How to Invest in Shares? – An Ultimate Beginner’s Guide.

Shares or equity is one of the booming and best investments in today’s time for betterment for your future and for your financial freedom. Today we are going to discuss how to invest in shares in 2021?

But if you invest blindly in any shares without knowing the fundamentals or without any research you will lose every single penny you had invested.

So before investing in shares you should first learn the fundamentals of how exactly the stock markets work and what are the basic terms you need to know.

In this article, we will go through the process of how to invest in shares of any company which is listed in the stock market.

Before getting into the process of how to invest in shares let us first understand what is meant by shares of a company.

What are the Shares of the Company?

If you own a certain amount of shares of any listed company that means you are the owner of that certain part of that company.

Now the question might arise: “Why do these huge companies sell their shares to the common people?”

The answer to this question is pretty simple, the companies need funds to scale themself and can compete with others in the market.

And to raise these funds they go to the public domain and offer their shares to the investors, to the people who want to buy shares (like you who came here to know the exact process).

Why Should You Invest in Shares?

Well, why should you invest in shares? Like, what you will get after investing your precious and hard-earned money in these companies?

This is the very common question that comes into mind when someone suggests you invest in shares.

Well, this is because they think investing in shares is very risky and they prefer to invest their hard-earned money into FDs.

No doubt that investing in FDs is less risky than investing in Share. But try to understand the interest rate in FDs are somewhere around 6% and when you withdraw your FDs you have to pay taxes on them and in the end, you will end up with only 4.2% of return on it.

But the rate of inflation is around 6% that means if you invest in FDs you will be at loss by 1.8%. Share market is risky for those who blindly invest in any company without any knowledge and without knowing the fundamentals.

Share Market can give you a minimum of 14% of return on your investment and there is no upper limit to this if you invest in the correct companies by having a calculated risk.

So I think now you’ve got a lot of reasons to invest in shares.

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How Does the Stock Market Work?

Stock markets work on the very basic demand and supply theory. If the demand for a particular share is rising but the supply remains the same then the price of the share rises and vice versa. There are also some other factors that decide the price of the shares.

How to Invest in Shares/Stock of Listed Companies?

For Buying the share of a company one needs to have a DEMAT (Dematerialisation) account.

One can upon the DEMAT account through any Stockbrokers. There are different types of stockbrokers in the market. One should select one of them based on their needs.

Types of Stockbrokers:

There are two types of Stockbrokers, they are as follows

1. Full-Service Brokers:

Full-service brokers provide a wide range of Share trading services to their clients. The main differentiating factor of the Full-service brokers is they also research different stock/shares and recommend the most performing stocks.

They also keep their client up to date with the market by providing new advice from their research team.

They also provide some other services like how to manage personal finance, how to diversify your portfolio, etc.

The commission fee charged by the Full-service brokers is generally high.

2. Discount Brokers:

Discount brokers only process the buying and selling orders for their clients. They do not recommend any stocks/shares to their clients.

The brokerage or commission charged by the discount brokers is much less than charged by a full-service broker.

How to Pick the Right Stock to Invest in?

This is a very wide subject and it needs years of experience to master it but I will try to introduce you to the basics of how to analyze a stock.

Majorly there are two techniques to analyze stocks, are as follows:

1. Fundamental Analysis:

In the fundamental analysis, we have to analyze the fundamentals of the companies. The fundamentals include things like analyzing the balance sheet of the company, checking different ratios like PE ratio, etc.

The fundamental analysis becomes very important when it comes to long-term investment. You should also focus on the core management of the company while performing fundamental analysis.

2. Technical Analysis:

If you want to do intraday trading or you want to hold the stocks just for the weak then you should do the technical analysis for picking up the right stock.

In technical analysis, you just have to analyze the graphs and identify the buy or sell signals.

You can’t learn this technique within a week or month; it requires lots of practice.

Short-term investments are very risky for new traders or investors especially intraday trading because things happen very fast.

One should try to gain experience first by doing some long-term investment.

How to Minimize the Risk While Investing in the Stock Market?

If you had performed the correct analysis of the company then you had already minimized your risk to a certain extent.

But to completely minimize your risk you should stop loss, it is a very useful tool for investors.

Stop loss is the price that you have to set in your system based on how much risk you want to take.

And once the price crosses the value of stop-loss the system automatically rounds off the trade. In this way, the stop loss saves you from further losses.

If you are new to the world of the stock market then only invest the amount of money you are okay to lose.

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Equity Mutual Fund:

If you are a beginner or don’t want to take the risk or don’t have time to sit and analyze the stocks then the Equity Mutual Fund is the best option for you to invest in stock markets.

The Equity Mutual Fund invests 100% of your money in equity/shares while some mutual fund also invests in debt.

You can expect around 11% of returns from equity mutual funds. Some of them also provide returns of up to 17%.

Even if you are investing in Mutual Funds it doesn’t mean you should blindly invest in any mutual fund. You should analyze mutual funds as well.

It is very easy to analyze a mutual fund as compared to analyzing a company.

You just have to see what is the past performance of the mutual fund you want to invest in and also try to gather information about the past performance of the fund manager of that mutual fund.

You can also do SIP (Systematic investment plan) of a particular amount in the mutual fund so that every month that amount will be automatically deducted from your bank account.

If you are investing in Mutual Fund or SIP keep it for the long term because these things take time to show some significant returns.

How to Invest in Shares? Wrap Up!

The stock market is one of the most rewarding investment options if you invest in the correct stocks/shares.

Don’t invest your whole many in one stock rather try to diversify your portfolio which will reduce your risk.

If you are a beginner then try to gain knowledge about the fundamentals of the stock market before investing by reading different books about the stock market.

Do invest in mutual funds and SIPs even if you are directly investing in stocks it will give you a sense of security.

I hope we have provided you with all the useful knowledge related to how to invest in shares in 2021?. If you have any doubt related to the topic then feel free to comment below we will try to answer it as soon as possible.