Uncategorized – Page 2 – Basicofinvesting

What is P/E ratio?

What is P/E ratio???

Can it help me in valuing or knowing the true (Intrinsic Value) value of the stocks I am holding???

Well, that’s true to certain extent. PE ratio of a particular stock is much useful in finding whether the stock I am holding or planning to add to my current portfolio of stocks is worth the price I am paying for it.

Formula of PE ratio :

PE ratio of Stock X = Market Price of the Stock X/Earning per share of the Stock X

How to interpret PE ratio of a stock??

Suppose Mr X wants to interpret or understand the meaning of PE ratio of TITAN Company [this is the stock which made more than Rs 4000 crores(approx figure) for Mr Rakesh Jhunjuhunwala] Stock

I am taking Standalone (Means excluding the data of subsidiaries of TITAN Company) figures out here.

Here EPS is Rs. 15.48 and Market price of the share is Rs. 1,091.05, so accordingly PE ratio be 1091.05/15.48=70.48 . This PE ratio or commonly also known as PE multiple shows that investors are ready to pay Rs.70 for each rupee of profits company earns.

Please note that EPS=Profits earned by company/No of shares of the company

Now take another example of Rajesh Exports(A peer group company of Titan)

It’s PE ratio would work out to be 685.35/15=45(Approximately). It shows that Investors are ready to pay Rs 45 for each rupee of profits earned by Rajesh Exports.

Your next question would be why People are ready to pay Rs. 70 for TITAN and Rs 45 for Rajesh Exports. It is mainly due to the investors expectations about the future earnings and growth in those earnings of the company.

People are more optimistic about future of Titan’s earnings as compare to the earnings of Rajesh Exports.

Can PE RATIO help me in finding the valuation of a stock ?????

Yes, it can..

Now talking with a generalistic view, stocks above 50 PE ratio can be considered as overvalued and below that can be identified as undervalued securities.

But if the size of business opportunity for a company is big then it is advisable to buy that share even though it is trading above 50 PE.

Like TITAN Company was is now trading at 70 PE, so if an investor would have invested in that share at 50 PE even then he would have made mind blowing gains in it also i.e around 40% appreciation, and this is purely due to the size of business opportunity existing for TITAN at 50 PE ratio even.

Note: there is no perfect value of PE parameter around which we can determine the exact valuation of a company’s share.

What is Forward Price-To-Earnings

These two types P/E ratios: the Forward P/E and the trailing P/E.

The forward (or leading) P/E uses future earnings expectations. It helps provide a clearer picture of what earnings of the company will look like.

Predicting forward P/E requires estimating the expected earnings per share , which in itself is subject matter of judgement on the part of Investors and it can vary substantially from person to person.

When trying to figure out whether a company’s price, and its forward P/E ratio, are “fair,” an investor should try to figure out what assumptions have been made regarding the company’s fundamentals.

Trailing Price-To-Earnings

The trailing P/E relies on past EPS of the company and is derived by dividing the current share price by the EPS over the previous 12 months.

Some investors prefer to look at the trailing P/E because there is lack of objectivity in another individuals earnings predictions.

But Trailing P/E suffers from a major drawback and is the earnings of company(EPS) can not be expected to grow at the historical growth rates of company’s profits.

Specifically in the case of cyclical industries or commodity based companies whose profits can not be predicted with assurance, trailing PEs can not be used for valuation of shares.

LIMITATIONS OF THE PE RATIO

A. Comparability: One should only use P/E as a comparative tool when considering different companies in same sector. P/E can not be used to compare companies working in altogether different sectors. Like we can not compare PE multiple of Infosys and TATA steel as one is an IT company and other one is in steel sector.

B. Considering P/E solely: Rather than treating the P/E ratio as a derivative of the fundamental characteristics like EPS, Growth rate, Return on Equity(ROE) that drive the intrinsic value of a share, they treat it as a characteristic unto itself, capable of being evaluated on its own terms.

For example, you might hear someone say that a stock is trading below its 20-year average P/E, and that therefore it is cheap. Or they might compare one stock’s P/E to another; for example, “This stock has historically traded at a 20% higher P/E than that stock, but today it is trading at a 30% higher multiple, so it is expensive.” These sorts of statement implicitly assume that P/E ratios have a kind of life of their own.

But this kind of thinking is ultimately just a way to avoid the harder work of understanding whether something has changed at the company, specifically whether there have been changes in the fundamentals(like EPS, EBIT, SALES, COSTS, DEBT) that drive the stock price.

While understanding P/E ratios it seems pertinent to mention PEG ratios also.

PEG ratio= P/E ratio/ Growth rate

Now there is a fraction of analysts who feel that P/E ratio does not consider growth rates(provided the share has been valued ignoring growth rates in earnings of share) while finding whether the share is under or over valued actually.

So PEG ratio is the one which removes this inherent drawback of using P/E ratio and gives us a better estimate of value of the share.

Generally a share available at 1 or 1.5 PEG is considered a good investment and above that shares are reckoned as expensive or overvalued.

What are some books every investor (beginner or professional) must read?

Here we would like to summarize books related to investing that every investor either beginner or professional must read

Intelligent Investor:

It is a widely acclaimed book by Benjamin Graham on value investing. Written by one of the greatest investment advisers of twentieth century, the book aims at preventing potential investors from substantial errors and also teaches them strategies to achieve long-term investment goals.

Over the years, investment market has been following teachings and strategies of Graham for growth and development. In the book, Graham has explained various principles and strategies for investing safely and successfully without taking bigger risks. Modern-day investors still continue to use his proven and well-executed techniques for value investment.

To buy one online now – click Here

The current edition highlights some of the important concepts that are useful for latest financial orders and plans. Keeping Graham’s unique text in original form, the book focuses on major principles that can be applied in day-to-day life. All the concepts and principles are explained with the help of examples for better clarity and understanding of the financial world.

Combination of original plan of Graham and the current financial situations are the reason behind this book’s preference today’s investors. It is a detailed version with several wisdom quotes that are likely to change one’s investing career and lead to the path of financial safety and security.

To buy one online now – click Here

2. One up on wall street

Penned by the famous mutual-fund manager, Peter Lynch, this book elaborates the many advantages that an average investor has over professionals and how they can help them reach financial triumph.

To buy one online now – click Here

How To Use What You Already Know To Make Money in The Market explains how your knowledge alone can assist you beat the pros of investing. From the viewpoint of America’s most triumphant money manager, investment chances are extensively accessible. Whether supermarket or work place, you can find goods and services everywhere. You have to select these organizations in which to invest, before they are found by skilled analysts. You will find more interesting knowledge on investment. Thus the book has become one of the best seller and treasure among readers. Moreover, this book provides time less recommendation on money business. This book has discussed the tips, ebb and flows on building it big in the investment market.

To buy one online now – click Here

3. The man who solved the market

The first and fascinating look into the mind of Jim Simons, the shy billionaire who revolutionized Wall Street.

‘A compelling read‘ – Economist

‘Captivating‘ – New York Times book review

To buy one online now – click Here

Jim Simons is the greatest moneymaker in modern financial history. His record bests those of legendary investors, including Warren Buffett, George Soros and Ray Dalio. Yet Simons and his strategies are shrouded in mystery. The financial industry has long craved a look inside Simons’s secretive hedge fund, Renaissance Technologies and veteran Wall Street Journal reporter Gregory Zuckerman delivers the goods.

After a legendary career as a mathematician and a stint breaking Soviet codes, Simons set out to conquer financial markets with a radical approach. Simons hired physicists, mathematicians and computer scientists – most of whom knew little about finance – to amass piles of data and build algorithms hunting for the deeply hidden patterns in global markets. Experts scoffed, but Simons and his colleagues became some of the richest in the world, their strategy of creating mathematical models and crunching data embraced by almost every industry. Simons and his team used their wealth to upend the worlds of politics, philanthropy and science. They weren’t prepared for the backlash.

In this fast-paced narrative, Zuckerman examines how Simons launched a quantitative revolution on Wall Street, and reveals the impact that Simons, the quiet billionaire king of the quants, has had on worlds well beyond finance.

To buy one online now – click Here

Special Mention – Rich Dad Poor Dad

April 2017 marks 20 years since Robert Kiyosakis Rich Dad Poor Dad first made waves in the Personal Finance arena. It has since become the 1 Personal Finance book of all time translated into dozens of languages and sold around the world Rich Dad Poor Dad is Roberts story of growing up with two dads his real father and the father of his best friend his rich dad and the ways in which both men shaped his thoughts about money and investing. The book explodes the myth that you need to earn a high income to be rich and explains the difference between working for money and having your money work for you 20 Years 2020 Hindsight In the 20th Anniversary Edition of this classic Robert offers an update on what weve seen over the past 20 years related to money investing and the global economy Sidebars throughout the book will take readers fast forward from 1997 to today as Robert assesses how the principles taught by his rich dad have stood the test of time In many ways the messages of Rich Dad Poor Dad messages that were criticized and challenged two decades ago are more meaningful relevant and important today than they were 20 years ago As always readers can expect that Robert will be candid insightful and continue to rock more than a few boats in his retrospective Will there be a few surprises Count on it Rich Dad Poor Dad Explodes the myth that you need to earn a high income to become rich Challenges the belief that your house is an asset Shows parents why they cant rely on the school system to teach their kids about money Defines once and for all an asset and a liability Teaches you what to teach your kids about money for their future financial success

To buy one online now – click Here

What is intraday trading?

Basics of intraday trading:

Intraday trading refers to buying and selling of stocks on the same day. It is done using online trading platforms. Suppose a person buys stock for a company, they have to specifically mention ‘intraday’ in the portal of the platform used. This enables the user to buy and sell the same number of stocks of the same company on the same day before the market closes. The purpose is earning profits through the movement of market indices. It is also referred to as Day Trading by many.

Stock market earns you great returns if you are a long-term investor. But even on the short term, they can help you earn profits. Suppose a stock opens trade at Rs 500 in the morning. Soon, it climbs to Rs. 550 within an hour or two. If you had bought 1,000 stocks in the morning and sold at Rs 550, you would have made a cool profit of Rs 50,000 – all within a few hours. This is called intraday trading.

Traders base their profits on different kinds of purposes. One may be a long-term investment which is a gradual process, yet may produce high returns. The other can be a short-term strategy which includes trading with quick gains. One such method is Intraday Trading.

Key Points

Intraday trading refers to buying and selling of stocks on the same day before the market closes. If you fail to do so, your broker may square-off your position, or convert it into a delivery trade.
Whether a person is an experienced trader or a beginner, looking at the trends and indicators is always beneficial for intraday trading.

Intraday Trading Indicators

Traders often face difficulties with concurrent events occurring in intraday trading. Whether a person is an experienced trader or a beginner, looking at the trends and indicators is always beneficial for everyday trading. Let us look at some indicators :

Moving Average Most traders rely on the daily moving average (DMA) of the stocks. The moving average is a line on the charts that show the behavior of a stock over a period of time. These charts show the opening and closing rates of the stock. The minimum average line shows the average closing rates of that particular stock in the given interval and helps you comprehend the ups and downs in the price and determine the flow of the stock.
Bollinger Bands:These are bands that show the standard deviation of the stock. It consists of three lines – the moving average, the upper limit and the lower limit. If you seek the trading ranger of a particular stock, these help you locate the price variation of the stock over a period of time, hence, you can put your money around the observations.
Momentum Oscillators:The stock prices are highly volatile. Such variations largely depend on market situations. If a trader wants to know whether a stock would rise or fall, this is where the momentum oscillator is beneficial. It is depicted in a range of 1 to 100 and shows whether a stock would further rise or fall, helping you in determining when to buy a particular stock. It shows the right time to trade, not making you lose your chances.
Relative Strength Index (RSI):This is the indexed form of all the trading that happens over a stock in a period of time. It ranges from 1 to 100 and graphically shows when a stock is sold or bought highest. The RSI is considered overbought when over 70 and oversold when below 30. It uses a formula for this calculation, that is,RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]

Intraday Time Analysis

When it comes to variations and movements in intraday trading, the most helpful tools are the daily charts. These can provide all the necessary information about the stocks with indicators that show the trend of any particular stock over a definite period of time. They convey the movement of the prices from the start to the close of market. Time analysis becomes a useful tool for intraday trading as the momentum tends to shift quickly. You won’t be able to comprehend the charts before the stock you put your money in goes down steeply or shoots right up. Hence, it becomes necessary for day traders to look for such charts that would help you understand the flow better – we’ve covered these concepts extensively in things to know while investing in Intraday Trading.

How to choose stocks for Intraday Trading?

Choice of stocks is the first and the most vital step when it comes to Intraday Trading. After all, the money you put in is only worth the time if you get a return, otherwise, it is done and dusted. So how do we choose stocks wisely? Let us take a look.

Avoid volatile stocks: It is always preferable to stay away from what clearly looks unstable. Why put your money in something that might never let you have it back. Hence, it is advisable to track the stock behavior and consider trading over potentially stable stocks.
Correlate stocks with geopolitical changes: It is better to invest in stocks that have a correlation with major sectors. If the index for the sector goes up, it might also affect the price of the stock in a positive manner. For example, strengthening of Indian Rupee against Chinese Renminbi would affect the iron industries. Resultantly, the income from exports would increase and the stocks would go up. Picking stocks while keeping in mind such market situation would help you a lot.
Research: Looking, analyzing and comprehending are the basic steps of trading. Nothing goes right without proper calculation unless you really have luck on your side while trading. As luck does not often show its grace, it is always necessary to research before trading.
Trends: Sometimes it’s better to follow the herd rather than being a lone wolf. Look for the general flow in the market or the stocks that have raised the most interests in traders. When the market rises, traders must look for the stocks that rise, when it falls, looks for the stocks that show a potential decline.

Five things to know about intraday trading:

Trading Strategy: Intraday trading is a strategy where you buy and sell your stock holding in the same trading day. Traders thus take advantage of the price fluctuations that take place during market hours. In case the trader expects the price to rise during the day, he or she would first buy a lot of securities and then sell some time during the day. The reverse, called short-selling, can also happen. To take advantage of a falling market, traders would short-sell. This is when they borrow shares and sell it in the market. Once the price falls as required, the traders buy shares at the lower price and then return them to the lender.
Stock price impact: By doing so, they often affect the stock’s price trend. For example, a stock is trading at Rs 100-102 range. Intraday or day traders decide to bet on the stock and 1,000 shares each. Thus there is a sudden rise in demand for the share. This causes prices to go up marginally. As soon as it hits a certain level, traders sell their stocks. This, in turn, causes prices to fall.
Technical analysis: Since day-traders are only concerned with the volatility in price and volume of the stock, these traders rarely look into the financial viability of the underlying company. They usually employ technical analysis. This includes analyzing historical trends in stock prices and volumes to forecast the future price. Technical analysis helps determine the right conditions to buy and sell stocks. This usually requires a lot of time and effort. As a result, day traders are usually full-time traders, closely monitoring each and every movement in the stocks.
How to day-trade:First of all, the idea is to select stocks which have a high volume of trade. This means they are highly liquid. This could include penny stocks – shares of small-scale companies with prices as low as Rs 20. Select a maximum of two or three stocks at a time. It would become difficult to monitor more shares. Decide the price at which you want to buy and sell – your entry and target prices. Most importantly, ensure you have a stop loss order to act as a safety net. This will help reduce your risks. Once you have placed your order, monitor closely and exit when the price has hit your target or stop- loss levels.
High risks:Since day traders essentially take advantage of the volatility, they are exposed to great risks. This is much higher than the risks taken by a long-term stock investor. As a result, intraday traders are usually speculators, who are willing to take high risks. They usually conduct high-value trades worth lakhs and crores of rupees by using margin trading.However, intraday traders can also make an extraordinary amount of profits.

Delivery V/S Intraday trading: If you buy stock on delivery basis, you can pretty much do anything with it. You can keep it for as long as you want, or sell it the next day. It all depends on what you wish to do with it. Anytime you feel the market is high or the value of the stocks held is adequate enough to trade, you can sell them to earn the benefits.

In intraday trading, you are required to sell the stocks on the same day, before the market closes. If you fail to do so, there can be two outcomes. Some online platforms automatically convert those stocks into delivery trades and levy a brokerage, so that you can sell them at your own desired time. Others just square-off your trades at the market price during the close time, even if you’re making a loss, and sadly you have to bear the losses.

Wrapping Up

Intraday Trading is done not with the interest of investment, but with the motive of quick profit.
Common indicators which prove to be helpful for traders are Moving Average, Bollinger Bands, Relative Strength Index, Momentum Oscillators.
It is advisable to avoid volatile stocks. Traders should look out for stocks which are correlated with major sectors.
Research and following the trends prove vital for a trader, may they be a beginner or a professional

What is an Initial Public Offering (IPO)?

Everything you wanted to know about IPO in simplest possible way.

Mr X has a small Burger shop X burgers . Mr. X wants to increase the number of locations so more people can enjoy its delicious Burger. Although X burgers is profitable but he doesn’t have the money to open new stores without taking debt from banks because for the loan he has to pay the interest. Mr. X doesn’t want to take on more debts so decided to sell the shares of his business to the public in order to fund its expansion plans Mr. X goes to an investment bank to SET up the IPO .The investment bank values X Burgers as 3,00,000 and decided to split it into 50,000 shares priced at 6 Rs per share, the investment bank sells 25,000 shares to the public and Mr X keeps 25,000 shares as he owns the company. Mr . X now has 150000 from investors who purchased its shares and Mr, X still holds 50% ownership in its company.

Happy Mr. X used money to open 5 new stores increasing the company’s profits and values of its investor’s shares.

As simple as that.

So, An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO. Companies fall into two broad categories: private and public to the public”

Who can invest – everybody like Me , You , Your father , Your GF or BF (as the case might be ) your neighbor , your maid , or any other you know.

What are returns – IPOs gave average 15–20% in just 15 days.
what Proofs? Economic times of 10th June ( not sure about date)

You can buy it in slots , ( i.e. 1 slot = approx 15000)

Means 15,000 can turn into 18,000
30,000 can turn into 36,000
45,000 can turn into 49,000
60,000 can turn into 72,000
and so on.

Minimum investment : Now a days IPOs are ranging from 14,000 to 15,000 per slot,

Where can I apply : Open a 3 in 1 account in any bank . ( 3 in 1 means Trade , Demat and savings) , in your savings account active net banking , go to ASBA option , active it and apply. That’s all. Still any confusion , comment below I will clarify.

How can I make Profit : After announcing the IPO , The stock hits the stock exchange as its debut.

Ex- If you company issued 100 stocks at Rupee 150 and made debut at 180 then 30Rs profit per share or 3000 profit per slot

Factors To Evaluate In Order To Avoid Poor-Performing IPOs –

1. Company Financials: See if the company is making adequate profits over the years or not.

2. Know The Reason Behind The IPO Offering: If the company is raising the funds for expansion of the business, it will be good for the company and your investment.

3. Management’s Stake In The Company: Its wise to consider companies whose management holds a large stake in the company. This is a sign that the top management still believes in the company’s future.

4. Understand How The Sector Is Performing: Analyse the growth potential of the sector also along with the company. A sector which does not offer much growth, should be avoided.

5. Who’s Investing In The IPO: IPO’s anchor book gives prospective investors a hint about the credibility of the IPO’s performance. Anchor book subscription opens a day before the launch of an IPO. A healthy anchor book gives comfort to small investors as it indicates the faith shown by institutional investors

What are mutual funds?

Many times we come across people who want to know what are mutual funds. I have tried to explain below a detailed answer on the same. Hope you will understand it

Let us simplify this for everyone to understand.

Consider this conversation between father and son. The curious teenager seeks advice from his Dad on Mutual funds. In the process, he realizes the importance of the same.

Son: Dad, what is a Mutual fund?

Dad: Do you know how to drive?

Son: No.

Dad: But, if you have a car and you don’t know how to drive, how will you reach your destination?

Son: Its simple Dad. I’ll hire a driver for me.

Dad: That’s exactly why we need mutual funds. You see son, investing in the stock market is a risky business. It is an art. If you know how to drive, then you do not need a driver. But, if you don’t know how to drive, you will need one. Mutual funds are managed by experts and people who do not want to take the risk of investing their money all by themselves, rely on the Mutual funds which are managed by the experts. It is akin to relying on a driver in case you do not know how to drive.

Son: Where is the money invested by the mutual funds?

Dad: There are different kinds of Mutual funds. Some invest only in equities, some invest in equities and debentures. Then there are other mutual funds who also put some money in gold and bonds.

Son: But how to know which category is best suited?

Dad: Okay, can you answer this simple question: ‘For how many minutes do you boil the milk?’

Son: Umm, 5–10 minutes may be! Or 15 minutes!

Dad: There is no one answer to this question. The answer depends on the fact as to for what purpose you are boiling the milk? If you want to drink the milk, then you boil it for 5 minutes. But, if you are making some dessert, then you would probably boil it for 15 minutes. You see, the same theory applies in case of selecting the category of a Mutual fund. If your investment goal is short term, say buying a car, then a hybrid of debt and equity would be more suitable as it is less risky and you need back the money in a less span of time. But, if your goal is something like marriage of your kids then equity oriented mutual funds are better suited. This is because over a longer period of time, equity can give handsome returns.

Son: But Dad, I don’t have much money to put in the Mutual funds. What should I do?

Dad: That’s the best part of investing in a Mutual fund. You can start even with Rs.500 a month. You can increase the amount to be invested as and when you have more money. Mutual Funds have a huge inflow of money from people like us and hence even with the investment of Rs.500 a month, you will be able to buy shares of companies whose share price is more than Rs.500.

Son: Don’t you feel it is a bit early for a teenager like me to put the money so early?

Dad: No son. It is never too early to invest in Mutual funds. We can not time the market. Hence, it is always better to start early. Plus, the power of compounding will help your fund to grow exponentially. All you need to have is discipline. Do not time the market but give your time to the market. In a cricket match a huge score can be chased even by singles and doubles if we are disciplined.

Son: What should I do in case of a stock market crash.

Dad: You can invest the money in the Mutual funds in two ways: Lump-sum amount or through SIP (Systematic Investment Plan). It is recommended to put the money through SIP. In case of an unstable market environment, you can avoid the risk of putting a lot of money at once if you follow the SIP route of investment. In case of a stock market crash, it is always recommended to continue your SIP. In longer term you will realize that you have gained a lot owing to buying the stocks at a cheaper price during the crash.

Son: Thanks! That was a lot to learn. I’ll be starting the investment as early as possible.

Top 2 Stock brokers to open demat account in India

We regularly find people asking us to tell the best broker which has excellent app and reliable customer support. We have reviewed around 50+ stockbrokers and thus we have concluded that these 3 are the best options to open a demat account in India

Upstox – The best among all options available. Its app is the best for all professional as well as rookie traders. I have given brief summary of upstox below for your pursuance. To read detailed review – Click Here

Brokerage – Rs 0 (zero) for long term trades, Rs 20 or 0.01% intraday trades

Leverage – Highest intraday leverage among all available discount brokers

On the go Tools – Upstox pro the mobile app has been rated as the best trading app on the appstore. It has a customer rating of 4.4 and has detailed buy sell watchlist

Reliable – Upstox is backed by the likes of Mr. Ratan tata whose name is a credible figure of trust in India

To open an account online and avail exciting discount offers upto Rs 28,000 – Click Here

2. Zerodha

This is the broker that i am using personally for the past 6 years and have no problem in backing that it is the best broker available in discount brokerage space that spends on developing financial eco system. I am summarizing the advantages of zerodha here. I have given a detailed review for your pursuance on why you should opt for zerodha here

Brokerage – Rs 0 (zero) for long term trades, Rs 20 or 0.01% which ever is lower intraday trades

Leverage – High intraday leverage among all available discount brokers

Platforms – Zerodha has excellent web and mobile app called as kite which is embedded with excellent on the go features such as – 20 ticks, Trading view, Chart enabled buy/sell

Multilingual Customer Support – It has multilingual customer support and 200+ partner offices through out india

Trust – It is trusted by 10 lakh + traders for daily trades and has been awarded as best retail stock broker

To open a demat account Online in 5 minutes – Click here

How do I start investing in the stock market as a beginner?

Part 1:- How to Invest in the Stock Market?

Investing in the stock market means buying fractional ownership of a company.

Companies sell their fractional ownership in small units. It is called Share/Stock/Equity.

The very first time when they sell these units, it is called IPO.

Any Indian can apply for these IPO.

And one of the ways to invest in the stock market is by buying IPOs of the company. The IPO market is called the primary market.

However, there is a chance that you won’t get share allocation during IPO.

But, we do have a secondary market where you can buy/sell shares. And in fact, it is more famous. When you hear keywords like Nifty, Sensex, and stock prices of different companies, it is all about the secondary market. Trading of shares/stock happens in the secondary market.

Summary:- You can invest in the Indian market by applying for IPOs or buying stocks of different companies.

Part 2:- Know about the Stock Exchange, Stock Broker, Depository and SEBI.

Now that you understand about IPOs and secondary market. Let us now understand who are the key participants in the stock market.

Exchanges:- NSE and BSE are famous stock exchanges (There are more but you don’t need to worry about them at all. Ignorance is bliss here). Company’s get listed here (IPO process). And after IPO, their shares/stocks trading happens on these exchanges.

Stock Brokers:- Exchanges appoint stock brokers. You need to open one trading account one of the brokers appointed by stock exchanges. Brokers will also help you with opening a D-mat account. (In the later part, I’ll explain the difference between D-MAT and trading accounts).

Depository:- NSDL and CDSL are two depositories in India. The way you deposit your money in Bank – You deposit your shares with depositories. When you open your Demat account, you are given a 16 digit DP id. This DP id is like your bank account number. So, every time you buy share/stocks, your stocks get deposited in your DP id (Demat id).

SEBI:- Consider SEBI as the grandfather in this stock market family. SEBI is the regulatory body. They make rules for the stock market in India. They will also safeguard your interest. You can complain about your broker to SEBI.

Summary:- Knowing these guys will clear your basic doubts about the stock marketing functioning.

Part 3:- What is a DMAT account and Trading account?

DMAT account is the account where you keep your shares. It gets opened with depository NSDL and CDSL. Your stockbroker will help you open one. You can have one or multiple DMAT accounts. It is identified as a unique 16 digit unique DP id.

The trading account is the account you open with a stockbroker to buy and sell shares/stocks. This is the first stepping stone towards your investment journey in the stock market. Again, you can have one or multiple trading accounts with one or many stockbrokers.

Summary:- You got two choices to open DMAT (either with CDSL or NSDL) account but 100+ options to select stock broker in India.

Part 4:- How to select the correct stockbroker in India?

It is important that you become wise than you get a straight answer from me here. So, instead of giving three-four names and favoring a few brokers, I would like to explain to you what are the factors you should consider before freezing one stockbroker for yourself.

Safety and security:- In financial services and banking business or anything related to money “safety” and “security” should be the first in the rank. So, one stockbroker must be trustworthy and ethical.

Costing:- Every time you buy or sell shares, the broker will apply a brokerage fee. Make sure your broker is not charging you a hefty brokerage fee. Anything between 0.10% to 0.20% is fine these days. Generally, brokers quote high brokerage to first-time investors but if you negotiate, they will reduce the brokerage for you.

Trading platform:- Ease of doing things is also critical. Fund transfer, buy-sell activity, different reports are few of the actions, you would be taking on the broker electronic platform. It is important that you take a good demo of their platform and website.

Client support:- For any company, providing support to the client is a cost to the company. But, one company must focus on this. You need to check if the client support process and client support teams of your stockbroker is friendly

Summary:- I have done my research and so i would recommend these 2 brokers to you

Zerodha – India’s leading discount brokerage and best broker. I have given a detailed overview why you should choose zerodha. Without stock broker you cannot start investing in stocks. Detailed review of Zerodha – Why Zerodha

Upstox – It is 2nd biggest discount brokerage in Indian Industry. And if you don’t like Zerodha than i would recommend this to you. Detailed review of Upstox – Click here

Part 5:- How much I should invest in the Stock market?

Now that you know the operational part and ready to invest in the Indian Stock Market, you will have one question how much to invest in it.

There are two approaches to it.

Approach 1:- Regular investing

Let’s say, you earn 100 Rs per month. But, you are able to save only 40 Rs.

If you are under the age of 35 yrs:-

You can invest up to a maximum of 20 Rs out of the saving of 40 Rs. Which is 50% of your savings. This is the maximum which I would like to advise. The minimum could be as low as 10% of your savings.

Between 35 Yrs to 50 years:-

You can invest up to a maximum of 13.5 Rs out of the saving of 40 Rs. Which is 35% of your monthly savings. This is the maximum which I would like to advise. The minimum could be as low as 10% of your savings.

Above 50 years:-

Anything between 10% to 20% of your monthly savings you can invest in the stock market.

Approach 2:- Lumpsum approach – net worth wise.

Your total net worth is the sum of all your investments – All your debt.

(FDs, PF, PPF, Real estate, Gold, Stocks, Bonds, savings) – total debt = Your net worth

So, calculate your total net worth and you can allocate up to a maximum of 30% in shares/stock. The minimum could be as low as 5%.

Summary:- It is you who knows you the best. Understand one thing that Stocks/shares are an investment in businesses. And businesses do fail. And, you may lose your money. So, define the risk properly before investing in the stock market and invest confidently in the long term. Invest only that much which you would not need in the near term. Invest to build wealth and not to make money.

Part 6:- When is the right time to invest in the stock market?

Well, I got a very simple answer to this. If you have made up your mind to invest, then today is the right time to invest.

Many people try to time the market. And, it is the most dangerous thing. If you are trying to do so, you are trying to forecast too many things. And it is not possible.

Even if you are a pro-investor. Don’t try to time the market.

Invest today and invest regularly. Invest when the market is on top, invest when the market is down and also invest when the market is neutral. Make a discipline on time interval. Once in a month or once in a quarter and stick to it.

Summary:- No one can answer this question with a specific timeline. So better to develop a discipline than to keep looking for the right time.

Part 7:- Where to invest? Which are the companies you should invest in?

Identifying good companies to invest can be a simple and complicated process. And, it will depend completely on the objectivity of your task.

When is it simple?

– If you are looking for safe investments with moderate returns, it can be simple to identify companies. Look for the list of Nifty 50 or Sensex 30 shares.

Nifty50 is a list of top companies in India from 13–14 different sectors. If you visit the NSE website, you can find this list. Look for companies which are not posting loses or having troubles in recent time. Select seven to eight different sectors which you also understand. Select one or two companies from each sector and start building your portfolio in a disciplined manner. There is a very high chance, you will get good returns.

When is it complicated?

-If you are looking to invest in companies at their early stage. At this stage, companies are trying to grow at a fast pace. They take the risk as well. And, if their growth plan works they give high returns to their investors.

For this, you have to develop an understanding of at least 3–4 sectors which will grow faster than the economy. Learn about the market size of the product. Competition and many more factors which impact the company’s performance in that sector. Learn about valuation in detail.

Few points are common to be it whatever approach you take.

a) Don’t invest in unethical companies. If you don’t find promoters and management of the companies ethical and honest, ignore them. Even when the company’s business will grow, they may siphon out the profits.

b) Don’t invest in loss companies. It doesn’t matter how discounted their share prices are looking now. A share which has come down to 50 Rs from 100 Rs, it may go down to 10 Rs as well.

c) Don’t invest based on tips and insider information. Most of the time this kind of news is propagated to offload shares of scammers.

d) Penny stocks – 2Rs, 4Rs, 10 Rs share price type of shares. Stay away from it.

Summary:- Make a rule of investing. This will safeguard you. Keep it simple. Invest in companies where you have worked, companies which products you use, companies which you think are making a difference in people’s life, companies which are contributing to the country’s economy.

Why Zerodha?

I would suggest you to opt for Zerodha. I have summed up the requirements of an Intraday trader and its solutions provided by zerodha

Cheap Brokerage (Rs 20 or 0.01% which ever is lower)

The first and foremost thing that is required for intraday trading is cheap brokerage as brokerage eats up a lot of profit and exaggerate your losses.

Pricing

• Free equity delivery

• All your equity delivery investments (NSE, BSE), absolutely free — ₹0 brokerage.

• 20 intraday equity and F&O trades

• 20 or 0.01% (whichever is lower) per executed order on intraday trades across equity, currency, and commodity trades across NSE, BSE, and MCX.

Here are the screen shot of brokerage to be paid for Turnover of Rs 1 lakh

Higher Margins (Upto 27.8 X on Bracket order)

The other thing every intraday trader wants is higher leverage or margin. Zerodha Provides upto 27.8 X times of your money for intraday trade on commission free basis

To trade for Rs 1,00,000 intraday you require Rs 3600 in your account

Web based Tools (with charting facilities)

In this fast moving world Everybody wants to day intraday while sitting in their offices or On the go in traffic. Zerodha has excellent web based tools by which you can trade anywhere on the go using google chrome, Mozilla Firefox, Opera Mini or internet explorer. There is android and ios app available as well

Trading at Zerodha What are the trading platforms offered by Zerodha?

• Light weight HTML5 with extensive charting and unlimited historical data. Kite web.

• Available on Android and iOS.

• Kite user manual.

• Kite connect to build own trading experience. API doc. Kite forum.

• Pi – Advanced charting with backtesting, expert advisors, and more.

• Pi help section on Zconnect.

• What are the different order types available at Zerodha?

• Stoploss orders.

Support (Call and mail)

Support is the backbone of any business. Zerodha provides call and trade facilities if you don’t have access to internet and quick support response to your queries both via call and mail

Reliable (Is Zerodha Reliable?)

Yes of course it is reliable. All the shares you purchase are saved with Depositiories (NSDL and CDSL). If you don’t like service you can migrate to any broker hassle free.

Yet , FYI (For your information) Zerodha has Credibility of having run the business successfully over the last 6 years with 2.5 lakh clients which makes up 5% of intraday transaction on NSE, BSE and MCX

Interactive learning

Zerodha also have Zerodha varsi ty a place where beginners can learn how to trade whenever they want and this facility is available free of cost.

Make a Smart Decision opt for Zerodha

if you want to start an account with zerodha you can use the link given below

ONLINE ACCOUNT OPENING IN JUST 2 MINUTES WITH AADHAAR

Why should one choose Upstox?

In today’s trading and investment world, we need a modern broker who can act as a Onestop Shop for all our investment and trading needs.

My recommended broker is Upstox. Here’s Why –

Cost Effective – Upstox is the most cost effective broker in India. In India, there are 2 type of brokers – Traditional and Discount Brokers. Traditional brokers charge the brokerage on per lot basis where as discount brokers charge brokerage on per trade basis. This means that if you purchase 5 lots of an option contract then a traditional broker will charge you brokerage on 5 lots around Rs. 300 where as a traditional broker will charge brokerage on a single trade which will cost you just 20 bucks. So it’s always good to have an account with the discount broker. Upstox brokerage charges are the lowest in India –

Equity Intraday, F&O, Currency and Commodity – Rs. 20/trade
Equity Delivery Trades – FREE

Full Bouquet of Service – Whether you are a trader or an investor, it’s important that your broker is providing all market related service. Upstox covers all products

Equity
Derivatives
Currency
Commodities and
Mutual Funds

Amazing User Interface – Upstox Interface is simply amazing. It provides very handy tools which are actually needed while trading. Below are my favourite features of Upstox UI –

Multi Scrip Select – It enables us to select scrips and it’s f&o contracts in one go using a common search. For Ex – Search “Reliance” and add Reliance Eq, Reliance Fut and CE PE also.

Price Alert on Mobile and Email – You can setup to receive a Mobile and Email alert when your favourite stock comes to your desired level. I do my research in the evening and setup alert using this feature. No need to stare the screen the whole day.

Amibroker Integration – This is real Automated Trading. Upstox has enabled to link your trading account with Amibroker and automate your trading. This feature is available at a nominal price.

Impactful User Interface – Below is a view of how a typical watchlist looks like in Upstox. It contains all the necessary information and smartly gives more info. I like the way they have included a snapshot of line chart for every stock so that you can interprete the movement in a glance.

Customer Care Chat Service – Upstox provides a dedicated customer care executive who can help you to resolve all your queries and issues

Instant account opening – It’s easy to open an Upstox account. Its a completely online process if your can e-verify using Aadhar OTP. To open your Upstox account, you can click here

Open Demat Account Online For Free and get complimentary benefits worth Rs 28,000 also