Many of us would have heard a lot of stuff on shares and stocks in the news channels. Nifty down and nifty raised 200 points, Bulls and Bears and what not! And most of us don’t have a clue what they are babbling about. All we know about stock market is our parents warning: “It is a risky business, so don’t even think about it”. Well, the question is, name one business that isn’t risky. Can you? In life, you have to take risk at some point if you have big things in your mind. And by risk, we doesn’t mean fighting in a ring for money or doing bike stunts and stuff like that. We are talking about risks like opening an app and clicking some buttons. Can you do that?
“I want to be Rich” is a common aspiration in every human being we know. If not that straight forward, some would put it like “I just want a better life” aka Own house, own car, foreign tours etc. But if you boil it down, it’s again the same thing. Getting Rich. It’s a simple and bitter fact that money drives this world. Money values things and people value money. Anything that comes for free, wouldn’t stay for long. For instance, Love. Just Kidding. So, how are you going to get all that money which will fulfill your dreams?
Your job? It’s just sufficient enough to survive and grow your family. Savings? If you are planning on savings in the form of FD (Fixed Deposits) or RD (Recurring Deposits), you would get 8% interest at max per annum (from any bank). You can’t call yourself Rich with that money. Business? Or you can start a good business after some research, but for that you have to do some field work too. May be you have to run it yourself too. Now, let us not talk about Drug mafia or smuggling aspects to become rich. For a moment, let us learn about Stock Market and see how reasonable it is to start investing in.
Never Depend on Single Income – Warren Buffet, World’s 3rd richest man
How to become rich in Stock Market?
How do you become rich in any business? You buy a product at low price and you sell it at a higher price. The difference is what we call profit. Right? Stock Market is nothing different from a regular business. But here, you don’t have to be physically present to buy or sell your products. And in market terms, we call these products as Shares or Stocks. So, you buy a Share at some low price and sell it at a higher price later on. Whatever the difference is your profit!
So, are you saying we can get rich by this?
Yes, absolutely. And the best thing is all of this you can do sitting at home using your smart phone!
Let’s say today you bought a share at 10 rupees. After 3 months, the share value went up to 20 rupees. You sell it and you will have a profit of 10 rupees.
Now say, you bought 1000 such shares today. So, after 3 months, you will have a profit of 1000 x 10 = 10000 rupees profit. You invested 10000 and you got 10000. 100% profit in 3 months time.
And do this multiple times to get multiple profits. This is how you make money in Stock Market.
Wait, I still didn’t get it. What are shares actually?
You want to eat a pizza. You checked your pockets and found just 20 rupees. The pizza costs 100 rupees. So you call up your 4 friends and say “Let’s eat Pizza today”. They will come and give 20 rupees each. Now, you have 100 rupees and you bought the pizza. You slice it into 5 pieces and gave one to each of them. What is this called? Sharing!
Now, imagine a company. It wants to invest in something which requires 100 Cr (capital). The company have only 50 Cr. So, the rest 50 Cr, it will split into small pieces of 50 rupees each. These pieces are called Shares! Now, the company will ask us to buy these shares.
How a company does that?
IPO – Initial Public Offering. IPO is a process of offering the public to invest in a company. The general people like you and us, can buy those shares of 50 rupees each and eventually you become a shareholder (virtually you own a small chunk of their company). The more shares you buy, the more you own. This way the company will collect 100 Cr and does its business. And the profit the company makes, will be shared between all its shareholders and as the company keeps on increasing, its capital investment increases, thus increasing its shareholders. And ultimately, the individual share price increases. You bought it at 50 rupees. Now, it could be 100 rupees. So, you made profit!
Ah, I’m confused. What are Stocks and What are Shares?
In simple words, a collection of Shares of different companies is called Stock.
Ok, what if the company doesn’t make profit?
Good question. No business is bound to be profitable always. There will be ups and downs. So, if the company you invested in can or cannot make profit in the business. In such cases, obviously the share value falls. It might come down to 10 rupees. So, a big loss if you have invested big! This is why our parents warned us. So, how come this be a profitable business?
That is why we should invest only in companies that don’t make loss. “Oh! So, is there a list of such companies in the internet?” No. You have to do the research and find it out yourself by studying the companies’ business, strategies, performances, its competitors in the market, it’s buddies and a lot more and then decide whether to invest in it or not. “You said it’s simple. Now, where will I get all this information about a company?” In today’s world, there is an app for every problem!
MoneyControl is the best place to know anything and everything about Stock Market. It is a dedicated service on market which updates real time values of shares and provides all sorts of information regarding to a company. So, you just have to read the app thoroughly and accordingly choose your shares. That’s it!
Diversification of investments:
Don’t keep all eggs in same basket – Warren Buffet, yeah, the same guy
The thumb rule is ‘Never keep investing in just one company’. Obviously, it’s high risk if you invested all your money in one company and that company had severe loss. So, always Diversify your investment. Pick up the good and standard shares. But, the problem with standard shares is they are literally ‘standard’. They don’t give quick profits as expected and stagnate for years at same value. That is why people choose Penny Stocks. These have high variation in values from time to time. So, they have more probability of giving profits. Hence, put some money here and some money there, so that even if one (penny) goes down the others (standard) will save you. This will take some time for you to completely understand.
So, I’m interested. How to begin investing in Stock Market?
Open a savings account in any bank.
Most of us would already have a bank account. Even if you don’t have, it’s never too late. Go to the nearest bank and open a savings account. The bank will ask for certain details and proofs for sure. There will be some account opening charges and minimum balance requirements from bank to bank. It would be better, at this point; you also apply for internet and mobile banking which might come handy in future.
Open a Demat account along with it.
If you are opening a new bank savings account, opt for Demat account along with it. So, later you don’t have to go again and keep submitting more proofs. But, if you are someone who already have a savings account but not demat, you have to go and apply for it separately. It’s advisable to choose Demat account in the same bank as your savings account. So that there will be no problems while linking both of the accounts and to avoid any extra charges (if any). If you are a corporate employee, you would get all of these free of cost at one time. But if you are normal citizen, you have to pay charges for opening a Demat account too.
Link both the accounts.
Once you have both Savings and Demat account, you have to link them both. Usually, the bank would do the linking by default. But, just to make sure, confirm whether both your accounts are linked or not. If not, ask them to link. Remember, if they are not linked you cannot trade (buy or sell shares).
Allocate money from savings account to Demat account.
Your Demat account is just like those online wallets. They are virtual with no real money. You add money from your bank account to Paytm wallet to purchase something. Similarly, for trading, you have to add money from your Savings account to Demat account. This is called Allocation of Funds.
Buy/Sell shares in Stock Market.
Once you have allocated funds, you are good to do trading. Trading is nothing but buying or selling shares. You will now buy a share of your choice (only after proper investigation and research). Then, you place the order requesting certain number of shares at certain price value. Now, the order can either get executed or cancelled depending on availability or the bargain you made. If it gets cancelled, your money will be refunded to Demat account. If it gets executed, you will get lots of messages saying “Your Order is confirmed from BSE”. Similarly, for selling shares you have to place an order of so and so shares at this price value.
De-allocate money from Demat account into your savings account.
Now you sold some shares for XXXXX of profit. This amount of money is reflecting in your demat account. But, you cannot withdraw it soon. First, you have to deallocate the money from demat account. Just like you added money, you now have to subtract it from demat account and transfer it into savings account. All this can be done by one simple button in the app. Now, you can withdraw your profit and walk like a successful Stock Market guy.
What about Stock brokers and brokerage?
Yeah, they were always there to eat up our profits! But with the technology upfront, the real brokers didn’t exist anymore. The banks in which you take a demat account, will act as the broker. You don’t have to meet him or exchange documents for every trade you make, like the old times. The bank itself will take care of it all. Every time you buy or sell, you will be charged with some brokerage and minimal amount of other taxes. The percentage of this brokerage depends on which company shares, how many shares, and at what value are you buying them. Apart from these charges, an annual fee will be charged for maintenance of demat account (400 – 500 rupees a year).
So far so nice, what’s next?
We know, most of you are still not convinced about Stock market and it’s benefits even after reading this article. Because, the idea of fear is planted deep in our minds by various sources. In those times, they used to tell ghost stories to distract us from treasures inside. We forgot the treasures but remembered the ghosts! So forget everything you heard and believe in your conscience. So, take a leap of faith. Start investing in the market today, if you don’t want to end up being a middle class father who brags his sons and daughters to study and make money. Have a vision of what you want to become and invest wisely!