In this article, we will cover a common question, “How to invest in stock market in India?”

If you’re reading this, I assume that you have by now read something about the stock markets. Sources include books, online articles, hearsay, etc. You have probably tried paper trading as well. And you’re looking to get started in the real world of the stock market.

In this article, I will lay down a simple guideline on how to invest in stock markets in India: requirements, an overview of the process, and key things you need to know to get started and thrive in the process.

Requirements

Requirements for investing in stock market
Requirements for investing in stock market

PAN Card

A PAN Card is a must for opening a Demat account. Your Demat account is going to be linked to your PAN Card.

Mobile Number

Most brokerage services now require you to give your mobile number for OTP-based transactions. It is also useful for enabling 2-Factor Authorization.

Bank Account

You need a bank account for the transfer and withdrawal of funds from your brokerage account.

Demat Account

A Demat account that either CDSL (Central Depository Services Limited) or NSDL (National Securities Deposit Limited) maintains. It is where your shares are going to be stored.

Your Demat account is proof that you hold the shares of a company.

You can open multiple Demat accounts with different brokers but they should all be linked to the same PAN Card.

You cannot open multiple Demat accounts with the same broker.

Brokerage Account (or Trading Account or Securities Account)

You need a brokerage account to make orders for buying and selling stocks. The brokerage service is a facilitator of such services.

You can try a full brokerage service such as those of traditional banks: SBI, ICICI, HDFC Bank, etc., or those of discount brokerage, which is a popular option due to lower costs: Zerodha, Groww, Fyers, etc.

Your brokerage service also acts as your Depository Participant (DP). The Depository Participant is an agent of your Demat account.

Your brokerage service holds the Power of Attorney (POA). This is what allows them to take action with your Demat account based on your orders.

Other KYC Documents

You will likely require more documents to verify your identity: either a driving license or Aadhar card, or a video KYC may be required.

The above requirements are compulsory for trading or holding stocks in India.

Choosing Brokerage services

How to Invest in Stock Market in India Featured Image
Which brokerage to choose?

For the most part, to start investing in the stock market in India, brokerage services come with Demat account opening facilities.

You don’t need to open a brokerage account and Demat account separately since your broker also needs to become a Depository Participant and have a POA.

Thus, it is always better to open the brokerage account with your broker, unless you are shifting broker with an existing Demat account, which is a different case altogether.

I am not an affiliate or a sponsored person, but I think Zerodha is the best brokerage service provider in India and you should strongly consider it as your main brokerage service provider.

I myself use it for buying and selling stocks.

The reason for this is multifold:

  • Zerodha is a self-funded and highly profitable startup and it has no reason to do anything that harms their reputation.
  • They are among the first discount brokerage service providers, an alternative to full brokerage accounts. Their services are much cheaper and even in comparison to peer brokerage services, their charges are good. If you’re trading in FnO or are trading with extremely high frequency, in that case, charges will rack up. But they will rack up everywhere. On the other hand, if you’re investing with patience and discipline and you have sound principles, Zerodha is kind to you with its zero brokerage charges for buying and selling, and the nominal transaction charges apply along with fixed DP charges.
  • For both investing and intraday or swing trading purposes, Zerodha has proved to be a reliable portal.
  • The company runs on outstanding technology and high-powered servers to ensure the system keeps running smoothly.
  • The UI is excellent. Navigation is easy.

Primary vs Secondary Market

Your brokerage gives you access to a secondary market, wherein you can trade securities after they have been created and issued to the general public.

However, some brokerages including Zerodha will give access to the Primary market as well.

IPOs are primary markets wherein the underlying company issues securities for the first time, and with Zerodha you can apply for IPOs as well.

The following diagram is great for understanding the ecosystem of the capital markets in India:

Stock Market Structure
Stock Market Structure

Starting Point for How to Invest in Stock Market in India

To invest in the stock market in India, the starting point is a good brokerage service. The account opening and verification process may take two days to two weeks and thereafter, you can get started by using their online portals.

You will also have to start off by paying an annual fee for using their brokerage services. These charges can range from Rs. 100 to Rs. 5000 depending on the broker. Full brokerage services charge a higher annual fee.

Exercise Caution

Most brokerage services provide a full suite of facilities such as weekly equity statements, retention statements, details of the trade, etc. But still, you should definitely on your own monitor your own Demat accounts regularly. You should also check the transaction charges you have made for your individual securities.

Although you will get your quarterly Tax P&L statement which is a great convenience and I use it myself, you should be tallying individual transaction charges. In rare cases, due to some faults, your broker may sometimes charge you more in transaction charges. You can resolve such issues by opening a ticket.

Stock Market is not Satta Bazaar, but you can make it one

Whether you choose to use stock market as medium to trade in FnO with high speculation and indulge in trades with a low probability of success in such of high quick returns, or whether you indulge in investments with a high probability of success and decent returns, that is your own decision. The stock market is Satta bazaar, but only if you choose to make it for yourself. Because in general, the long-term trend of benchmark indices have always risen been in tandem with the economic growth of the country.

Your Demat Account

Upon opening your brokerage account and once you start holding some securities, you should definitely go to your Demat account on the CDSL or NSDL website and monitor your stocks there on a weekly or monthly basis.

You should also opt for a CAS (Consolidated Account Statement) wherein you will see your end of month portfolio value and a breakdown of each security in your portfolio. This service is available in CDSL and NSDL.

Your starting demat account will be a BSDA (Basic Service Demat Account), unless you start with a capital higher than Rs. 2 lakh right off the bat. The BSDA account will convert to a regular Demat account when the value of your holdings exceeds Rs. 2 lakh.

CDSL and NSDL also serve as places for you to e-vote in your selected companies. The voting power is determined on the basis of your % holding in that company. Even though your % holding in the company is going to be miniscule, you should still be e-voting. Even more so since online voting is convenient and easy.

Some Tips for a Good Experience

In order to learn how to invest in stock market in India, here are some tips that will guide you for a good, smooth experience:

Avoid Excessive Activities

Avoid overtrading in the short term, unless you are highly skilled at doing so. And you are indeed getting good results in this form. I know that I cannot do it. But if you can, you should still beware of the charges, they rack up.

Organize your Mails

emails
Your emails can quickly become messy

Keep a separate folder in your email account for your broker mails. You are going to get a ton of mails for your activities such as addition and withdrawal of funds, other statements as stated above: retention, weekly equity, details of trade, using LAS services, etc. You should organize them into one folder so you can find what you want comfortably.

Patience and Learning Attitude

Patience
Wait for the right time

Be patient and keep learning as you go. When I started trading I didn’t have this type of information readily available to me. And I think this article may help you to start your journey in stock markets. However, even so, you should keep learning something new about the process regularly and stay updated with new developments.

Stay Updated as you Invest in the Stock Market

For example, Zerodha has now introduced an Iceberg feature (2022). Iceberg allows big investors to use Zerodha by buying and selling stocks in smaller chunks, without impacting the volumes in an extreme manner. This is a great feature for big investors who will now want to use Zerodha even more.

Don’t Fall for the Penny Stock Trap

Penny stocks investing is too risky
Penny stock investing is too risky

I have already covered this point in detail here. Penny stock investing is in general, a bad and inefficient practice.

Avoid it for peace of your own mind.

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Make use of Google sheets unless you’re Warren Buffett

You should use Google Sheets or Excel to keep a record of your individual securities. It should contain important information such as dates of buying and selling, the buy and sell prices, quantity, LTCGs and STCGs, and you should be noting your dividends and taxes.

You cannot possibly remember it all and you should have a track of what you are doing. So you should be doing it in Google Sheets. An added advantage of this is seeing your own weaknesses objectively and fixing those.

Key Takeaways:

You need a PAN Card, mobile number, Brokerage and Demat account, Bank account, and other KYC documents

It starts with choosing a good brokerage service: it can be a full brokerage or a discount brokerage depending on your needs.

Zerodha is probably the best brokerage service in India and you should strongly consider it for a host of reasons.

Monitor your demat account and your transaction and DP charges.

Have patient and be willing to learn more about investing.

Organize your mails. Stay updated. Use Google Sheets.

Conclusion

I hope this article helped you in learning about how to invest in stock market in India. I think that if you’ve understood this, you’re ready to get started with investing in the stock market. Remember that it will be a continuous learning process for years. If you have understood this article, you’re already aware of the key basics.

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Comments

  • Ajey
    Reply

    Nice article…. very informative.

  • Sanjay
    Reply

    Thanks for this post. Please tell me is Groww good for starting investing?

    • administrator
      Reply

      Hello Sanjay,
      I have not used Groww services yet. But I have heard a lot about it. If we are going to go by hearsay, I’d say it is a decent idea to go with Groww. I cannot answer it with assurance since I do not use Groww myself.

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