Demat account and relevant steps of investing in stocks |

In today’s world, nobody wants
their extra money to stay idle. It is not at all wise to keep liquid cash or
preserving it for future to oneself. Because, inflation could eat up the real
time value of your money and even your notes aren’t decreasing, you’ll start to
lose money after a certain period of time. So, smart people never keep their
money to themselves. They invest the money and the smartest investing option
could be the stock market.

Well, stock market sometimes is
risky as well. But, there is no gain without risk. If you want to earn big, you
have to take bigger risks. If you have the courage to overlook the risk
factors, stock market investment is the best option for you. If you already know
the basics of stock market, you need to know about the steps to invest in stock
market.

Image Source: arborinvestmentplanner.com

Before your approach, know which
market you are going to invest in. There are 2 types of stock market. One is
primary market, where companies issue their shares and sell them to the buyers
through a process which is called IPO or Initial Public Offering. But the
companies don’t participate in secondary market where the investors buy and
sell shares among themselves.

Process

  • Open a demat account: This
    is the primary step of stock investment. One must have a demat account to
    invest in stock market. You will find the details about demat account below.
  • Purchasing: After you have
    opened a demat account or a trading account, you are now ready to purchase
    stocks. You can either take help from a licensed stock broker who’d give you
    useful advice on which stock would suit. Or you can set a DSPP (Direct Stock Purchase
    Plan) to buy stocks by yourself from the companies.
  • Trading or investing: Trading and investing both
    are totally different concepts though trading also requires temporary
    investment. While buying stocks, you need to determine whether you want to
    trade or invest. Investing means to buy stocks and hold for a significant time
    period. When the price of the shares grows up to the mark, sell them. On the
    other hand, trading means frequent buying and selling. It refers to the
    purchase of stocks and selling them shortly for small profit and then again
    buying new stocks.

These are the basic steps to
follow in order to open a demat account. Now, let’s jump onto demat account.
Demat is the short form of Dematerialization. The concept was introduced to the
stock markets in 1996 and it revolutionized the world of trading.

In the past, the usual picture of
a stock exchange market was like- hundreds of people are waiting in prolonged
line and all are shouting at the top of their lungs. After waiting for hours,
when one could finally reach the front of the line to buy shares or stocks, one
had to go through hours of filling up forms and papers. And after all those
hardships and paperwork, it would take at least a week for processing and
reaching the money to the buyers account.

Demat system solved all those
issues and made share trading easy. Demat is the process of converting the
physical shares into electronic form. With this account, one can issue share,
buy or sell without any burden of paperwork. You can compare it with your
savings account. Savings account is for saving money while demat account is for
saving all the financial information about stocks.

Easiest way to open a demat
account is to get help from DPs or Depository Participants. Many
banks and brokers work as DPs. They work as intermediaries between depository
and investors. Other than, authorized government depositories are the places
you need to go. In India, there are 2 depositories that sanction demat accounts,
National Securities Depository Limited (NSDL) and the Central Depository
Services Ltd (CDSL).

Image Source: elearnmarkets.com

Following things are needed to
open a demat account.

  • Identity: PAN card,
    passport, voter ID.
  • Proof of address: Ration
    card, driving license, passport.
  • Passport size photographs.
  • Account opening form.

With the account form duly filled and all other authentic documents, you can open your demat account and start investing in stock market. A demat account is very useful as is offset the risk of damage of the share’s paper documents. Also, e-certificates of the shares update data instantly and you can see them in your mobile. Besides reducing delivery risk, demat account is also budget friendly.

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