5 Steps for investing in share market

Share market is one such investment place, which is highly volatile and risky, but also offers a high return if the market runs like a bull. A stock market involves thousands and millions of financial assets, including shares. There are two types of market in the stock exchange-

• Primary Market-

When a company issue shares the first time for the public, it does in the primary market. This process is also called Initial Public Offering (IPO). Once you subscribe to the IPO, you get a chance of buying the shares directly from the company.

• Secondary Market-

Once the IPO is over, shares are listed for trading purpose on the secondary market. An investor can buy and sell shares here. This platform also allows you to purchase shares from other investors.

Share market investment is certainly the risky platform, but also can reward with good returns, if done with proper strategies.

Pre-requisites-

Before you invest in the Indian stock market, there are specific pre-requisites, which you should know beforehand. They are-

• Savings Account
• Trading and Demat Account
• Good internet connection
• Proper investment guide

Like equity trading in India, you can follow various trading methods. Let us go through 5 steps of investing in the stock market-

1.     Screening the right stocks-

There are thousands of shares, which you will find listed on NSE and BSE. It is impossible to check every stock and find financial gains from them. Therefore, screening and filtering the best stocks will help you. There are online screener tools, which will help in filtering the best for you. Once you select the best, you can be confident enough that it can gain you profit.

2.     Select Companies, which you know-

There are many top Indian and overseas companies, which you can screen and filter. Visit their website, track their profit ratio and returns from their shares purchased by investors. Learn about the company and understand the business of the company. You must invest only on shares of the company that has a good market reputation. Check the return on equity and profit growth to get a clear picture.

3.     Open all necessary accounts-

As mentioned above, do open all the essential accounts with the help of share market broker. They are-

• Bank account
• Trading Account- Online trading and offline trading
• Demat Account

These accounts are essential during your share market dealing.

4.       Finding Low Debt Levels-

There is a considerable risk in investing over significant debt level. You need to consider the criteria- Debt to Equity Ratio and Current Ratio. These two ratios will help you know how heavily the company is dependent on borrowed capital to meet short-term requirements. You need to check how the company is handling debt helping you to invest in its shares

5.  Using Financial Ratios ROE and RoCE to identify right stocks-

World’s richest person Warren Buffett uses these two financial ratios- Return on Equity (RoE) and Return on Capital Employed (RoCE). RoE is a percentage of the company’s net income returning as a value to shareholders. This helps investors to use as alternative measures to know the company’s profit. RoCE, on the other hand, is the primary measure to know-how companies utilizes the capital for making a profit. Using both these methods will help in understanding-

• How profitable is the company
• How efficiently it uses resources.

Bottom Line-