If the base is good, then the building will be well made. So in this post, I will make your stock market base strong. So that you will make so much money and build your own buildings.
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| Stock Market for Beginners |
The previous post discussed some stock market terminology in very simple Terms. Check out that post first, then this one.
Read, What is Share Market? Basic Concepts of Share Market.
Hello friends, my money market's post; we will clear all stock market basics. Beginners get scared by just hearing share markets’ names. In films, we see the share market destroy everything, but friends are claiming that they are making lots of money. Besides that, family members say to stay away from it. Above that, if you had studied commerce in school or college, it still wouldn't exactly tell you correctly about the share market. In that case, it’s normal to have confusion and nervousness.
But today, after this post, all of your confusion will be cleared, and you will find out how and where to enter. Definitely, there are risks in the market. So this market can bring you big profits and big losses too. But so you make little loss and gain more profit; I’m here for that, you know, right?
Now I’m going to tell you those common questions beginners can have. Maybe you all have them, and I’m going to cover those questions. So first I’m going to tell you all the questions.The first, we are going to discuss is whether the share market is risky; if yes, then how much? Second, we’ll know how much return you can make and how much expectation you can make on this market? Third, we know how much money you’ll need to start in this market? You can be a beginner or a student. So can you start with your pocket money? Fourth, is entering easy or difficult? What is Demat and Trading Account? Basically, how to start? Fifth, we know why this market has a bad name? Why do our family members and films make us fear it? What are those reasons, is this market really dangerous? Should you stay away from it? Sixth, we’ll know, and this is a common question. You are not of a commerce background; you could be of an engineering or arts background. Still, can you enter this market? Seventh, how does this market work? Why does that share price go up and down? On which basis can you select a share? And eighthly, we’ll know if you need in-depth knowledge, and if so, which are those books and courses and how to make a career out of it? Basically, how can you complete your learning? In this post, I will discuss the first four questions. The remaining four questions will be discussed in the next post.
So the first question is, Is the share market risky? This I ask you through a basic example. Basically, when you buy a share, you buy a somewhat small part in that company. That’s why it’s called share, and you are becoming a co-owner of it. So now you tell me if you invest in a friend’s business or a relative's, and if that business doesn’t do well, then your money will drown; that’s a risk.
Just like that, in the share market, you are investing in big companies like TATA, Reliance, and Godrej. If the company drowns, then your money will also drown. If the company shows very good growth, then your money will also grow. It’s just like you invest in your family member or friend’s business in this hope, if the business grows, I will get a part of the profit, and if it loses, then I will take the loss and won’t have to give any interest. In the share market, you don’t get any interest, because it’s not a loan. So there are many companies that drown and make a loss.
There are many shares; I’ve given the example of WIPRO, TVS is an example which has grown 10x times in 10 years. MRF is also an example; there are many more shares like this which give you 10x times return in 5-6 years. Definitely, it’s risky, and that’s why the returns are high.
Now comes the second question: how much return will I get? Again, the example is the same. If you invest in a friend's business, you invest Rs 10. In the next year you’ll get 10% profit, a 20% profit or a 30% profit; it differs a lot and cannot be a fixed criterion.
For this, there are many shares in the market which don't grow a single rupee; instead, they fall, and some grow 4x to 5x times in a single year. But it’s just about one share; when you enter, it will not just be one or two shares; you’ll invest in a portfolio of stocks, like at least 8-10 companies. Because if 1-2 companies come out bad or drown, still, you don’t overall lose all of your money.
That’s why in the share market we invest in at least 8-10 companies. So when you get a basket of stocks, you can believe that if you have invested correctly. So, an 18% to 20% return in India’s high-growth economy in the long run, which is at least 5 years, if you had invested and you picked good stocks, then you’ll definitely get around 18% to 20% in return. This means compared to FDs, which are trending now, it is 3x times more, and 2x times more compared to Gold and Real estate.
In fact, there are many successful investors in the world who are in lower-growth economies than India. Where the market and companies are slowly growing, there they picked such stocks, where they get around 30% return for many years. In India if you are expecting a 20% return, then it’s now wrong. But your stock picking should be good.
Now, a very interesting question How much money is enough to start? See, despite the amount of money you are investing in the stock market, it’s more important which type of shares you are investing in and how consistently they give return.
I give you an example. If you start with Rs 1000 per month, which many of us can afford to start with, we have to invest Rs 1000 monthly in the share market. Every year, increase this Rs 1,000 by 15%, which means the first year you’ll invest Rs 1,000 every month, or Rs 12,000 a year. From the next year, increase that by 15%, which means you’ll invest Rs-1150 a month. Like that, every year, as your income grows, you go from student life to an earning member, or if you get a promotion and your salary gets increased. So if you do that, starting with Rs 1000 and every year a 15% increment, you are getting only a 15% return on your investment, not 18% or 20%. Despite that, starting with Rs 1000, after 25 years you will have Rs 1 crore.
The key is you have to invest for 25 years; second, you have to increase the amount by 15%; and third, you have to get 15% return. If these three things happen, after 25 years starting from Rs 1000, you will have Rs 1 crore.
Fourth question: how difficult or easy it is to start. If I want to enter, then what’s the process? The process is very simple. You only need three documents: an Aadhar Card, a PAN Card, and a bank account. If you don’t have one, then open one. After that, nowadays all the processes are online. There are many online discount brokers. A discount broker is because they take almost zero brokerage. So you don’t need to do anything; there are many online discount brokers, like Zerodha.
Personally, I use Zerodha. Because it’s very simple to use and very easy for beginners. You can also open your account at Zerodha. In 3-4 days, without any physical paperwork, your account will be opened online and you can start trading. The account opens at Rs 300, and brokerage or commission is zero to none if you are investing. So if you are buying and keeping shares and selling them after two, three days, or more, then you don’t have to give any commissions. It’s almost free. Some little government taxes are there which you won't even know about, because that’s less than 0.1%. This post discusses the first four questions.
Part 2: Why Share Markets Name is so Bad? Why People Fear it?
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