There is something for everyone in the Indian share market. So, you do not need a minimum investment to enter this market. Your investment depends on your disposable amount or expertise in the financial market.
There are stocks priced at less than Rs 10. You can buy just one share if you do not wish to spend more than that! However, you need to invest a decent amount to make money from the share market.
How small can a first-time investor invest?
It’s important for a beginner to refrain from investing a big amount at the start. A new investor should study the market for a year and learn how to pick good stocks. It can happen with a little investment in the range of Rs 500 to Rs 1,000. Such investments will keep them from being devastated by loss or too whimsical with joy. Both these emotions are detrimental for the investor as they cloud the judgement.
Rules to guide a new investor
There are a couple of investment rules that may come handy for a new entrant to the share market:
100 minus investors age: The younger the investor, the bigger the risk they can take. Supposes that your net worth is 100 and subtract from it your age. The resultant number should be the estimated percentage of share market investment from your total savings.
For example, if you are 25 years of age, you can risk up to 100-25=75% of your net worth. But if you are 40, you can risk up to 100-40 = 60% of your total savings.
x/3 rule: This rule says that invest one-third of your total disposable income at a time. If the trends are favourable, invest another part and then another. Continue this pattern of investment.
For example, if you have Rs.100 to invest, you invest Rs 33 at the start. Invest Rs 33 again in the same stock if it’s doing well. And follow this procedure if the stock continues to do well. So, you can see the performance of the stock and invest further accordingly.
Is there a minimum number of shares that one needs to purchase to participate in the Indian share market?
There is no minimum number of shares that one has to purchase. One may buy just one share. However, it is prudent to buy a block of specific shares. After all, you have to pay the brokerage and other taxes for any transaction. A block of stocks will give you a good enough return to cover those charges.
There is again another strategy where you can buy less than one share as well. This may arise because of corporate policies, a stock split or through a dividend reinvestment plan (DRIP).
Sometimes. brokerage firms offer to purchase more of the same share for investors with the dividend earned on them. In such cases, one can purchase a fraction of one share. DRIP is a good option as there are no commissions charged for reinvestment.
Sometimes, brokerage firms encourage new investors to invest in part of one share of bigger companies. These share prices are usually very high. So, a new investor might not be in a place to invest as much. In that case, two or more investors are tied up to invest in one share.
What is required to start trading in India?
All you need to participate in the share market are:
- PAN card
- Aadhaar card
- Passport size photo
- Demat or trading account. To open a demat account easily visit the Kotak securities page now.