Personal Finance

Stock Investment for Beginners

January 18, 2021

Stock Investment for Beginners

As a first-time investor, you may have multiple queries about stock markets and how to get started with investing.

Here is a handbook for you to help navigate through markets and understand how the process works and what you should do in order to be safe with investing and increase the value of investing at the same time.

First and foremost, you must open a Demat account and complete KYC. Demat account is where all the shares that you buy are stored in electronic format. In order to buy and sell securities or stocks, you need to have a Demat account.

Here are steps to open a Demat account on Paytm Money

Verify your pan card details
Add address proof (Aadhar Card) details
Submit your bank details
Give an e-signature to AOF (account opening form)
After submitting all the necessary details, Paytm Money’s KYC team will take care of further proceedings of opening a Demat account.

Once the KYC process is done and your Demat account is in place, you can officially start investing in equities.

As a first time investor, there are a few things you need to keep in mind.

Clear Investment Goals

Investment goals need to be clear along with a time horizon, this makes it easier to choose companies or sectors.

For example, if you want to invest for a year’s horizon then you can choose sectors that are booming and yielding good profits. But if your investment horizon is around five to ten years then you can research the sectors that have the potential to grow over that time period.

The goal of investing needs to be clear, i.e if the investment is for retirement then you can look at higher dividend-yielding companies, for example, Oil PSUs.

Do your research

It is important to research the background of companies that you plan to invest in, this research will help you in understanding how the company earns its revenue, what are factors that can hamper or boost its sales, and so on.

The stock market-related news and information is sensitive, and any negative or positive news about the company or economy immediately affects the market.

As an investor, you need to be updated about the latest piece of information about the stocks that you have invested in. You can set alerts for the same.

Prefer Blue-Chip stocks

Initially, as an investor, you may look at blue-chip (large market capitalization) stocks like ITC, Infosys, HUL, and so on.

Companies that are part of Nifty 50 (benchmark index) or Nifty Next 50 can be part of your portfolio initially. These 50 companies are chosen by experts and represent India as a country, therefore they select 50 stocks that can represent India’s growth.

Therefore if you limit yourself to investing in those companies till you fully understand the mechanism.

Start Small & invest from surplus not savings

Instead of investing a huge sum of money, you should start with a small amount and keep a check on growth and improve your understanding of equities over a period of time.

Invest with the extra funds that you have and not from your emergency reserves, expecting the amount to grow dramatically.

Understand stock market basics

Another important factor that you must take into consideration is getting fully equipped with the basics of stock markets, how it works, what is the lingo that is typically used, and what it means.

This will give you an upper hand and you will also start to understand the market which will, in turn, help you in becoming an intelligent investor.

Diversify

Your financial portfolio needs to be diversified across asset classes like mutual funds, equities, fixed deposits, and so on. Diversification helps because we all invest in our future and nobody can predict what is in store for us, therefore, we should have all kinds of assets – liquid (stocks, some mutual funds) and non-liquid (property, gold, fixed deposits).

Even in a stock portfolio, you may look at diversifying across sectors and companies, so if the pharma sector isn’t performing well and you need to cash in investment you can go for IT. But if all your investment is in the pharma sector then that would be difficult.

Be Patient

As an investor, you should understand that the stock market fluctuates on a daily basis, but you need to be patient and stay focused on the long term returns.

Patience is the key to success when you invest in stocks, let the money work for you, and you can just patiently sit back and enjoy the fruits of investment at the right time.

Avoid Buying on Advice

Many times your friends, colleagues, or relatives will try to advise you about stocks and investments. They will also insist on buying stocks of a particular company or sector.

Don’t just take their word for it, they can be correct or wrong. Research is the key in such situations, you can do your own research about those companies and then decide whether to invest in those stocks.

Keep a Watch on Markets

Once you have invested, don’t just sit back and forget about the investment. Track your investments and markets on a daily basis. That helps you in understanding when is the right time to exit.

Be well aware of the happenings in and around the company or sector that you have invested in and also about the overall economy.

Conclusion

For starters, invest in bluechip stocks from benchmark indices (Nifty 50, Sensex) which will give you assured returns over a long period of time. Also, keep researching how the market functions and how your investments are turning out to be. Read about the lingos used in markets and try to understand it.