Equity Investment Tips

Equity Market Investing for the Millennial

The millennial generation is the newest addition to the countryʼs workforce. They comprise more than one-third of the countryʼs population but form around 46% of the working population. The influence of the millennial in the countryʼs economy is undeniable and this influence is also prominent in the equity market.

A millennial is considered to be a smart and yet a fearless investor. Normally, an underperforming equity market sees a fall in the customer acquisition statistics among share broking firms. Surprisingly, during the 2020 equity slump, customer acquisition increased despite a 40% fall in stocks. This is largely attributed to the swashbuckling millennial who threw caution to the wind and took to stock trading. A millennial looking to invest in the equity has to be familiar with the nuances of the market and be able to make informed choices and decisions while trading.

Knowing more about the share market

When you buy shares in a company, you become the owner of the percentage of share you purchased. You are eligible for the share of profit of the company and can also benefit from the value appreciation of the share price. When you buy a share through a companyʼs first listing i.e. Initial Public Offering, you are essentially buying from the primary market.The subsequent trading of these shares between buyers and sellers happen in the secondary market.

You can buy and sell shares of a company in the share market when the company is listed in a stock exchange. Buying and selling of shares in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI ensures that share trading is carried out smoothly and for this purpose, it regulates the activities of the various intermediaries that are part of the equity market.

Every transaction in a stock exchange is done through a registered stockbroker. There is a depository participant who provides the demat account, through which you can engage in equity trading and investment. The clearing corporation ensures that all share transactions are cleared accurately. Lastly, there are the banks. The bank accounts are linked to the demat account to ensure receipts and payments of the funds used in the equity investment.

Start investing in equities

To invest in equity market you must have a set of documents that are required to open the investment and continue trading. These documents generally include the following,

PAN card, Aadhaar card, Bank Account, a Cancelled cheque of the bank account, address proof, identification proof and photographs.

As for the formalities required to be complied with whilestarting an equity investment, the following are the key steps,

  • Demat Account – A demat account has to be opened with a depository participant. All the leading banks and financial institutions provide demat services, and it can be opened online as well. All the shares that you invest in will be held in your demat account.
  • Trading Account – A trading account is opened with a stockbroking firm. The stockbroker is registered with SEBI and is therefore authorised to open your trading account.
  • Trading Account – You may need to trade in shares regularly so your bank account must be linked with your trading account. The flow of money will be carried out from this linked bank account.

Choosing the demat and trading account

As a millennial, you would value smooth functioning and ease of use when it comes to operating a demat and a trading account. While choosing the stockbroker right for you, you can pay attention to the following factors,

  • Account Opening – Physical account opening can be a time-consuming affair. The ideal stock broker would be able to facilitate online account opening through e-KYC.Once the initial authentication is done through Aadhaar data, you can complete the self-verification through video or in-person authentication.
  • Cost – Stockbrokers offer very competitive trading and brokerage fees. You can compare the brokerage charged by brokers. Your desired frequency of trading will also have an impact on the cost, as these charges are generally on a per-transaction basis. Also, look for a broker who charges minimum annual maintenance charges.
  • Ease of Use – Most brokers have their software and application through which you can invest and trade in equities. You may compare the usability of different broker apps before finalising one.
  • Value-added Services – Apart from the basic functionalities, investors also expect their brokers to provide useful analytics as a part of the service. It can include industry analysis, trend reports, call-to-action for trading, usage analysis etc.

Decide on your investment style

While investing in the equity market you should have a working knowledge of the operational side of the market and an understanding of its movements. Once the formalities are completed you are ready to make your first investment. However, every investor develops his or her unique style of investment and trading. You may consider establishing one for yourself too. Here are a few things to consider while doing so,

  • Risk Appetite – The risk associated with shares vary from company to company. Depending on your risk tolerance, you can choose safe and evergreen shares, go for speculative and risky ones, or find a balance between the two.
  • Industry Preferences – A basic philosophy of investment is diversification. Rather than keeping all the eggs in one basket, you can choose to invest across different companies and industries that you prefer. This in turn will depend on your comfort level with the industry as well. For instance, you may understand the auto industry well but may not be so comfortable in IT stocks.
  • Investment Horizon – You can invest in a share and hold it for years, despite occasional ups and downs in the share value. You can also indulge in aggressive day trading where you try to make a profit out of regular price movements. However, always be realistic with the investment and return expectations.
  • Identify Goals – You can set your overall equity investment goal and also the return you expect from individual shares. You may have to incur losses and then design a plan to recover it. It is important to remember that it is a learning experience, so you have to be in control of the situation at all times. Any anxiety, excitement or panic can lead to incorrect trading decisions.

The Bombay Stock Exchangeʼs equity index, SENSEX, started with 1978-79 as the base year, with 100 as the index value. The SENSEX now is poised to touch 50,000. Thus, the equity market is on a perpetual growth run, albeit with some sharp falls over the years. However, equity remains the most profitable way of being a part of the economic growth of a nation. The millennial generation too can benefit from equity investments with a balanced, steady and informed approach.

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