India has the oldest stock market in the world, the Bombay Stock Exchange. However, the equity cult is yet to take roots in India in a big way. For decades, Indian investors have preferred assets with a physical and tangible presence. Hence gold, land and property have been preferred investment options in India. However, it is stocks that can help you generate wealth over the long term. Of course, stocks need to be bought carefully, on the basis of professional advice and held for the long term. More importantly, these stocks need to be monitored regularly…
What exactly are a stock / share of a company?
When you buy shares in a company, you actually become a part owner of the company. For example if Company X has total of 1000 shares issued and outstanding and you own 1 share, then you are a 0.1% owner of the company. When you own a part of a company, you actually participate in the profits and losses of that company and the performance of that company gets reflected in the stock price. The stock price that you see in TV tickers and newspapers is just the reflection of the performance of the company.
How do I benefit if I own shares in a company?
Firstly, you become a part owner of the company and therefore it is the first step towards wealth creation. After all, it is the goal of every individual to create wealth for their families in the long run. Secondly, each year the company pays out dividends which are tax-free in the hands of the investors. There is no compulsion to pay dividends but good companies generally pay healthy dividends. Thirdly, as the company performs, the stock price appreciates and this translates into profits for you.
How do I start buying and selling shares in the market?
You firstly need to open a trading account and a demat account. The trading account is required for you to buy and sell shares. The demat account is required to hold these shares in electronic form. Once you buy shares in the trading account they get credited to you demat account and when you sell shares they get debited to your demat account. A demat account is just like your bank account; only difference being that while bank account holds cash, demat account holds shares. Religare Securities provides you a seamless experience of having your trading account, demat account and bank account all linked online. All these 3 accounts can also be operated sitting in front of your PC or from your smart phone.
What is the difference between trading and investing?
Trading is more short term while investing is for the long term. A trader can close positions either during the same day or in a few days or weeks. An investor holds shares for many years.
What points do I need to remember as a trader?
A trader has some basic rules to follow. The trader should basically work to protect losses and ensure that capital does not get eroded. Traders should always trade with stop losses; meaning at some point the trader must take a loss and close the position. Traders also keep booking profits at regular intervals. Religare has special advisory products designed to assist traders and we suggest that you intensively make use of these products to improve your performance as a trader.
What points do I remember as an investor?
The first thing you need to remember as an investor is the need to think long term. You cannot make money in the stock markets in the short term. Secondly, stocks need to be researched and screened. Religare provides a very advanced screening and research tool to help you shortlist stocks and identify stocks to buy and sell. As an investor avoid the urge to keep averaging your positions. Seek the advice of your financial advisor before taking positions on your trading account.
Are there any chances of making losses in the stock markets?
Technically, there are risks in trading in the stock markets. Unlike bonds and FDs, you do not have assured returns in equities. But that is the risk you have to take to earn higher returns. It is hard to create wealth in the long term through bonds and FDs. That is possible only through equities. The good news is that these risks can be managed. For example, you can set stop losses, you can use research and screening software and you can constantly monitor your portfolio. That is where the analytics and screening facilities provided by Religare Securities come in handy.
Do I have to pay taxes when I make profits on equity shares?
As mentioned earlier, the dividends you receive on the stocks owned by you are entirely tax-free in your hands. However, the recent budget has inserted a clause that if you earn more than Rs.10 lakh as dividends per year then you will have to pay tax on dividends at 10%. Secondly, when you make capital gains on sale of shares the question is whether these gains are short term or long term. Any sale of share within 1 year is short term capital gains and it will be taxed at 15%. Any sale of shares after 1 year is long term capital gains and it is entirely tax free. Remember, if you make losses on sale of shares, then these can be set off against the gains in future years.
What is the difference between equities and equity mutual funds?
Equity mutual funds invest in equities on your behalf. You can deposit a small sum of Rs.5,000 with the mutual fund and they will collect a large pool and invest in equities. You will get a share of the mutual fund assets which is called AUM. Equity mutual funds are a very good way of putting your money to work. Direct investment in equities has to be done carefully and under expert guidance of your advisor.