After understanding the basic terms surrounding the stock market, how it works, the intermediaries involved, the risks involved, etc, surely most of you must be itching to dip your feet into the stock market, right?
So let us familiarize you with the simple steps and processes involved in getting started with stock market trading and investing in India.
As an investor, you cannot directly buy or sell shares on a stock exchange. And given the massive magnitude of investors which tend to do transactions every second, it is difficult to handle them all through a single entity. Hence, for both these purposes, stockbrokers and brokerage firms step into the picture.
Brokers are individuals/entities that are registered with the stock exchange and serve as intermediaries between you, i.e. the investor, and the stock exchange, for placing buy and sell orders and executing the transactions.
Stockbrokers can either be an independent service providers or employed at a brokerage firm, like?Motilal Oswal, Edelweiss, Zerodha, Angel Broking, HDFC Securities and many others.?When selecting brokers, whether individuals or firms, ensure they are registered with market regulator SEBI.
Also Read:?How Is Investing In Stocks Different From Mutual Funds?
Once the broker is finalized, you need to open a trading account with them for carrying out financial transactions in the market. Through your trading account with the broker, you can buy/sell securities.
When you, as an investor, buy a certain number of shares, the first step is to transfer the amount from the bank account to the trading account. After the money is credited, the transaction is initiated.
Similarly, when an investor sells a certain number of shares, the amount of the transaction is credited to the trading account.
Nowadays, a trading account is simultaneously created with the Demat account. An investor usually needs to submit the following documents to start a trading account:
1. A passport-size photograph.
2. A copy of your PAN card.
3. Identity proof such as Aadhaar card, passport, voter ID card, driving license, PAN card or any other authorised photo identity.
Address proof such as ration card, passport, voter ID card, driving license, bank passbook, electricity bill, self-declaration from the High Court or Supreme Court, identity card or address proof given by the recognised authority.
Also, when filling your KYC form with the broker, the following documents must be attached with a KYC application form, as per NSE:
1. Identity proof such as Aadhaar, Passport, Voter ID, Driving License, PAN or any other authorised photo identity.
2. A latest passport-size photograph.
3. Address proof such as Ration Card, Passport, Voter ID, Driving License, Bank Passbook, Electricity Bill, self-declaration from High Court or Supreme Court, or any other identity card, or Address Proof, issued by a recognised authority.
4. Photocopy of your PAN card.
After you successfully submit the above form and documents, your broker will open a trading account in your name. You will then get a unique identification number known as a Unique Client Code /ID which is vital for broker-client engagement. It is important for every trade that is carried out on your behalf by the broker.
Also Read:?Types Of Risks That Every Stock Faces In The Stock Market
As far as the Demat account specifically is concerned, this account is where your securities will be held digitally. It is in your Demat (Dematerialized) account that all the shares that you bought are present in electronic format. It¡¯s like a digital vault for your shares.?
To open the Demat account, you are usually required to furnish the following documents.
1. A passport-size photograph.
2. A copy of your PAN card.
3. Identity proof such as Aadhaar card, passport, voter ID card, driving license, PAN card or any other authorised photo identity.
4. Address proof such as ration card, passport, voter ID card, driving license, bank passbook, electricity bill, self-declaration from the High Court or Supreme Court, identity card or address proof given by the recognised authority.
After you submit the required documents and they are verified, a Demat account is created.
Also Read:?Explained: Sensex, Nifty & Their Role In India's Stock Market
Now, it is important to know the role of depository and depository participants as well.??
A depository is a financial intermediary that offers the service of the Demat account. At present, there are two depositories in India. The National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited. Both of them operate under market regulator SEBI¡¯s regulations.
Since you cannot go straight to a Depository to open a Demat account, here is where the role of depository participants (DP) comes into the picture. DP helps you set up your Demat account with a depository by acting as an agent to the Depository. Just like brokers and depositories, DPs too, are governed by the regulations of SEBI.
Here are some noteworthy points about a trading and Demat account that you should know as an investor, as per the NSE:
1. It usually takes up to 2-3 working days for the trading account to reflect a transaction.
2.?Investors can create multiple Demat accounts and trading accounts.
3. It is not compulsory to open both these accounts with the same broker or bank.
4. Investors can open their own Demat account if the broker does not have the facility to do so.
Also Read:?How To Manage And Minimise Stock Market Risks
For more of such simplified?financial content and the?latest financial news,?keep reading Worth.?Click here.