It is very interesting to invest in shares, though most of the people would like to start with small money.

First of all, you need to know a little bit in detail about the stock market, then about the shares and the mode of their trading. What are the risks involved and how to be smart in dealing with shares?

• Stock Market – It is the place where the shares of listed companies are bought and sold. In India, you have BSE and NSE as two big stock exchanges.

• Shares are bought and sold by you and me only through approved brokers.

• Approved brokers are mostly banks like the ICICI, HDFC, IDBI, UTI Bank, SHCI, are to name a few.

• First you need to open an account with a bank, that has the Demat account facility.

• Go to the respective bank  and open a Savings account with deposit of around Rs. 10,000.

• Tell the bank that you want to deal in shares and ask them to open a Demat account. It will be done automatically after signing a few forms.

• A Demat account is nothing, but the account where the shares bought by you will be kept separately.

• Only you could operate that account online, through Internet.

• You could open the online facility offered by the ICICI, HDFC or ShareKhan or others  and buy shares you wish and decide the quantity and the price.

• Here the bank will act as a broker. You online order for purchase would be carried out by the bank. They charge broker commission, much less compared to private brokers.

• It is very important for you to have enough balance to your credit in your savings account.

• As and when you buy on line, your Demat account will be credited with those shares. The money for the purchase will be automatically deducted from your account by the bank.

• You also have to keep looking for opportunities to sell the shares that you have already bought and kept in your Demat account.

• For buying and selling, it is necessary to familiarize which shares to be bought at what prices and sell them at what price.

• As and when you decide to sell (depending on the price quoted in the market) you could sell them through online trading system.

• The moment you sell your Demat account will be debited with the number of shares sold by you.

• Your account will be credited with the amount for which you have sold.

• Depending on the amount of profit earned, tax will also be deducted by the bank (TDS). The bank will give you a TDS certificate by the year end, i.e., March 31, of that year which you could attach with the return to justify the tax payment.

• When the shares could be bought or sold?
  Always sell the shares when the price is up and buy when the price is down. Every body had to adapt to this formula.

• What profit should it give you?
  You buy a share for a particular price. Take the amount as investment. Any bank will lend you at ten per cent interest. It will give you 24 per cent return if the share price rises in such a way. Do not wait for the market to crash and start searching for buyers for the price you quote.

  After selling, never look back and repent for what profit you have earned, had you delayed the sale. Be happy that it did not happen otherwise. This is the best way, to sell.

• If you want to buy, look for 52 week low, look for the peer companies, their price and compare it with the company you want to buy.

  Look for the prospectus, future plans and the profit the company ought to make in the next year. Take the perception or a change and buy.

• You cannot take profit in the buys. Losses do occur as long as you are at decent surplus for which you have no reason to be unhappy.

Happy Investing

Rule 1:  Don’t buy unlisted shares
There are over 20,000 public limited companies in India, of which only around 7,000 are listed on the country’s various stock exchanges. The first rule of profitable share investment is to confine your buying to these 7,000 listed companies only.

Stock exchanges do not permit trading in unlisted shares, nor do they permit their registered members, i.e. brokers to deal in unlisted shares. Therefore, if you want to buy unlisted shares you won’t get the protection of the stock exchange authorities; nor will you be able to use the services of your stockbroker in handling such transactions. Moreover, in the absence of stock exchange quotations you won’t be able to assess what the market price of an unlisted share should be. All these factors create complications and risks, which you are not likely to be in a position to handle. As a basic rule, therefore, you should avoid investing in shares of unlisted companies.

How does one know whether a share is listed or not? It’s simple; all shares whose prices are quoted in daily newspapers or websites are listed shares. Unlisted shares are quoted. Therefore, the fact that a share is quoted means that it must be listed. This is the easiest and surest way of fining out whether a particular share is listed or not.

Rule 2: Don’t buy inactive shares
Active shares are those in which transactions take place every day, or almost every day, on the stock exchange. At the other extreme are shares in which transactions take place rarely, if ever. The latter are called inactive shares. In this book, an inactive share has been defined as one, which is transacted less than two times a month, or not at all.

The main reason why shares are inactive is because there are no buyers for them. They are mostly shares of companies which are not doing well and whose future prospects appear to be dim. Naturally, nobody wants to buy their shares. As a result, existing shareholders of these companies find it difficult to get rid of their shares, even at very low prices. And, if nobody wants to buy these shares, why should you? Why should you allow yourself to get stuck with an investment, which you can’t offload at will, whenever you want to? We would strongly advise you to avoid investing in inactive shares.

How does one find out whether a particular share is inactive or not? The simplest way is to regularly scrutinise the stock market quotations, which appear in the daily newspapers. If you find that a particular share has not been quoted for a long time, you can presume it is inactive. Some newspapers, like The Financial Express not only indicated the last quoted price of each of share, but also the date when it was last transacted. This information can help you to confirm whether a particular share is inactive. Check out BSE or NSE Websites

Inactive shares can generally be bought at very low prices. This is obvious since such shares generally find no buyers. Inexperienced investors looking for bargains are often attracted to such shares by virtue of their low prices. This is how beginners are normally trapped in to making disastrous investments, Beware of such bargains! If you come across a bargain, remember there has to be catch in it somewhere. It is better to hunt for value, and pay a fair for it than to look for such apparent bargains.

Every time you buy a share, you must remember that one day you will want to sell it. If you are likely to face difficulty in selling it – don’t buy it! This is a sound investment principle, which you should never lose sight of, no, matter how cheap or attractive a particular investment may appear to be. Never allow yourself to get caught with illiquid share. They are only pieces of paper without any value. Shares have value only when they are readily encashable.

Of course, it is possible that a share, which is inactive today, could become active tomorrow; just as a share, which is active today, could become active tomorrow. It all depends upon the degree of buying interest in a particular share. If buying interest builds up in a share, it can easily move from the inactive to the active category.

Rule: 3 Don’t buy shares in closely held companies:
Whether a company is widely held or closely held depends upon the number of shareholders it has. In this book, we will draw the line at 5,000 shareholders. Companies with less than 5,000 shareholders will be considered as closely held.

Shares of closely held companies tend to be less active than those of widely held ones since they have a fewer number of shareholders and, thus, a smaller floating stock of shares. Shares of such companies tend to be ignored by the general public. Large institutional investors also tend to avoid closely held companies. As a result their shares do not get sufficient price support, which they would otherwise have got if they had been widely held. Moreover, it is always much easier to manipulate the share prices of a closely held company than those of a widely held one.

Share prices of closely held companies also tend to be more volatile than others. When they rise they rise very fast, and to a very high level. Conversely, when they fall they do so very fast and to a very low level. As a result, it is generally very difficult to buy shares in a closely held company when prices are rising, and very difficult to sell them when prices are falling. Investing in such shares requires a high degree of expertise, knowledge, alertness and quick thinking, which take years of active investing to acquire. We would, therefore, strongly urge you to keep away from such shares.

Source : Various Websites and Books on Share market Basics