Investing in the stock markets for a long-term can help investors manage their finances through wealth creation and also regular income. For many new investors, investing in the stock market may seem like a challenge, especially since they find it too complex and risky. However, by carefully treading the stock market path, one can understand the functioning of the stock markets and also achieve various financial goals.
Seasoned investors often cite two of the top benefits of investing in the stock market: the chances of earning higher returns on investment and developing financial discipline. When compared to some of the traditional investment avenues, like fixed deposits, stock market investments can fetch higher returns as per historical performance trends. With periodic investments, one can also build a habit of financial discipline to save and invest money wisely.
For investors who are looking to explore the stock markets, here is a guide on the right time to invest in stocks. Here’s how investors can learn to enter the stock markets at the right time. The right time to invest in stocks is:
Once you have done a thorough research
Every investment decision depends on:
- One’s present and expected financial condition
- Investment goals
- Risk-return preferences
- Investment time horizon
Hence, once an investor has clear answers for the above and depending on preference, he/she can proceed towards exploring the stock markets.
Once you have learnt the basics of stock markets
A stock market is a marketplace for trading in financial instruments such as stocks, bonds, derivatives, etc.
Two of the main stock markets in India are:
- National Stock Exchange (NSE) and
- Bombay Stock Exchange (BSE)
While NSE is the largest stock exchange in the country as far as cash trades are concerned, there are other exchanges, such as the Multi Commodity Exchange (MCX) and the Indian Energy Exchange (IEX).
Stock exchanges, market activities, participants in daily trading, financial instruments are all regulated by the Securities and Exchange Board of India (SEBI).
Stock exchanges help companies in getting listed to attract investment from the common public. They also manage indices or indexes, which is a basket of securities that are selected based on their size or the industry that they belong to. Investors and traders consider the index performance to get a feel about current market situation.
NIFTY and SENSEX are the most common indices in India.
- NIFTY comprises top 50 stocks by market capitalization that are listed on the NSE.
- SENSEX is made up of 30 companies that are listed on the BSE.
Did you know?
Stock market indices act as benchmarks to gauge the performance of mutual fund managers. Suppose, if a mutual fund benchmarked to NIFTY earns 15% returns in a year whereas the NIFTY makes 20%, the mutual fund is considered having “underperformed” as compared to its benchmark.
Once you have the necessary infrastructure
Stocks cannot be bought or sold directly on the stock markets. For this, an investor or trader has to reach out to brokers who are authorized to trade on the stock exchanges. There are various brokerage companies and platforms that allow investors/traders to trade. Here is how one can go about it:
- To start investing in the stock markets, an investor must open a Demat and trading account with a broker. A demat account is used to hold financial securities in the investor’s name and a trading account is where the “trade” or buy/ sell orders are placed. Both trading and Demat accounts are linked to the investor’s bank account.
- To open a trading and demat account, an investor must provide Know Your Customer (KYC) related documentation, including government-authorized identity cards.
- Most brokers and brokerage platforms offer an online KYC process, thereby allowing investors to open an account by digitally submitting verification details.
- Once the accounts are active, one can trade through the broker or brokerage platform online.
Did you know?
Rakesh Jhunjhunwala, an Indian billionaire who earned the majority of his income through stock market investments, started investing in the stock markets back in 1985. He is known to have started off with an investment of only Rs, 5,000. Today, his net worth is estimated to be over Rs 41,000 Cr.
Once you identify the right stocks to invest
While the above section offers details on how to invest, investors must also know which stock to invest in before moving on to actually making the investment. For this, investors must learn about the basics of stock valuations. Here are some terminologies that can help:
- Undervalued stocks – these are priced at a presumably lower rate than their true or intrinsic value. By investing in undervalued stocks, traders/investors can benefit by fetching future profits. By learning about a company’s future growth prospects and profitability, one can know whether its stock is overvalued or undervalued. This is called fundamental analysis.
- Many investors look at technical analysis to gauge the price levels of stocks before making buy/sell decisions. This involves looking at various price charts and historical stock performance metrics.
Both fundamental and technical analysis can go a long way in aiding investment decisions that can turn profitable in the future.
Conclusion
From the perspective of timing your stock market investments, experts often suggest investing in stocks when their prices are down. This can also help investors to make larger purchases in terms of volume. If you are trying to get started with stock market exposure, there is no such thing as waiting for the right time. It is best to begin when you are ready.
FAQs
Stock markets allow investors and traders to buy/sell products such as equity shares, bonds, ETFs, derivatives, commodities, etc.
To open a Demat and trading account easily, you can download the Fisdom app on your smartphone. The platform allows a seamless KYC and account opening process that can be entirely done online.
Stock markets do not require a lot of capital to begin investing since investors/traders can buy a number of stock units as per their financial capability without any minimum requirement. Also, they can invest in stocks that are affordable to them.
Yes, stock market investments do carry relatively higher risk considering the constant price fluctuations of securities. Stock markets are often impacted by economic uncertainties, political imbalances, investor sentiments, etc apart from performance expectations of specific companies.
Investing in stock markets v/s equity mutual funds requires different investment levels, risk-return expectations, investment goals, etc. While stock markets are best suited for investors who have higher risk tolerance, there are different mutual fund categories that can help investors balance overall portfolio risk levels.
