Updated July 13, 2023
How to Buy Shares?
An individual who wants to buy shares should follow some rules, and the documentation should be done properly.
- Firstly, a Pan Card should be obtained in the name of the individual who wants the shares. The full form of the Pan Card is the Permanent Account Number, and it is a 10-digit alpha number. The Pan Card is obtained by submitting proper government-authorised papers of individuals. The Pan is required for Taxation purposes also.
- Secondly, the individuals should open their Demat Accounts. The Demat Account is a dematerialized account, and the physical shares are transferred to electronic format. On opening a Demat account, a unique Demat account number is obtained. This number is used while buying the shares of any company. This account is like a bank account in which you can deposit your shares purchased and sold out on debit and credit side means by looking at the account, anyone can get an idea of how many shares exactly an individual has. Depository Participant (D.P) is also required to obtain a Demat account; this depository participant can be registered with Central Securities Depository Limited (CDSL) or National Securities Depository Limited (NSDL), or both.
- A Trading account is also required to perform the purchase and sale of the shares. For example, after opening a Demat account, you need to have a trading account if you want to purchase shares online.
- It is one of a rule that an individual cannot buy shares themselves they have to connect with the broker to deal in shares. This is because brokers act as financial intermediaries, connecting individuals with the stock market. The brokers are certified by the Securities Exchange Board of India. They also give consultancy to the individuals about which shares they can buy and can also give relevant tips that can help them make profits.
- The next requirement is a bank account in the name of an individual. The purchase of any shared online is done through a trading account. After generating the requisition, the broker will settle the transaction with the stock market. The shares are transferred to the accounts within two days. All the charges are settled from the bank account of the individuals.
- Now, the individuals should get a Unique Identification Number (UIN) from the Securities Exchange Board of India (SEBI). SEBI has made it compulsory that an investor have a UIN because the SEBI must maintain all the databases to have control over their investors. But UIN is required for investors who invest more than 1 Lakhs capital in the share market; other than that, no investor requires UIN for trading in the stock market.
Thus, by following certain rules, the shares can be purchased. The investors are expected to follow all the mandatory rules and regulations of the SEBI.
Things to Consider While Buying Shares
- The investor should research the company whose shares they are planning to purchase.
- Time plays a very vital role in this scenario. Therefore, an investment made at the proper time can help the investors to gain from the transaction.
- The investor should understand the company’s price to earnings ratio so that the share’s prices and defined gain can be found out.
- The investors should also be keen to understand the Beta of the shares. Although it seems to be a bit difficult, this practice will help the investor understand the calculated risk associated with buying the share.
- Investors should invest in those companies whose reports seem to be perfect, and the quarterly reports should be studied very well by the investors before investing.
- Also, dividend plays a very vital role in establishing trust amongst investors. Therefore, the investors should understand the dividend earned from the company and its future perspective.
- The investor should be knowledgeable in investing his shares, and he should identify which shares are the best for him for long-term investment.
- Investors should start with a very less capital investment to understand the market condition very well.
- The investors are also expected to have knowledge of the company’s financial condition so that they can make an effective decision on buying the shares.
- The investor should select the best stock brokers to get useful tips from them, and the documentation will also be done smoothly.
- Investors should understand the basics of the stock market so that they will not be trapped in the loophole of the system.
- Some stockbrokers also give margin facilities, but honestly, these margin facilities are only beneficial for professional traders. For small investors, this facility is not that useful. The margin facility means that if the investor has INR 1 Lakhs and the broker gives those 2 x margin facility, then the investors can use INR 2 Lakhs for investment, but for this, the investor should square off the transaction before the market opens therefore for a small investor this becomes a challenge. Thus a small investor should avoid using this facility.
- The Share market can be a good fortune for some investors, and they can make huge profits out of it. But it can be the worst situation for some investors, and they can suffer huge losses.
Conclusion – How to Buy Shares
The investors are required to follow all the mandatory rules and regulations prescribed by SEBI. It is very easy to trade in the share market, but there are certain things that an investor should keep in mind before putting their money in the share market. Investors are required to have a good knowledge of the share market rules and have to have a good idea of when and where to invest. The brokers also play a very vital role here; therefore, an investor should be very careful while choosing stock brokers.
This is a guide on How to Buy Shares?. Here we discuss the introduction, things to consider, and key takeaways while buying shares with proper explanation in detail.