The growing popularity of financial influencers on the platforms like LinkedIn and Instagram is highly indicative of the rising financial literacy and the inclination towards stock market investing. In the financial year 2022, the number of individual investors actively trading on stock exchanges reached 1.2 crores, as per the sources.
According to the Securities and Exchange Board of India (SEBI) Annual Report for FY 2021–22, new investors registered on the market were not limited to just large cities.
Several factors like lack of alternative investment opportunities with reasonable returns expectations, streamlining of the KYC procedure, growing digitization, options to open accounts online, improved accessibility of investment information via digital modes, and rising public awareness appear to have contributed to the increase in investor participation.
Further, the stock market's V-shaped rebound following the pandemic's outbreak also lured novice investors into the stock market.
If you are dreaming of your debut in the stock market world, it is firstly important for you to know what is a Demat (short for "dematerialized account") account. A Demat account is used to retain securities electronically rather than in the physical format.
However, jumping into the investing world without knowing the nitty-gritty of the market can backfire, and these temptation-driven investments might result in huge losses. Hoping that you have your Demat account ready, we have covered on how to begin your investing journey and the key factors that need to be considered.
- Identify Your Personal Financial Goals If you have never created a financial plan before, take some time to sit down and honestly assess your current financial status before making any investment decisions. Establishing your objectives, time horizon and risk tolerance, either on your own or with the assistance of a financial expert, is the first step to effective investment.
- Select Investment Options Based on Your Risk Tolerance Every investment has some level of risk. Before investing, it's crucial to realize that you can lose some or all of your money if you plan to buy assets, such as stocks, bonds, or mutual funds. Also, it is important that you don’t blindly jump into trending trades. For instance, to ride the strong momentum in an initial public offering (IPO), do not plan to subscribe if you have no solid knowledge about them.
- Educate Yourself and do Due Diligence for Stock Selection Do not get carried away by tips from a self-proclaimed online financial guru or your relatives and friends. Instead, do your due diligence and learn technical and fundamental analysis skills to cherry-pick a stock for your portfolio.
A company’s background, financial metrics, stock valuation, competitive position, industry outlook, and management are some of the parameters that demand proper screening for stock selection. You can upgrade your trading and investing game with PickRight, available on Bajaj Securities App and Bajaj Financial Securities Limited Website if you have your Demat and Trading account.
- Invest Surplus Funds & Avoid Borrowing Making investments, you can't afford to lose money on is the largest error new investors can make. So only invest the extra money, don't put all your emergency savings in the stock market.
On the other hand, banks and brokerage houses can lend you money to purchase stocks through a margin account. It sounds terrific when the stock market is rising, but when the market or your stock is down, think about the other side. In that instance, your loss would reduce your initial investment, and you would also be required to pay the broker's interest.
- Allocate Assets wisely, Avoid Over Diversification Never invest all your funds in a single stock. Instead, build a well-diversified portfolio of equities to assist you in lowering the risk and prevent financial loss if a few of your holdings underperform. Avoid over-diversification as well.
While adding more stocks up to a certain point can assist in proportionally dispersing the risk, going over that point prevents your investment from experiencing the right growth.
- Keep Emotions Aside & Set Realistic Expectations Many investors lose money in the stock markets due to their inability to control their emotions. Keeping your emotions separate from any stock is important. Stop the cycle of greed and fear.
While expecting the "best" from your investments is not the right attitude, if your financial objectives are based on irrational presumptions, you may be in danger. The stock markets shouldn't necessarily be expected to provide a consistent level of return forever. It is preferable to swap to a relatively low-value good stock if you believe the stocks in your portfolio are overvalued.
An increase in individual investor engagement without enough knowledge can have a negative effect. In addition, trading in complicated products may make them vulnerable to losses and erode investors' faith in the market. However, if you are aware of the realities around investing and saving and follow through with a wise plan, you should achieve financial security over time and benefit from sound money management.
So, tightly adhere to these basic guidelines before you embark on your investing journey and open a Demat account with Bajaj Securities for a seamless experience. Keep polishing your concepts related to the stock markets by reading more interesting articles on the Bajaj Securities website.