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How To Buy Shares? Research Team | Posted On Monday, February 19,2018, 07:03 PM

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How To Buy Shares?



Buying shares is not only exciting, it can give you a lot of money. If you are willing to bear high risk, then shares give you good returns. In this article you will learn how to buy shares, and enter the exciting World of trading (buying/selling) shares.

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How To Buy Shares?

A share also called stock or equity, represents fractional ownership of a Company. You are the owner of a Company, depending on the proportion of shares owned.

If a Company is liquidated, stock ownership is basically the residual assets of the Company, which are due to stockholders, after higher claims of the secured, unsecured and preference shareholders are settled. 

STEP 1: Get your PAN Card

For any financial transactions, you need a PAN. A PAN is a unique 10-digit alphanumeric number, which is allotted to you by the income tax department. You require a PAN to invest in an FD, Mutual Funds, RD, PPF and yes, shares.

SEE ALSO: Smart Tips To Pick Stocks

STEP 2: Find a Broker

You cannot buy and sell shares directly on a stock exchange. There are some people who are authorized to buy and sell shares on the stock exchange. They are called brokers.Brokers can be individuals, Companies or even online agencies, who are registered and licensed by SEBI.

STEP 3: Get your demat and trading account

You have a broker, but you need a demat and trading account to buy and sell shares. A demat account holds your shares in an electronic format. If you want to buy and sell shares, you need a trading account. NSDL and CDSL are the depositories which provide demat and trading accounts in India, through brokerage firms.

STEP 4: Know your depository participant

A depository is a link between Companies listed on the Stock Exchange and you and other shareholders. It helps you buy shares in a paper-less manner. NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are the 2 depositories in India.

A depository issues shares through associated agents called depository participants (DPs). A DP could be a bank, financial institution or a broker, which is responsible for the final transfer of shares.

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STEP 5: Buy shares

You must inform your broker on the Company whose shares you want to buy, the quantity and the price of purchase. When the shares reach that price, the broker purchases them on your behalf. The buy order remains valid only till a certain time. If your buy price is not reached within that time, the order is cancelled and you have to place a new order.

STEP 6: Dividends are credited to your bank account

All the shares you own are held through 2 depositories, NSDL and CDSL. Let's say Company X wants to give dividends. It will get the list of shareholders from NSDL and CDSL. If you have bought the shares of Company X, then dividends will be credited directly to your bank account.

How does the share market work?

Let’s first understand what a stock exchange like NSE and BSE is. It’s a platform where stock, derivatives and other financial instruments are traded. SEBI or the Securities Exchange Board of India is the capital market regulator in India. All market participants like Companies which issue shares, stock brokers who facilitate and conduct trades, traders, investors, they are all market participants. SEBI frames the code of conduct for trading and investing in stocks.

  • A Company which wants its shares to be traded on the stock exchange gets listed in the primary market through an IPO (Initial Public Offering). The Company offer document lists important details on the Company. Investors bid for shares and in case of oversubscription, lottery is used to pick successful bidders.
  • The shares of the Company get listed and are then traded in the Secondary market. (This is share trading via stock exchanges like NSE and BSE). Buyers and sellers conduct transactions to make profits or cut down losses.
  • Stock brokers and brokerage firms like Angel Broking Ltd, Edelweiss Financial Services Pvt Ltd, HDFC Securities Ltd, Karvy stock broking limited, Kotak Securities Ltd are quite popular. Stock brokers are an intermediary between you/investor and the stock exchange.
  • You (buyer) place an order through your broker for a particular share at a certain price. Your order gets processed through the exchange. Your order is passed over the exchange by your broker, till a sell order for the same share is found. After a seller and buyer are fixed, a price is finalized. The stock exchange tells your broker that the order has been confirmed. You get the message.
  • Today, stock exchanges are electronically enabled and the entire trading process (buy/sell) and other transactions take place in seconds. This is electronic trading.
  • The stock exchange confirms buyer/seller details to stop defaults. After this, actual transfer of ownership takes place, through a process called settlement. Settlement takes T+2 days. If you have traded today (bought shares), shares will be deposited in the demat in two working days. Clearing house is an agency of the stock exchange, responsible for settling trades. It functions as counterparty or the buyer to the seller and the seller to the buyer.

How to buy shares of a Company?

You need a PAN Card: Permanent Account Number is very important for financial transactions in India. This is a unique 10-digit alpha-numeric number issued by Tax Authorities. You require PAN for opening a bank account, investing in FDs, mutual funds, stocks and filing ITR. This is the first thing you need to invest in shares in India.

Find a broker:

You cannot walk into a stock exchange and buy stocks. To buy/sell shares, you require the help of a stock broker. Brokers are registered with SEBI who is the capital market regulator in India. You must be familiar with ICICI Direct, IndiaBulls, Sharekhan and so on.

Get your demat and trading account: You need a demat account to hold stocks in your name. You need a trading account to buy/sell shares.

Depository participant: You have two depositories in India. They are the NSDL, National Securities Depository Limited and CDSL, which is the Central Depository Services Limited. Both CDSL and NSDL have agents called depository participants. Depository participants hold the shares you bought and release the shares you sold.

Need UIN for big trades: You need the UIN if you want to indulge in a big buy or sell in the stock market. You need unique identification number for a trade of Rs 1 Lakh or more.

This is how you buy and sell shares:

Call the broker and tell him which share you want to buy like TCS, Bajaj Finance or Sun Pharma and the quantity of shares. If you want to buy 10 shares of TCS when it falls down to Rs 1800, inform the broker on the same.

How to buy shares online?

  • Find a good online broker.
  • Open demat and trading account.
  • Send money from your bank account to the brokerage account.
  • Decide on the share you want to buy.
  • Buy the share.
  • Review positions regularly.

SEE ALSO: How to Get Duplicate Aadhaar Card Online?

How to buy shares in India for beginners?

  • Regularly track the movements of the BSE and the NSE.
  • Do your research and understand stocks.
  • Select a good broker.
  • Get a PAN Card.
  • Open a savings bank account to transfer money to the broker.
  • Open demat and trading account.
  • Tell your broker which shares you want to buy and the price.
  • Understand taxation rules in India.

See Also: how to apply pan card duplicate?

Shares and Dividends:

  • Shareholders receive dividends in proportion to shareholding. It is a fixed amount per share. Dividend is paid out of the profits of a Company. Interim Dividend is the dividend payment a Company makes, before the AGM (Annual General Meeting) and the release of the Company’s final financial statements. Some Companies declare dividends in between the Financial Year. These are the Interim Dividends.

You must also take a look at dividend yield:

Dividend Yield = Total Annual Dividend per share / Current Share Price.

Calculating dividend yield is very easy. All you have to do is divide the dividend announced by the share price. You then multiply the figure by 100.

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