Understanding the Basics of Investing: How to Invest in Stock Market for Beginners?
Stock market investing can be complicated, but with the right guidance and tools, you can trade confidently. By integrating Demat, trading, and bank accounts, platforms like Angel One make trading easy from anywhere.
Steps to Get Started
Choose the Right Stock Broker
Check the broker’s reputation.
Choose brokers with simple, secure mobile and desktop trading.
Provide easy customer support and detailed portfolio reporting to improve trading insights.
Open Your Account
Visit the Angel One website and select their beginner-friendly Angel Eye platform.
Complete the registration form, after which a sales team member will guide you through the process.
Submit KYC documents (address and identity proof) and sign the member-client agreement outlining the trading terms.
Once verified, you’ll receive a trading kit with login credentials. Change your default password for security.
Learn the Trading Platform
Attend the demo session offered by Angel One to understand the trading tools and process.
Use online resources like FAQs and customer support to enhance your knowledge.
Some brokers also provide short-term training modules to help beginners grasp stock market basics.
Starting Online Trading
Essential Accounts: A Demat and trading account with the same provider simplifies tracking your investments.
Start Small: Invest only surplus money you can afford to lose; avoid borrowing or selling assets to invest.
Avoid Market Timing: Don’t panic-sell when prices decline. Observe trends and avoid reactionary decisions.
Gain Knowledge: Learn technical and fundamental analysis to understand market patterns, oscillators, and trends.
Leverage Insights: Use research reports and analyst recommendations for better decision-making.
Develop Your Strategy
Start with small trades, track market trends, and adjust your strategies as needed. Trading involves losses; confidence and discipline will help you win over time.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Understanding the Basics of Investing: Saving vs Investing
Saving and investing serve distinct financial purposes and are equally essential for sound financial planning. While saving helps you manage immediate needs and emergencies, investing focuses on long-term goals like wealth creation. Recognising this difference is key to making better financial decisions.
Key Differences
Objective: Savings are short-term and easy to manage, aimed at creating a financial safety net. Instruments like fixed deposits and recurring deposits are common. Investments, on the other hand, focus on long-term goals such as buying a house or funding education. They require more research and market understanding.
Liquidity: Savings offer high liquidity, allowing quick access to funds in emergencies. Investments vary in liquidity; for instance, growth stocks are more accessible than mutual funds or bonds.
Risk and Returns: Savings are low-risk or risk-free, providing predictable returns of around 4–8%, mainly preserving money’s value. Investments carry varying degrees of risk but offer higher potential returns, making them ideal for wealth creation.
Balancing the Two
Savings and investments complement each other. Savings ensure financial security and liquidity, while investments enable you to achieve larger financial goals. For young professionals, investing surplus income after covering expenses and emergency funds is wise. For families, maintaining a robust emergency fund should take priority before investing.
Smart financial planning requires a balance between the two. Treating them as distinct tools ensures your financial stability while enabling long-term growth.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Understanding the Basics of Investing: effect of inflation on investing
Your investments and purchasing power are affected by inflation. It occurs when too much money chases too few goods, raising prices and devaluing money. This value erosion affects your ability to buy and your savings over time. Without inflation-adjusted investments, your savings may not be enough to cover future price increases, reducing your purchasing power.
How Inflation Affects Investments
Inflation impacts investments in two significant ways:
Savings: Inflation devalues savings over time.
Reduce Real Returns: If inflation exceeds investment returns, real profit decreases or becomes negative.
A 2% investment with 3% inflation yields a -1% return after inflation adjustment. Bonds and fixed deposits are especially vulnerable. These instruments have fixed returns that may not rise with prices. In addition, inflation devalues the invested principal. At 3% inflation, a ₹100 bond over five years loses value, reaching ₹83 by maturity.
Understanding Nominal vs. Real Interest Rates
Nominal Interest Rate: Gross return without inflation. It represents market inflation expectations but not purchasing power.
The real interest rate is the nominal rate minus inflation, which represents your returns’ true purchasing power.
Rising nominal rates indicate rising inflation expectations, while falling rates indicate declining inflation. Real rates show your wealth growth better.
Inflation’s Mixed Impact on Investment Portfolios
Inflation can positively or negatively affect different asset classes:
Stocks: High inflation raises prices, which may boost company earnings. Inflation may temporarily lower stock prices by reducing consumer demand.
Commodities: Commodities rise with inflation, making them a hedge against inflation.
Protecting Your Portfolio from Inflation
To safeguard your investments, consider these options:
These bonds, issued by governments or companies, offer inflation-indexed returns to protect against rising prices.
As interest rates change, floating interest rate products adjust coupon payments to match inflation.
Certain commodities that rise with inflation are good hedges.
Equity Income Funds: Dividend-paying companies can provide inflation-tracked income.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Understanding the Basics of Investing: Power of Compounding
Compounding is a process of investment in which gains or interest is reinvested, allowing for an exponential growth. It allows for the basic investment amount to grow by including the gains or interest earned, which then becomes part of the principal investment. The interest calculations made in the compounding process, the interest is generated on the investment amount as well as the reinvested interest.
Formula for Compounding
The use of online calculators has made it quick and easy to calculate the compound interest. However, if you want to calculate compound interest, you can do so manually by using this formula:
CI = P (1 + r / 100) n – P
Here, P is Principal amount, r is Rate of interest, and n is Number of years of investment.
How Compounding Works in a Fixed Deposit?
A fixed deposit with compound interest is also called cumulative fixed deposit and it allows interest earned to be paid back to the account holder on the maturity date. It helps maximise your earnings over a long period of time and is essentially liked by those planning for their retirement but have a lower risk appetite.
Advantages of Compound Interest
The interest is earned on the principal amount and the reinvested interest.
It offers the potential for exponential growth when investment is made for a long term.
Strategies for Maximising the Power of Compounding
Start investing early as it can be a great way to build wealth over time because compounding grows significantly in the long term.
Once you have invested, you need to let the compounding run its course and avoid changing your investment course for short-term gains.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.
Understanding the Basics of Investing: Passive Investing vs. Active Investing
Active investing often refers to the buy and sell approach where a trader works on short-term price swings to make profits. It requires an in-depth understanding of the market and is indulged either by full-time traders or professional portfolio managers.
On the opposite side, passive investing is also described as long-term investing. Contrary to the buy and sell approach that forms the basics of active investing, passive investing works on the buy and hold technique. The passive investors disregard short-term profits and setbacks, rather they strictly maintain a long-term perspective and.
Advantages of Passive Investing
As it does not involve trading on a frequent basis, the supervision and management is less expensive.
When invested in an index fund, it allows transparent tracking of the investment.
Disadvantages of Passive Investing
Passive investing locks the investment for a long-term regardless of market conditions.
Passive investing will rarely outperform the market and never achieve significant returns.
Advantages of Active Investing
Active investing allows for a great flexibility as traders can buy and sell in quick succession.
Active investing also allows for utilising different trading strategies and abandoning companies or sectors when the risks become too high.
Disadvantages of Active Investing
It is a costly form of investing as frequent buying and selling invokes greater transaction charges, thus reducing the profit margins.
Active investing exposes the investments to more risks.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.