How the Stock Market can Help You in Your Financial Growth

Stock Market can help you in your Financial Growth
Image – Pixabay

Introduction 

Financial planning might sound like a difficult task, but it is something we all do consciously or unconsciously on an everyday basis. Financial planning starts when we start dreaming about how much wealth/corpus we would need when we retire and start calculating how much we’d need to set aside every month to achieve various goals like attending the FIFA World Cup 2023. There are various ways we try to save money example when we decide to stay at home instead of going out on the last Saturday of the month. While setting money aside as savings to achieve these goals is one way to go about them, the best way to beat inflation and grow wealth is to invest in the stock market. 

So, how does investing in equities create wealth? When you invest in the shares of a company that have a good financial health and are on a steady growth trajectory, its long-term earnings will increase, and so will the price of the shares you hold. Equities have outpaced all other long-term asset classes in India as well as around the world. Investing in shares directly is a high-risk yet high-reward option for someone who is looking for long term capital growth and wants to achieve it through investing in sound companies 

Further, widespread access to the internet makes it simple to invest online and also improve your knowledge of the markets with the plethora of free resources available on broker sites. If you wish to begin trading or investing in shares online, here is a short brief on how to get started, and some crucial points to remember on your journey.

Offline vs. online share trading

Conventionally, shares were bought and sold on the stock market through stockbrokers who would execute trades on behalf of the investors. To date in India, most retail investors trade in the market with the assistance of a SEBI-registered stockbroker. In the pre-internet time, you would visit or call your broker to provide instructions on the transactions you want to execute. In return, the broker would charge a hefty brokerage commission. However, with the advent of the digital era, share trading has taken an online avatar. 

Online share trading (can be linked to “open Demat Account” page) can be done without a physical visit or call to middlemen – it can be done from anywhere with an internet connection or a smartphone and by paying a smaller commission than one would with offline trading. One can also directly invest in shares through the companies’ direct stock purchase plans or by registering as a member at a stock exchange or as a broker with SEBI.

Opening an online demat account and trading account

Investors today hold shares in the ‘dematerialized’ form – in other words, in a Demat account. Opening an online Demat account is the first step to begin trading on the Indian stock market. These accounts are provided by India’s two main depositories, NSDL and CDSL, and are offered to you through Depository Participant (DPs) who act on behalf of NSDL/CDSL. A list of all DPs is available here and here. Most banks and brokers offer DP services, so it is better to open a demat account with the stock broker where you are opening a trading account.  

To start investing online, you also need to open demat account, (to be changed to new “open demat account” link) which most DPs offer alongside a Demat account. The initial steps are as follows: 

  1. Fill an account opening form and a KYC (Know Your Customer) form
  2. Submit it to the DP along with valid identity and address proof (Aadhaar, PAN Card, passport, Voter ID, etc.)

Once these documents are submitted to the DP, you will sign an agreement that records your obligations as a trader and the charges due to the DP. Following this, you will receive your demat account number, and all shares you buy and sell online will be credited to and debited from this account. The broker you appoint to handle your shares can also help you set up both these accounts.

With Demat and trading accounts in your hand, and a broker at your service, you can start investing online in the stock market. Remember to track the stocks you are interested in, which align with your goals.

What to look out for

It is crucial to identify one’s financial goals and the time frame for achieving them prior to making investment decisions. For instance, investors who want to achieve financial growth over the long term will make different decisions from a day trader or positional trader who buys and sells shares based on current trends and analysis. 

For instance, if your goal is to build wealth over the long term, it is possible that you can get anxiety due to volatility of stock prices in the market. If you have invested in mutual funds before, you will notice that your stocks are far more volatile than your mutual fund investments. This is because the latter is a collection of a large, diverse number of stocks, and the value of this collection is unlikely to change significantly day on day. 

A good rule of thumb for an investor stepping into the world of online share trading is to avoid giving in to instant gratification and wait to benefit from long term trends. At the same time, a trader looking to make short term gains is likely to buy and sell shares on instantly available information. Therefore, it is critical to categorize one’s goals and determine your investment strategy before you begin. 

Conclusion 

There are multiple online platforms in India where you can start your online share trading journey. These not only provide low cost, low brokerage avenues to trade but also provide educational resources to keep yourself updated on the stock market and analytic tools to monitor your portfolio and its performance. While this article is based on personal and practical experience, you should approach a registered investment professional for any specialized advice on the markets. Happy investing!