Let me begin with the explanation of why exactly I am writing this basic article. I get a lot of queries on my mail from beginners who are quite willing to do investment planning but there is no authentic source of information for them. There are no genuine hand holders who are there to give them the initial start. Mind you, stock market investment is a self learning game and you need to put a lot of effort if you want to become a professional. So, if the start is not good, you might not end as a winner. No body is going to make money for you in this world. You might not have born rich but it’s you who will have to choose if you want to die rich. As every journey starts with the first step let me help you in understanding where and how to start. This article is a compilation of most frequently asked questions from the beginners.
How to buy a stock?
To buy your first stock, you need three basic things which are listed below:
- DEMAT account – Demat account is an account meant for holding the stocks in dematerialized format. No need to worry about the demat account as you can open this account in almost all the banks and the procedure is as simple as opening a savings account.
- Trading account – Demat account and trading account are linked. Through trading account, all the money involved while buying and selling stocks is managed. Again, no need to worry, as all the banks provide this service too.
- You need to have money and knowledge too.
For getting demat *** trading account, you can directly approach a bank or your stock broker will help you in opening these accounts.
What is the minimum amount I need to start investing in stocks ?
You will be surprised to know the answer. The absolute minimum amount will be something around Rs 25 to Rs 30. Wait as the surprise is not yet over. The major percentage of above amount is Transaction cost (Brokerage you pay for buying or selling a stock). This is a theoretical absolute minimum. Now let’s work out the practical amount in real life scenario.
| Action | Amount (Rs) |
| Opening Dmat *** Trading Account | 0 to 500 (One time charge) |
| Buying a Stock | Stock Market Price (Varies from less than Rs1 to more than Rs 1000). For Practical calculation let’s say stock price is Rs 100. |
| Transaction Cost + Other charges | 1 % of total amount (approximate) |
Final Calculation
Based on data in above table, maximum amount needed to buy your first stock = 500 + 100 + 1*100/100 = 601.
So, practically you need Rs 601 to buy your first stock whose market price is Rs 100. This amount gets lesser or bigger with the choice of Stock (Market price of stock) you make.
What is an ideal amount to start with ?
From the above calculation, you have a fair idea about the minimum amount needed to start investing in stock market. In simple terms, it’s basically the stock price which you need to have in your pocket. As the account opening fee is a one time fee and the transaction costs are very less as compared to the stock price. Keeping in mind that you are just a beginner, I would suggest you start with a balance of Rs 5000 in your trading account.
What are the options of entering stock market ?
There are two primary roots of entering the stock market:
1. Mutual Funds – For beginners, No Time, No Research
2. Stock Market – For Seasoned investors and frequent traders
Conclusion
Treat this amount (Rs 5000) as the cost of learning a new course. Don’t panic, if you loose this amount as the loss will teach you some great lessons. Be in the game for some time and see if you can handle the pressure or not. Parallel to this, keep on enhancing your investment skills by talking to experienced people, reading books, browsing internet etc. I hope you will like this game.
Author
The author Bimlesh Singh is a financial consultant and is the lead partner at Vertical Grass. He can be reached at bimlesh@verticalgrass.com.
