In India, the equity cult is yet to spread in a big way as more small investors are not fully aware of the nuances of investing in the stock market. Here is a quick rundown on how to go invest in the share market…
How to invest in share markets; what is the starting point?
The first step for you is to open a trading account with your broker. Your broker will help you open an equity trading account along with a demat account. Once the formalities are completed and the documents are submitted your trading account number will be generated. You are ready to trade.
Why do I need two accounts to invest in shares?
The trading account is for executing your buy and sell trades in the stock market. But where do you hold the shares that you have bought? These shares are held in the demat account. When you buy shares your demat account is credited and when you sell shares your demat account is debited. Just as your bank account stores your cash, your demat account stores your shares.
That means all the shares I buy will go into my demat account?
Wait; there are two types of trades in the market. If you buy 100 shares of SBI at 250 and if it goes up to Rs.255 by afternoon you can square up the position intraday and book profits of Rs.500. These shares will not go into your demat account. If you don’t square off these shares on the same day then you will have to take delivery and the shares will go into your demat account.
So, if I take delivery of shares I will have to pay the full amount?
Yes, in this case, you will have to pay Rs.25,000 (250×100) by T+1 date. Most brokers will insist on funding your account the same day.
In that case, when will I get the shares into my demat account?
The shares will come into your demat account on T+2 day i.e. the second trading day. If you buy the SBI shares on Monday then the shares will be credited to your demat account by the end of Wednesday.
How do I know if I have received the credit in my demat account?
If you have an online trading account with your broker, you will also have an online demat access. You can go into your demat account and check if the credit has come. Now exchanges also insist that an SMS confirmation be sent for demat credit. That makes your job a lot simpler.
If I bought shares on Monday, can I sell the shares on Tuesday if price shoots up?
Yes you are allowed to sell on T+1 day although you have not got delivery of shares. There is a risk you need to be aware of here. If your delivery gets delayed due to default or bad delivery by the other party then you run the risk of your shares going into auctions. That can result in losses so you must do T+1 selling quite carefully.
When I am buying and selling shares, how can I be assured of the best price?
The trading system on NSE and BSE is designed to give you the best price available, irrespective of whether you are buying or selling. If you have an online trading account, then you can see the volumes at different prices and place your order accordingly.
Can I decide at what price I should buy or sell a stock?
Of course, you can. You can either place a market order where the order is executed at the best price available in the market. Alternatively, you can place a limit order. When you place a limit buy order the system will execute at your defined price or less than that. When you place a limit sell order the system will execute at your defined price or higher than that. Of course, if that price does not come then the order will not be executed.
What is the contract note and why is it useful?
A contract note is a formal legal document issued by the broker affirming that the trade has been executed and at what price. All incidental costs and charges are also itemized in detail in your contract note. You can get the contract note by email and also download it online.
I understand brokerage, but why does the broker charge so many additional costs?
Your broker only gets the brokerage for executing the transaction. There are statutory charges like stamp duty, STT, GST etc which your broker collects and deposits with the government. These are statutory charges and go into the government account.
I get a lot of SMS calls and WhatsApp recommendations. How do I use them?
It is always better not to get carried away by these messages promising fantastic returns. Always talk to your broker and insist on research investment ideas. Make an effort to read and understand the research. Get-rich-quick tips rarely work in practice. Don’t fall for these traps.
Is it true that equity investments are risky?
In the short to medium term, equities tend to be more volatile and therefore more risky than debt instruments. But over a longer time frame, only equities can generate wealth for you. You must ensure that you are invested in quality equities and that will create wealth over the long run.
Can I have multiple trading accounts and multiple demat accounts?
There is nothing stopping you from having multiple trading accounts and multiple demat accounts. However, we do not suggest having more than 2 trading and demat accounts for ease of administration.