How to buy shares in India for beginners?
Investing in shares is a highly popular investment arena for Indian investors and can be extremely fortuitous when done properly. This article answers the question of how to buy shares in India for beginners and also covers the different types of shares to invest in India for beginners.
How to Buy Shares in India?
- Choose a brokering platform
- Set up your trading and Demat accounts
- Get a PAN card
- Specify the particular exchange (ex. Bombay Stock Exchange)
- Let the broker close the deal
Choose your brokering platform
Since it is impossible to directly visit the stock exchange and buy or sell stocks/shares like any other commodity on the market, it becomes necessary to hire the services of brokers. Brokers are the professionals authorized to buy and sell on the stock markets. Brokers can be licensed individuals, registered companies, and even online agencies accredited by the Securities and Exchanges Board of India (SEBI), which regulates and administers the shares market. So, if you are interested in learning how to buy shares in India, it is recommended that you get a broker. You can consult individual brokers who are reputable and reliable in buying shares in India, or you can also approach broking companies licensed to trade and deal in securities in the stock markets. Furthermore, if you are proficient in Internet and online transactions, you can learn how to buy shares in India through online broking companies like Indiabulls or Kotak Securities.
Brokers would help you fill a form and would require items and documents like passport size photographs, proof of residential address and also a valid proof of identity. The next step would then be to open two types of accounts for you. One of the accounts is a trading account, and the second is a Demat account. The difference in these types of accounts is that a trading account is concerned with buying shares, while a Demat account is meant to hold the stocks or shares.
Set up your trading and demat accounts
The sole purpose of a Demat account is to hold the stocks or shares bought in your name, and these details will also be reflected in your stock portfolio. It is impossible to hold shares in physical form or to simply store stocks physically, so these stocks have to be converted to a Dematerialized or Demat state. This specialized account stores the shares you have acquired from the markets through your brokers in your name. Also, the sale of your stocks will be from this account and reflected in your Demat account statements, which you get at regular intervals.
On the other hand, buying and selling of shares you intend to acquire or sell will require a Trading account. In layman’s terms, for someone still learning to buy shares in India, a trading account is like an intermediary facilitating the buying and selling. Usually, this is your broker’s responsibility. Whether you decide to use an individual broker, a broking firm, or online booking agencies, the Demat and Trading accounts will be opened simultaneously as they are both important requirements for buying shares in India.
Get a PAN card
Another mandatory step in learning about buying shares is getting a Permanent Account Number (PAN). A PAN is a 10-digit alphanumeric number issued by the Income Tax Authorities under the supervision of the Central Board of Direct Taxes (CBDT). It is a unique key assigned to an individual and is mandatory for taxation purposes. The primary purpose of a PAN card is to check the financial transactions carried out by individuals.
Buying and selling shares in India
For professional guidance on how to buy/sell shares in India, you need to inform your broker about what quantity of shares you wish to purchase and, most importantly, at which price. If you use an online broker to help buy shares in India, you can order via their customer care lines so that your broker will transact on your behalf when the share reaches that price. The same applies to the selling of shares. Your broker will process your sell order when the share eventually attains that price. The buy and sell orders are valid for a specific period, usually less than 48 hours. If the buy or sell price is not reached within that time frame, the order is canceled, and you’ll need to place a new order.
Shares are bought and sold in India on two exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Beginners interested in learning how to buy shares in India need to specify the particular exchange to their brokers, as the prices of shares at the two exchanges usually differ.
Types of Shares in India
There are various types of shares in India. Some common types of shares in India include preference shares and equity shares. However, equity shares are the most popular types of shares in India. Equity shares in India can come with variations, such as shares with Differential Voting Rights (DVRs). Though not very popular, DVRs are traded on the BSE and the NSE.
Equity shares
Also called ordinary shares, the majority of the types of shares in India traded on the stock exchanges are equity shares. Equity shares are offered at different face values, and owners of equity shares are entitled to dividends, voting rights, and other benefits as shareholders.
Shares with differential voting rights
More popularly called DVRs, these shares in India offer voting rights that may not be the same as those of equity shareholders. Compared to equity shares, shares with DVRs are often traded at lower values – most times, they could be just 10% of the voting rights of regular equity shareholders. However, DVRs are shares in India that tend to attract higher dividends.
Preference shares
The third type of share in India is preference shares. These shares are named so because owners of preference shares usually have rights to dividends ahead of ordinary shareholders. A fixed dividend is declared annually for preference shares, whereas in equity shares, dividends are declared based on the company’s profits.
The most popular types of shares in India
Of all the types of shares mentioned above in India, equity shares are the most preferred and accessible. Equity shares are also freely listed and frequently traded on the stock exchanges in India.
