The stock market can emit the look and feel of legalized gambling to new investors who may be eyeing small initial investments, leaving quite a few intimidated and wary of the potential risks and downfalls that the stock market entails. However, the eligibility to invest in stock markets is easy to meet if one possesses the psychology behind the rise and fall of stock prices and indices, which result in price movements. Indian stock market has undergone a tremendous evolution in the last 20 years in terms of risks, operations, management, etc. Naturally, new investors are riddled with numerous queries and qualms regarding the minimum amount for investment in stocks, trending stock selection, venues providing free Demat Account, types of accounts required, and other profit- factors.
The generic roadmap for investing up to INR 1000 in stock market
Hereby, we are undertaking the task of simplifying this harrowing process in the form of a roadmap, which will help you with low-cost investing (as low as INR 1000) in stock markets.
- Understanding the stock market:
There is not any specified minimum amount necessary to invest in stock markets, which makes it a flexible option for most of us. We can start investing with as low as INR 1000 without the shred of a doubt.
- Finding a broker:
The role of a broker is important as he acts as a mediator for you to buy/sell stocks while making investments. If you are unsure of the procedures and steps involved and want to save yourself from extensive research, brokers will fill you on the various aspects of investing. You can also find an online investment broking service and can open a free Demat account or a Demat account with low account opening charges and start investing.
- Investing style:
A lot of online apps come handy nowadays for new investors out in the open attempting their baby steps at low amount investing. You may consider going for short term trading as a beginner, and put as low as INR 1000 which will not incur much damage if you lose it. Short-term trading, if done initially with careful vigilance, helps in understanding and imbibing market tactics. It takes time to get acquainted with the stock market jargon like PE ratio, risk, EPS, DPR, etc. Keeping track of regular stock performance prepares the investor in you. With a free Demat account, you can already save money on account opening, and with wise investment, you can surely make it in INR 1000.
Self-evaluation is the key to making yourself a successful investor. One must follow a disciplined approach to go in flashback and recall major criteria and factors that construed a profit or a loss.
The absolute guide to investing in the stock market
This is a step-by-step guide that builds investors from novices beginning from scratch.
- Tools required:
In order to trade in the Indian stock market, one must have a trading account linked to his/her bank account and a free Demat Account which one can open or a Demat account with low opening charges. The trading account is necessary for investing in stocks as it facilitates the buying and selling of stocks. The trading account must be coupled with a Demat account (that can be a free Demat account) for storing all the shares one possesses. A stock trading account also requires a bank account linked to it.
When one engages in any trading financial transaction, the required amount is automatically debited and credited from and to the bank account. It is also better to open the trading account and a free Demat account as a package to reap maximum benefits and facilitate smooth transactions. Since you are already investing with a low amount, it makes sense to open a free Demat account or the one with low charges and then begin investing. The recent digitalization has brought about a revolutionary change in the mindsets of people, while easing the investment process, earlier regarded as a cumbersome activity.
- Usage of trading account:
There are four things to bear in mind with respect to buying and selling with a trading account:
1. Stock name:
Enter the name of the stock you want to invest in i.e. buy. The Indian stock market scene is dominated by two stock exchanges that facilitate the transactions of an entity’s stock via your broker:
- National Stock Exchange (NSE), with around 2000 companies in it. The index used in NSE is Nifty.
- Bombay Stock Exchange (BSE), which has approx 5000 companies included in its listing. Sensex is the index used here.
2. Trade type:
Usually, any trading platform offers three types of trade options to its investors: Cash, Intraday, and Margin. Beginner investors must go with the Cash option. The other two trade types- Intraday, and Margin is usually the forte of more professional traders.
There is a provision to specify the exact quantity of shares you wish to invest in. It must be kept in mind that brokerage and taxes are not included in, they are added separately.
This is the most crucial piece of information, where the investor enters the price at which he wants to buy his share. One may either buy it at the current market price or decide on your own price. One must try and minimise this figure to maximise the profit.
- Risk premium:
Equity shares generate higher revenue or returns as compared to debt-based investments since they accommodate the generation of the risk premium for investors who take calculated risks. People who are willing to practice index investing can acquire an added risk premium of approximately 4% in the long run by spreading the money and engaging in value investing.
- Invest in only one stock:
It is advisable to not waste time diversifying your stock portfolio when it comes to investing smaller amounts. Multiple stocks take much time and are not worth the value. However, if you want to minimise risks, diversification of stocks can be a viable option.
- Invest based on your existing knowledge and do not research for weeks:
Since it is your initial investment go by your existing knowledge of companies that have shown promise in the public domain. Avoid researching for long and minimise the risk factor.
- Beware of penny stocks:
Penny stocks are extremely low market-priced trading stocks that have very low market capitalization. The stock prices of these unpopular companies are easily manipulated, thus making them difficult to investigate by a novice investor.
- Expect realistic returns:
Expecting returns between 10-15% is generally considered realistic in the Indian stock market setup. It is important to draw reasonable conclusions and refrain from expecting extraordinary returns when the investment amount is low.
- Selecting good stocks:
One must build his own stock screening criteria by preparing a list of fundamentally strong stocks by following their past 10-year trend and buy only the undervalued ones.
Investing in the stock market can be both easy and tricky. Investing low amounts within the range of INR 1000 has its own set of benefits and shields the novice investor from incurring huge losses and adds up to decent returns in the long run. However, the experience after buying your first stock leaves you enriched with both knowledge and psychology to understand the stock market better.