Creating wealth is a priority for any individual. No one can beat inflation with a steady income or even by saving up money in deposit accounts. There are limited lending institutions in the country that offer interest rates that could beat the inflation rate.
Therefore, one way to create wealth or to beat the inflation rate is to invest in equity-linked instruments for the long term. Also, equity investments have enormous potential to generate fruitful returns for you in the long run. Moreover, to invest in the financial markets, you will require open a Demat account.
Changes in Investor’s Mindset
Earlier, most Indians were largely dependent upon fixed-income instruments. Except for a handful of investors, the majority of investors used to invest only in fixed income instruments or park their funds in deposit accounts. The only time people were keen to invest in the equity market was during the launch of an IPO.
However, the tables are turning and the culture of investment in India is changing. Now, many individuals have started taking equity investments seriously and understand the importance of acquiring cash-rich companies. Moreover, to understand how equity investments help beat inflation, let us understand the basics of investing.
Deciding on Equity Investments
In basic terms, there are two ways to earn money, if you have sufficient capital. One is to either lend someone money or second, you can set up your own business.
While investing in the equity markets, you own a piece of someone’s business. That means you become the owner of a business, and are putting in money and helping the business to grow. Therefore, thanks to the equity market, anyone with capital can become a part-owner of a publicly traded company.
However, you need to understand that the economy and the profits of the companies go hand in hand. Therefore, keep in mind that the stock’s return should match the inflation plus the economic growth.
For instance, if the retail inflation rate is 6%, and the economic growth of the country is 8%. Then the returns from your equity investments should match 14% or more.
This was all the information you should remember before entering the financial market. Now, let us discuss the requirements for investing online in the stock market.
How To Start Trading Online?
You need to begin by finding a depository participant (broker) to open a Demat and trading account.
Finding a broker is a tedious task, as there are multiple options available. Therefore, to narrow down the selection, you should focus on these points.
- If you are looking for a full-service broker, then go for a broker that has a branch near your workplace or home.
- Secondly, the best broker is the one that offers a number of services, but at a cheaper rate.
This information will help you to narrow down the options and choose the best one available. However, this does not mean you will require less research. You will have to give time to research and then choose the best broker for yourself.
Steps to Follow For Investing
After you have selected the broker, you need to follow these points to start trading online.
- The broker will provide you with an application form. You will have to fill the application form, with various details such as income details, address details, and more.
- The application form has to be signed and submitted along with the documents including:
- A bank document with your name, along with the branch’s IFSC code is necessary. This information is included in a passbook, bank statement, and cheque.
- Proof of address includes Adhaar Card, gas bill, electricity bill, and all sorts of documents that have your name along with the permanent address.
- Documents such as, PAN card, Driving license, adhaar card, and other documents that have your photo along with the name.
- A PAN card is mandatory while applying for a Demat account.
- After submitting the application form, your form will go for a verification process.
- After completing the verification, you will receive login credentials for the trading platform. Where you’ll be able to buy and sell financial instruments online.
This write-up is all you require to begin your financial journey. Also, you need to understand that trading in the equity market is not everyone’s cup of tea. However, investing in good quality stocks and cash-rich companies for a longer duration can provide hefty returns. Newcomers can start by investing in equity-linked mutual funds for steady returns.
The only fright that people feel in the equity markets is the volatility. Equity markets are extremely volatile, however, to curb this fear you should look at the 10-year chart of indexes (Nifty50 and SENSEX). It will imprint a better picture of the equity market.
Thus, it is rightly pointed out, “when in doubt, zoom out.” When you zoom out the chart and see the long-term chart, you will understand the markets better.
Hi, I am Nancy Ahuja. I am a professional Financial Analyst in Pune. I have done a post-graduate in finance and working with a reputed financing company. I love to write about business and finance.