According to popular estimates, even now, less than 2% of the people in India invest in the stock market. Equity investment is now quite easy and can be done online in a few clicks or even on your smartphone instantly.
Part of this is due to the lack of awareness about how to get started with equity investments. Other reasons for not investing in the stock markets include the many myths associated with stock markets and the fear arising out of the high-risk factor related to equities.
Traditionally Indians have preferred investing in gold, real estate, fixed deposits, post-office deposits, Kisan Vikas Patra (KVP) and PPF because that is what their previous generations have been doing and advising them to do. All these traditional investments were justified decades back as interest rates were high, and awareness about equity investments was too low.
Check out this detailed presentation about how to start your investment in the stock market. Click here.
Times have changed now. Interest rates are on a decline making small savings like bank deposits, post-office deposits and PPF less attractive. There is no doubt that these instruments carry less risk as compared to equity, but then are inadequate to beat inflation.
For example considering the current rate of inflation at 4%, when you invest in a bank fixed deposit which offers 6.5% interest per annum, the real rate of return that you get on your investment is just 2.5% (6.5-4%).
Real estate too has lost its sheen over the last four years, especially post the government's demonetization drive of high-value currency notes in the year 2016. Property prices have become stagnant. In fact, according to recent estimates, the number of unsold inventories in real estate properties remains at an all-time high in cities such as Mumbai, Delhi and Bengaluru. All this has made an investment in real estate unattractive.
In such a scenario, equity is one of the best investment options as it can not only beat inflation but also generate double-digit returns in the long run.
Read more about benefits of equity invesment over other asset classes here. It is mandatory to signup with a stock broker for opening a trading account which will help you to buy and sell shares in the stock market. The stock broker will also help you in opening a Demat account with either CDSL or NSDL, the only two depository services currently available in India. To open the account with the stockbroker, you will need to keep documents such as PAN, Aadhar, 2 passport size photos and a cancelled cheque ready.
Given the risk factor associated with stock markets, it is highly recommended to do your homework in detail by reading as much as possible on how stock markets work and why stock prices move up and down.
The best way to start would be by reading books on equity investment written by successful investors such as ‘The Intelligent Investor’ by Benjamin Graham and ‘Common Stocks And Uncommon Profits’ by Philip A. Fisher. Check out other popular books on equity investing here. One can also find details of a company’s financials on their website. A through research from your side will ensure that you don’t fall for the pitfalls of equity investing. However, if you think all this looks too difficult or time-consuming, you can also avail of the services of a professional equity advisory service. Know more