time of Aadhar card enrollment to receive the One Time Passwords (OTP).

Manual KYC is easier and can be done by carrying the below listed documents to a bank or NBFC with whom you wish to open Demat and Trading accounts.

KYC Documents

  • Resident Indians: Aadhar Card, Permanent Account Number, Proof of Current Address. Alternatively, you can also use any other proof of identity and proof of address issued by Central or state governments such as valid passport and driving license among others.
  • Non Resident Indians (NRIs) who do not hold Aadhar or PAN can do KYC using their valid passports.
  • Overseas Citizens of India: OCIs who do not hold Aadhar or PAN can do KYC using their foreign passport and a copy of their OCI. The OCI is a sticker pasted on passport.

NOTE: NRIs and OCIs can also procure an Aadhar card and PAN subject to various conditions stipulated by the Indian government.

Main Requirements

If you are a Beginner and you are Investing in Share Markets for the first time then you will require::

  • Savings Account or Current Account with any Indian bank. NRIs and OCIs require Non Resident External (NRE) or Non Resident Ordinary (NRO) account at any Indian bank.
  • Dematerialized Account (Demat): Since shares can now be held only electronically, you need a Demat Account with a bank or NBFC. A Demat Account will reflect the name of the company you have invested in and number of shares you hold.
  • Trading Account: Should you wish to trade in Indian stocks actively, you need a Trading Account from any Indian bank or NBFC.
  • Stockbroker: Indian laws do not permit an individual to trade in stocks directly on BSE and NSE. Hence, you require services of a stockbroker. This facility is offered by both- banks and NBFCs.

Types of Stockbrokers

There are two types of stock brokers in India. You can select the one that best suits your needs.

Full Service Brokers (FSB): They offer a complete range of stock trading facilities including Demat and Trading accounts, advise on investing and a personal sub-broker who can trade in stocks on your behalf. They also provide online stock trading platforms, should you wish to do it yourself. FSBs charge a reasonable fee for their services based on various parameters such as number of stocks traded, profits and others.

Discount Brokers (DBs): These are stock brokers who offer basic services such as a Demat and Trading Account. They charge between Rs.10 and Rs.20 for every successful transaction such as buying and selling stocks, regardless of its value. Generally, DBs do not provide personalized sub-brokers and offer basic advice for investors.

Investing in Indian Stocks

There are two methods of investing in Indian stocks.

Initial Public Offering (IPO): This is the cheapest way to acquire stocks of any company. IPOs are floated by companies when they wish to raise funds from the general public. They decide to sell shares of the company for a fixed price plus some premium. An IPO is advertized through news media, banks and NBFCs. You can bid for a specific number of shares through your Demat Account. You can pay for these shares once you get the allotment.

Secondary Market: Once an IPO is over, stocks get ready for trading on the BSE and NSE. The price will be higher than an IPO. Yet, secondary markets give you the opportunity to buy stocks of your favorite companies. You can retain these shares in your Demat Account or buy and sell them to make daily profits through a Trading Account. However, this trade requires excellent knowledge about share markets and how stocks move.

Trading Patterns

Once you are equipped with a Demat and Trading Account, you can indulge in Intraday Trading or Interday Trading on BSE, NSE or both. Both systems are complementary to one-another.

Intraday Trading: This mean you buy, sell or hold stocks and invest in futures during trading hours of the BSE and NSE. This system is generally used for aggressive stock trading to earn daily profits.

Interday Trading: Here, you hold stocks you buy on a particular day for trading the next day, if the prices are right. You can also hold stocks and futures for a longer period, till the expiry date stipulated by Securities & Exchange Board of India (SEBI) which governs the two stock markets.

Generally, you will require a blend of both, Interday and Intraday Trading to make money on the stock market, if you wish to trade daily.
You can trade daily through a sub-broker you assign and give Power of Attorney to access your Demat and Trading accounts.

In Conclusion

Remember, making money from stock markets is excellent provided you have sufficient knowledge on workings of the BSE and NSE. Also, you can start with a moderate investment of Rs.25,000 and upwards.

Nowadays, excellent training courses for learning ropes, tricks and tweaks to choose best stocks for investment and to earn good returns are easily available in your city. Generally, these courses consist of two modules- Basic and Advanced.

Additionally, some trainers also offer a paid service that offers market analysis and advice on when to invest and sell stocks to ensure maximum profits. They also offer a helpline where you can get advice on telephone. You can attend any of these courses to build wealth through stock markets.