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Guidelines to Start Investment in Stock Market

Many investors shy away from stock market investment because they find it tricky and risky. If you are one of such investors, then it’s about time that you shed your inhibitions because the stock market can bring several advantages. You can diversify your investment portfolio to spread the risk across various asset classes, and you can build a sizeable corpus in the long run.

Here are some beginner tips that will help you start your stock market journey with confidence:

1.  Know Your Financial Goals

The stock market is a long-term haul. You need to stay invested for at least 7-10 years to reap healthy returns and off-set the market volatility. So, invest only that amount which you would not need to withdraw in short-term.

2.  Evaluate Your Risk Tolerance Level

Your risk personality plays a crucial role in your stock market investment strategy. If you invest money in only conservative instruments which are completely safe and devoid of any fluctuations, it means that you are a risk avoider. You are ready to earn low returns as long as the investment is safe. A stock market is a suitable option for investors who can take moderate to high risks.

In order to grow your money, you need to take a balanced approach to your investments. You can start allocating 3-5% of your total investment in the stock market to increase your risk appetite gradually.

3.  Understand the Basic Terminology and Operations

It is highly recommended to familiarize yourself with stock market terminology and how it operates. Spend a few months doing your homework before making any investment or acting impromptu on anyone’s advice. This will ensure the safety of your investment.

4.  Study the Stocks Before Investing

There are hundreds of stocks that trade on the stock market. You should invest only in those which suit your risk appetite and investment goals. Some of the parameters you should include in your research are:

  • Previous performance of the stock in comparison to self and similar    stocks in its category
  • Reputation of the company that is offering stocks
  • Top management of the company
  • Promoters shareholding
  • Vision of the company
  • Earnings and profitability of the company in comparison to self and  similar companies in its category

You can get basic information by reading the company’s website, balance sheets, annual reports or any news covered around it. Thereafter, it is advisable to do your own analysis by researching on the company’s market cap, book value, dividend, dividend yield, earning per share, etc. Basically, you should be able to analyse the stock for its performance, safety, growth and valuation.

This exercise will take a few hours time, but it will help you make informed decision regarding the investment and minimize your risks.

5.  Diversify Your Stocks

Never put all your eggs in one basket, meaning do not limit your investment to a single stock. A good stock market portfolio is one where you invest in at least 4-5 stocks across different companies or industries. In the beginning, you can start with one or two stocks with lesser amount and gain some experience. As you begin to get the hang of stock market, you can gradually move up to 5 stocks

6.  Monitor Market Trends

In traditional investment options like bank fixed deposits, insurance policy or public provident fund, there is a general tendency to invest and forget till the maturity period. However, the stock market requires you to stay alert and agile. Hence, you should keep a tab on daily stock market news and latest trends to stay informed about their impact on your investment. Accordingly, you can withdraw or invest more amount to leverage the trend to your advantage. 

7.  Seek Professional Services of a Stock Broker

It is advisable to look for a SEBI-registered, trustworthy and reputed stock broker in India to manage your stock market investment. Hiring a stockbroker online will not only save you from day-to-day trading hassles but also give you access to valuable insider tips and resources. A professional can do online stock market trading on your behalf and help maximize your returns.

These seven tips will make you a great beginner investor in the stock market.

Blog by – Ashish Ajmera

Also Read: How Does Commodity Market Work?
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