What Is the Stock Market and its 5 Important Tips?

What Is the Stock Market and its 5 Important Tips?

The Indian stock market is growing significantly and enticing more investors. The Sensex and Nifty indexes are up by 6% so far in 2022. Financial industry experts believe that growth drivers, like good agricultural output, energy sector performance, FDI (foreign direct investment), etc., are in place and will impact the market positively. At the beginning of the investment journey, one should know the initial steps to ensure that they are on the right path. Before that here is a precise elaboration on the stock market.

About Stock Market

A stock market is a platform facilitating corporations and investors in the primary and secondary markets following specified regulations set by the SEBI (Securities Exchange Board of India). Companies issue their shares in the primary market and list them on stock exchanges where investors can trade these listed shares in the secondary market.

The stock market operates digitally with a set of formal exchanges, like National Stock Exchange (NSE), Bombay Stock Exchange (BSE), etc. These stock exchanges facilitate investors to trade listed shares of companies and other financial securities, like bonds, commodities, currencies, derivatives, etc. For online share market trading, one needs to open a demat account with a SEBI-registered stockbroker.

An index of the stock exchange, like BSE SENSEX, NSE NIFTY, etc., tracks securities in a standardised way to measure market performance. Investors can follow, index, and replicate a basket of securities to invest in a market segment.

5 Important Tips for Successful Stock Investments

Here are the common and key aspects to consider before starting stock investing:

1.      Handle Stock Market Basics First

Individuals who intended to invest in the stock market should handle the basics first. They should understand financial metrics, definitions, terms, types of investments and their suitability, order types, etc., to make informed investing decisions. Investors should know that there are two types of stockbrokers – full-service and discount brokers. They can open a free demat account with a discount stockbroker and save on other demat account charges also, like free account maintenance charges, etc.

2.      Set Financial Goals

Every investor should consider defining their financial goals first. It can be funding higher education, marriage, home purchase, retirement, business, and more. Well-defined goals can give clarity on what amount of money an individual needs to invest at various stages of their lives to achieve financial goals.

Defined goals also allow investors to know suitable investment horizons, i.e. how long one needs to stay invested to achieve a defined goal. Time frames for investments vary for different goals. Investors need to determine when they will require their funds back. It is good to keep high-risk investments like direct equities for the long term.

3.      Gauge Risk Profile

It is important to determine the risk profile before investing and creating an investment portfolio based on it. Risk profile includes one’s risk tolerance, capacity, and requirements.

  • Risk tolerance means how much risk an investor is ready to take.
  • Risk capacity refers to determining how much risk an individual can take as per their financial situation.
  • Risk requirement means the degree of risk one needs to take to meet financial goals.

A risk profile helps investors to find the right mix of assets, like high-risk-high-return assets or low-risk-low-return assets.

4.      Have Long-term Perspective

Most stock investors prefer long-term stock investments as they can provide significant profits and diversify risk over a long duration. One should not be impacted by short-term market fluctuations but stay focused on long-term perspectives. Investors need to look at financially and fundamentally strong companies with significant long-term growth prospects.

5.      Stay Debt-free

Individuals should invest spare funds they have at a point in time instead of borrowing funds and then investing in the stock market. Borrowed funds further increase the risk for stock investors and worsen the situation with losses. Demat accounts have resolved the issue of odd lots. Now one can trade even one stock online.

Another thing beginners should understand is that they need to save their capital first. It will help them to stay for long in the stock market successfully.

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