How to Start Investing in the Stock Market in India? A Beginner’s Guide In 2020

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How to Start Investing in Stock Market in Indian

If you want to start generating some passive income from your extra saved money, the stock market is the best and easily accessible way to do it.

However, the problem is that plenty of people don’t know how to start investing in the stock market in India.

You are also one of that plenty of people then 1st of all congratulation you want to know about the stock market as it is a well-known investment product around the globe but again the same question comes to mind how to start investing in share market and where to start it.

Then, do not worry that your search will end today.

So, stay tuned till the end, because in this post I will brief all the factors that are very necessary to start investing in the stock market in India during this horrible 2020 and this is the ultimate guide for a beginner who just wants to start.

Demat and trading account is 1st and for the most requirements to start investing in the Indian stock market.

It is like if you want to do a fixed deposit in the bank, saving accounts is very essential for that same way having a Demat and trading account is very essential to invest in the stock market.

So let’s get start…..

Basic Requirements to Start Investing in the Stock Market in India

(1) Tools to Invest in Stock Market in India

Demat account, trading account, and bank account are the most important tools to start investing in the stock market particularly in India.

how to start investing in stock market in India_Demat, trading and bank account
In the above image, you can find the connection between Demat, trading, and bank account and how it works.
  • Trading Account

Trading account is the mediator between demat and bank account.

This account is the gateway to buy and sell a stock. Without having a trading account you are not able to perform buy and sell transactions in the stock market.

After buying any stock it will credit to your Demat account and after selling any stock it will withdraw from your Demat account.

  • Demat Account

Demat account is connected with trading account.

This account is worked as a locker for your stocks or shares because the purchased stock will remain safe in this Demat account in electronic form. Demat account handle by NSDL or CDSL.

  • Bank Account

Bank account is connected with your trading account.

If you want to buy any stock or share you have to transfer money from your bank account to the trading account.

On the other hand, whenever you sell shares whatever amount you receive it will 1st credit to your trading account and you have to put the pay-out request to transfer that money from trading account to bank account.

Though, without having all three (Demat, trading & bank account) you are not able to start investing in the stock market in India.

(2) Documents to Open Demat and Trading Account

To open Demat and trading account following are the mandatory documents:

  • Pan Card: It is used as your identity proof for opening a Demat and trading account.
  • Aadhar Card: In most of the cases it is used as the address proof.
  • Cancel Cheque: This document is used to link your bank account with your trading account. It’s mandatory to have your name on the cheque leaf match with your identity proof.

Note: If you don’t have the name on cheque leaf you can use the 1st page of your bank passbook and last transaction entry page. Also, an online bank statement with details like IFSC Code, MICR Code, Account No, Name, and Address of account holder is valid.

  • Passport size photo: It is required for identity of account holder.

Mobile number and Email id both are as important as your necessary documents.  Through mobile number and email id, you are able to get your trade confirmation message and electronic contract note (trade bill).

You are free to open Demat & trading account with a joint holder and documents are the same which is necessary for 1st holder.

There is also the option of a nominee to add in that Demat and trading account.

To add nominee you have to provide following documents for nominee:

  • Pan Card
  • Aadhar Card
  • Photo

From start to till now you are aware of tools and documents required to open Demat and trading account to start investing in the stock market in India.

Now the question is

(3) Where You Can Go to Open Demat & Trading Account ??

Here brokers or depository participants come in the picture because you are directly not going to stock exchange (NSE or BSE)  to open Demat and trading account.

SEBI has given these rights to intermediates like brokers and sub-broker to open Demat and trading accounts.

So, if you want to start investing in the stock market in India, it’s necessary for you to stay in touch with your broker on regular basis.

You have to provide the above mention documents to your broker or sub-broker and fill the account opening form provided by them.

Now one more key information I am sharing with you that is, actually your Demat account is open with NSDL or CDSL which both are depository in India registered under SEBI working as a locker for shares and security of investor.

Trading account is open with brokers or sub-brokers like SBI Cap Security, ICICI direct, ShareKhan, Motilal Oswal, ZERODHA, upstox, and many more who provide a trading platform to trader and investor.

All brokers and sub-brokers are registered under NSDL or CDSL so, indirectly your Demat account opens with NSDL or CDSL. You don’t have to go to NSDL or CDSL to open Demat account.

I think this is confusing for you so here is the diagram which is easy to understand.

how to start investing in stock market in India_Relationship between SEBI, NSDL,CDSL, Broker and Customer
Above image give easy understanding of working connection between SEBI, NSDL, CDSL, Brokers & Customer

Note: All brokers and sub-brokers are also known as Depository Participant (DP Participant). Because they are registered under depository (NSDL/CDSL). Every broker are free to register under both depository

(4) Type of Brokers in Indian Stock Market

If you want to start investing in the stock market in India, you have to face two types of brokers. you can choose any one of them or both.

  • Regular Brokers (Full services Brokers)

As per the name, regular brokers provide services like trading platforms online and offline both, research and advisory facilities for investing in the stock market.

A full-time broker provides the facility of trading in commodity and currency, mutual funds, IPOs, Bonds, and Insurance.

For all this facility they charge very high brokerage and commission on every transaction.

Also Read: 6 Different Charges You Pay on Stock Trading

Examples of regular brokers are SBI Cap Securities, Motilal Oswal, ICICI direct, ShareKhan, HDFC Security, and many more.

  • Discounted Brokers (Budget Brokers)

These kinds of brokers only provide online high speed and accurate platform to perform buying and selling transaction to traders and investors.

Nowadays discounted brokers have started to provide Mutual funds and IPO platforms to investors but it’s totally online. They are not providing any research and advisory facility.

For the limited facility, they charge very low brokerage and commission as compared to regular brokers.

Examples of discounted brokers are ZERODHA, upstox, 5Paisa, SAMCO, SAS online, etc.

So, discounted brokers are well-wishers for those who have strong knowledge of fundamental and technical analysis of stock market.

On the other hand full time, brokers are advisable for new bees that are just going to start investing in the stock market in India.

After verifying all necessary documents your broker took 2 to 3 working days to open your Demat and trading account.

Your broker sends you a welcome letter via email along with your Trading and Demat code.

Trading code is generated by your broker and Demat code is generated by your depository (NSDL/CDSL).

Also, your broker sends a physical welcome letter to your register address along with a delivery instruction slip book.

That delivery instruction slip book is a very important document. So whenever you got it please store it at a very safe and secure place.

For your knowledge: It is fixed that Demat code contains 16 digits. If this Demat number starts with IN, it means your Demat account opened under NSDL and if you find your 16 digit Demat number start with numeric, it means your Demat account opened under CDSL.

Till now we assume that you have opened your Demat and trading account and find the best platform to start your journey in investing in the stock market in India.

Now you have all that equipment to do your 1st trade in the Indian stock market. But before diving in it’s necessary to have basic knowledge about the stock market.

Also Read: 30+ Basic & Important Stock Market Terms For Every Beginner

Points to Take Care Before Start Investing in the Stock Market in India

(1) Read Investment Related Books

If you want to start investing in the stock market in India, it’s necessary to gain knowledge before starting you journey.

Books are the most important source of information to learn about the fundamental of the stock market.

You can find the right investment strategy for your goal and needs. Investment-related books give you knowledge regarding how to avoid higher risk, learn how the stock market works, financial literacy, and many more.

The following are the books that must help to you during your investment journey. You can purchase a soft copy by clicking on bellow links.

How to start investing in stock market in India_Investment books

The Intelligent Investor  by Benjamin Graham

One Up on the Wall Street by Peter Lynch

Rich Dad Poor Dad by Robert Kiyosaki

Stocks to Riches  by Parag Parikh

The warren Buffet Way by Robert Hagstrom

Here I have share very small list of books but you can start with this list.

(2) Define Your Investment Goal

Most people start investing in the stock market but they don’t have any road map or goal.

Due to that myriad of people end up with loss and blame on the stock market like “Stock Market is just gambling”, “It’s not for common people” and so on.

But without any goal, no one able to reach their destination, and the same rule is followed in the stock market also.

May be your goals like as mention bellow.

  • Do you want to grow your hard earn money to beat inflation?
  • Do you want to generate grow your equity by earning dividends and bonuses?
  • Do you want to earn money for your child’s education or marriage?
  • Do you invest for your retirement?

There is a different strategy & time frame for a different goal. So, you have to stay invested according to your goal until not fulfills.

(3) Start With Small

As a beginner, you are going to start investing in the stock market in India. So, It’s important to start with small steps.

As a beginner do not put all your hard earn money in the stock market initially. At this stage, learning is more important than earning for you.

So, try with a small amount and learn some practical market behavior. You can even start with 500 Rs.

(4) Invest in Blue-chip & Large-cap Companies

Blue-chip & Large-cap companies are those who have strong fundamentals, consistent growth performance, low volatility, high market capital & value generator. These companies are the backbone of any equity market.

Due to that, It’s advisable for a beginner to start to invest in a blue-chip & Large-cap Company initially because here very few chances to lose money.

As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.

TCS, HDFC, Infosys, SBI, HUL are the example of Blue-chip & Large-cap stocks in Indian Stock Market.

(5) Stay Invested & Stay Consistent

Initially, I started in the market with some amount and my portfolio running positive. So, I book my profit and end that position with a small profit but I missed long rally from that position.

That experience gives me a lesson that in the long run, you must generate a handsome profit from the stock market.

From that day I became a long term investor in the stock market and history also reveal the same as you can find a difference in the bellow picture.

How start investing in Indian stock market_Market graph
Stock market chart difference between short term and long term

Also, to become a consistent investor, I am not investing all money at once but invest in every dip and on different time intervals with a small amount. Due to that, I am able to generate capital appreciation.

So, If you are going to start investing in the stock market in India, you have to keep in mind this both rule.

(6) Update Your Self on Regular Basis

Global news, economic polices, Budget, Company earnings, Elections, Relation between different countries, and many more factor affects very easily to the stock market.

So, It is very essential to update your self with the latest news and changes. To do that you have to visit different economic newspapers, finance & stock market-related websites on a regular basis.

Here I am providing some trusted links that you can follow to update your self with the latest happening in the stock market and finance industry.

Above mention, the list is very small though initially enough to stay updated your self with the latest happenings in the stock market.

I am ending up this post here… as this is the beginner-friendly article to start investing in the stock market in India.

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Frequently Ask Question (FAQ)

What is the requirement to start investing in the stock market in India?

To start investing in the stock market its necessary to have Demat, trading, and bank account.

What is the minimum amount required to start investing in the stock market in India?

You can start investing in stock market with minimum 100 Rs. As a beginner its advisable to start with minimum amount.

Where can I open my demat & trading account?

You can open you demat & trading account with any register broker or sub-broker under SEBI. Also there are so many online and offline platforms available to open demat & trading account.

What are the key points for beginner to start investing in stock market?

(1) Read Investment Related Books & Article
(2) Define Your Investment Goal
(3) Start With Small Amount
(4) Invest in Blue-chip & Large-cap Companies
(5) Stay Invested & Stay Consistent
(6) Update Your Self on Regular Basis With Market

What are the documents required to open demat & trading account?

The following documents are required to open Demat & trading account.
(1) Pan Card (Use as identity proof)
(2) Aadhar Card (Use as address proof)
(3) Cancel Cheque / Bank Passbook (Use to link bank account with demat & trading account)
(4) Passport size Photo (Use as Identity)

Now we want to hear from you:

You are free to give comments regarding this article in the below comment section. Your views are very valuable to us.

Parth Patel

Hii, I am Parth Patel, an AMFI registered Individual Finance Advisor (IFA) and IT professional by education. I have more than 4 years experience in stock broking industry and passionate to learn about stock market and mutual funds. I will share my knowledge of stock market, mutual fund, insurance as well as online money making tips and tricks via this platform.

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