Share investments are one of the most popular investment opportunities in Kerala. They are the best platforms for generating wealth in the contemporary world. You might have heard several things about share market opportunity investments ranging from some dreadful losses to motivating stories. The beauty of this investment strategy is that it considers every investor contrarily based on his/her approach to the investment. Hence, understanding how to invest in shares is important to your success.
Visualize a company running its usual business earning revenues and planning for ways to expand. It decides to initiate a new type of commodity that requires a huge factory installation and expert workforce – a big investment.
The firm does not have the expected funds to establish this setup. Therefore, it looks for a loan from a bank or a financial institution or raising money in any other way that does not need interest payment on the high sum.
One method to do this is to add partners by inviting them to contribute a specific amount towards the stock of the company.
A business is legally authorized to do this by allocating shares. When a company decides to boost capital, it issues shares to people. The percentage of shares held by you specifies the percentage of holding you have in the organization.
If a business is worth Rs.10 lakhs and you carry shares worth Rs.1 lakh, then you are a 10% partner in that company. You will be qualified to receive a share of the profits made by the company.
Since a share is a statement authorizing your ownership in a firm. So, if you are a partner in a firm, you can transfer your rights in the firm to a third party by notifying the company about the same.
When an organization issues shares to the public for the initial time, it initiates an Initial Public Offering (IPO) by predetermining the price of the share.
This is the fundamental share market where you acquire the shares instantly from the company during an IPO. As soon as the firm finishes issuing shares through the IPO, they are listed on a share exchange. This is the secondary market where you can acquire and sell shares to other investors.
Investing in the Share Market
Now that you know about shares and the idea of a share market, let us look to the next important question: How to invest in shares?
1. Requirements to Invest in the Share Market
Let’s first look at what you need to begin investing in the share market.
PAN Card – It is necessary to have a PAN Card to invest in shares.
Demat Account – This is the account that will keep the shares in the name of the client. You can open a Demat account with any depository person. Most banks offer Demat account services. Modern investment platforms also offer Demat account opening simply.
Trading Account – To start making a share market investment, you need a trading account with a share broker. While most good-quality shares are listed on both primary exchanges (BSE & NSE), some might only be accessible on either of the two. Ensure that you open a trading account with a broker enrolled with both BSE & NSE.
Linked Bank Account – Since you are investing in shares, you will be purchasing and selling them over time. Therefore, you will need a bank account that is related to your trading account to assure that money flows in and out of your account easily when you transact.
A canceled cheque from your bank account with your name on it
Proof of address
Proof of income
With these documents in place, you are set to begin your share market investment journey.
Things to Keep In Mind before Investing In Shares
Now that you are clear with the fundamentals, let’s see what are the other things you need to consider before investing in shares.
Understand Your Investor Profile
Every investor is distinct. Hence, you must assure that you invest based on the investor profile. Three significant factors can help identify your investor profile:
Financial goals – Define your financial goals.
What goals are you trying to achieve? Retirement Fund? Planning a marriage? Thinking of buying a house? These objectives will help you get transparency on how and which shares to invest in.
Risk tolerance – How much risk can you afford? If you invest in the shares of a powerful company, then the price will not go up or down a lot. It will be moderately stable. On the other hand, if you invest in a small firm that seems promising, then every minor achievement will boost the share price and loss will result in a wreck. You need to determine how much risk you can handle without being tensed and making wrong decisions.
Investment horizon – Share investments tend to offer good returns over the long term. Based on your financial objectives, specify the period for which you want to stay invested in a particular share.
Research the Company before Investing
Unless you are trading, don’t make investment decisions based on the share price alone. Share investment is a marathon – not a race. Therefore, you need to invest in a share that can survive a long journey and produce good returns too.
One of the best ways to find such shares is by looking at the financials of the firm. Without confusing things, simply try to evaluate if the company is financially sound and can resist any economic turbulence that destiny might bring. A strong company usually entices positive investor awareness and a higher share price.
Since share market investments carry market risks, it is significant to make efforts to curtail the risk of your equity portfolio as much as you can.
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