How to Invest in the Share Market in India 2023

Investing in the stock market may seem daunting, especially when you are just starting your investment journey because it may appear excessively complicated and risky too. But understanding the basics carefully can help you get started.

Let’s first learn the basics like what is a stock and stock market, before you dig deep into how to invest in the share market in India.

What is a Stock or Share

A stock is an instrument that represents the ownership share in a company. 

Investors buy stocks that they think will rise in value over time. Units of stock are called “shares” that entitle your ownership to that proportion of the company assets.

For example, if you want to buy Tata Motors shares worth Rs. 50,000. Tata Motors share’s current price is Rs. 433 per share.

tata motor share price

Now to simplify this, “Tata Motors” is the stock you want to buy. You can buy around 115 shares of Tata Motors stock by spending Rs. 49,795 (since your budget is Rs. 50,000).

What is the Share Market

A stock market (aka share market) is a venue or marketplace where stocks are traded. A stock market is also called a stock exchange.

In India, there are two primary stock markets-

  • National Stock Exchange (NSE)
  • Bombay Stock Exchange (BSE)

The NSE is the largest exchange in India with around 90% of overall cash trades. 

Exchanges not only list stocks but also manage indices. 

Stock Market Index

An index is a group of stocks that represents a specific theme, it could be a size or sector. 

The index also allows you a standard gauge of the trend in the stock market.

Two standard indices are NIFTY and SENSEX. 

Sensex and Nifty

NIFTY is a group of top 50 stocks by market capitalization listed on the NSE. Similar to NSE, the SENSEX is a basket of the top 30 companies listed on the BSE.

The stock market indices act as a barometer which shows the overall performance of the market. Indices are also used as benchmarks to analyse the performance of mutual funds and other stocks. 

For example, if a mutual fund that benchmarks its performance to the NIFTY did 18% returns this year and the NIFTY did 15%, the mutual fund actually “overperformed” its benchmark. That means the mutual fund gave you better returns than buying those top 50 stocks in NIFTY50.

Regulatory Authority


There’s a governance body called the Securities and Exchange Board of India (SEBI) which regulates all the participants of the stock markets such as traders, instruments being traded, brokers and the exchanges as well.

SEBI protects the interests of the investors by strictly enforcing rules and regulations in the markets.

You can also read our detailed guide on how the share market works in India to get a better understanding of stock market functionality. 

4 Easy Steps to Invest in the Share Market in India

#1. Choose a Broker

You cannot buy or sell directly on the stock market. You need brokers who are authorized to trade on the market. The brokers allow you to trade using their trading platform.

A trading platform can be an online portal or a smartphone app.

Stock brokers are of two types –

  • Full-service broker – provides a broader scope of financial services such as stock research, advisory, and portfolio management, along with the trading platform. Examples are Motilal Oswal, Sharekhan, and ICICI Direct.
  • Discount brokeroffers a pure trade execution platform at a low brokerage without providing other financial services like portfolio management. Examples are – Zerodha, Upstox, and Groww.

If you want an expert who handholds you in your trading journey, then you should go with a full-service broker but you have to pay a high brokerage in return. 

However, if you want to do your own research and are keen on learning about that, then you can go with a discount broker.

#2. Open Demat and Trading Account

You need a demat and trading account with a broker to invest in the stock market in India.

A trading account is where you place buy or sell orders, whereas a demat account holds your stocks or other financial instruments like mutual funds. Both accounts are then linked to your bank account.

To further simplify, you execute a trade using your trading account and a demat account is required to preserve your bought shares, mutual funds, bonds or any similar asset digitally until you sell them off.

The trading and demat account opening process is simple –

  1. Visit the broker’s portal and provide your personal details like DOB, Address, Martial Status, Occupation and similar stuff.
  2. Complete your Know Your Customer (KYC) verification which includes verifying your PAN card and Aadhar.
  3. Since the whole process is online, you can easily open your demat and training account within a day or two.

Once the account is opened, you are ready to start investing in the share market.

#3. Deposit Fund in Your Account

You have to add funds to your trading account before buying shares. You can easily add funds via UPI apps such as Google pay, PhonePe or Paytm. 

UPI helps you instantly transfer funds to your trading account free of cost.

Steps to add funds to your trading account –

  • Go to the “Funds” section in your dashboard
  • Click on “Add funds” 
  • Select the payment method like Bank Transfer or UPI
  • Click on Submit.

#4. Place the Order

Once you have decided which stock to invest in the share market, follow the steps mentioned below to place your order. 

  • Go to the watchlist in your trading platform 
  • Search the specific stock in the search bar
  • Click on the “Buy” button
  • Enter the no. of stocks you want to buy
  • Review and submit the order 

You can also invest in other instruments apart from stocks, we are going to discuss those financial assets in the next section.

5 Financial Instruments You can Invest in the Share Market

I. Equity stocks

If you are after a specific company, you can buy a single share or multiple shares to start your stock-trading journey. But to Build a diversified portfolio comprised of many individual stocks requires a considerable amount of investment and deep research.

Remember that every stock will have ups and downs. If you duly research a company and decide to invest in it, first assure yourself that why you have picked that stock in the first place such practice will help you find the right stock to invest in.

II. Mutual Funds (MFs)

A mutual fund is an investment vehicle to pool money which is invested in different assets like stocks, bonds, or other securities.

The profit earned is distributed between the investors in proportion to the number of mutual fund units they hold. 

A fund manager oversees the invested money and takes calls on what to buy and sell on your behalf to yield higher returns than the benchmark (like the NIFTY). In return, you have to pay some fee to the fund manager for managing the fund, called the Expense ratio.

The equity-based mutual funds are well diversified, which lessens your risk. 

Most beginner investors start with a portfolio made up of most mutual funds to mitigate the risk. But mutual funds are less likely to rise in meteoric fashion as some individual stocks could be. 

We have also done a detailed comparison of stocks vs mutual funds to give you better clarity about both instruments. 

III. Exchange Traded Funds (ETFs)

ETFs usually follow an index like the NIFTY or the SENSEX. Once you buy a unit of the Nifty ETF, you can hold a basket of the 50 stocks in the NIFTY50. 

ETFs offer you a much lower cost than mutual funds and provides you with the same risk plus return as the index.

IV. Bonds

Bonds are issued by companies and governments, that represent loans given by the investor to the issuer. Bonds are issued at a fixed interest rate for a fixed tenure. 

These are also known as debt instruments or fixed income instruments and are considered safer than stocks/mutual funds. But you get lower returns as compared to investing in stocks.

V. Derivatives

A derivative is a financial contract that derives its value from an underlying asset or asset class. The underlying asset can be stocks, commodities, and currencies. 

Derivatives are highly volatile and beginners should avoid investing in derivatives without proper knowledge.

How Are Stocks Categorized

When you research stocks or mutual funds, you often come across the term “market cap”. 

Market cap or Market capitalization refers to the total value of the company’s all shares in the market.

That means if a company’s market cap is Rs. 1,000 crores, you need that much money to buy all the company shares.

Stocks have three categories based on market capitalization. Remember many mutual funds and ETFs are also classified based on the market caps.

A. Large Cap Stocks

According to SEBI, the top 100 stocks by market cap constitute the large-cap. These are some of the largest (by revenue), well-established companies in India that usually lead the market in their respective industries. Reliance Industries, Infosys, and TCS are some large-cap stocks examples.

Large-cap stocks are considered to be the least risky but they may not have a faster growth rate as compared to mid or small-cap stocks. But higher dividends and safe capital reserve are available to mitigate the unexpected losses making it a safer bet in the long term. 

B. Mid Cap Stocks 

Mid-caps as stocks that are ranked in the range of top 101-250 by market cap. 

You usually get midcap companies with a market cap between Rs. 8,000 crores to Rs. 25,000 crores. These companies are smaller than large caps but have the capability of better growth and the potential to disrupt the sector that a large company dominates. 

Some midcap companies may also grow into large-cap companies. Mid-cap stocks are considered riskier than large caps but safer as compared to small caps.

C. Small Cap Stocks

All companies ranked below the top 250 by market cap are seen as small caps. The stocks from these small companies are usually highly volatile and considered quite risky. But small-cap stocks have the potential for higher returns than large and mid-cap stocks. 

Small-cap stocks have less liquidity. Liquidity means that there aren’t as many buyers and sellers for these stocks as for large caps. So sometimes if you buy the small-cap shares in bulk but at the time of selling you may not find enough buyers to sell your stocks and you may block your money. 

Other than market cap, stocks are also categorized by the industry, how much dividend they offer, and growth rate, among others. 

5 Important Points to Consider Before Investing in Share Market

#1. Know Your Risk Appetite

Risk appetite is the amount of risk that you can bear to lose money in the share market. Risk appetite is influenced by multiple factors such as age, investment time horizon, goal and capital. 

Another important factor to keep in mind before investing in your current liabilities. For example, if you are the sole earning member of your family then you will be less inclined to take risks. So, you may have bonds, mutual funds, or large-cap stocks, in your portfolio.

On the contrary, if you are younger, with no financial dependency, you may go for riskier investments like mid or small-cap stocks.

So always keep in mind that risk and reward go hand in hand in the share market.

#2. Research Thoroughly

Many retail investors lose money every year because they neither have enough time to research the stocks nor take the help of any research team for that monumental task.

So the moral of the story is if you don’t do enough research, you’ll end up losing your invested money. But the good news is that you can easily learn that with a little effort.

Start learning about fundamental analysis of a stock that includes the company’s business analysis like what they do, where they do, and how they do it.

The more you understand a company’s business, the better you can decide to invest in it.

#3. Be Consistent

Investing consistently rather than a lump sum investment can make you a more disciplined investor. You have to invest regardless of whether the price is rising or falling. Investing consistently helps you take your emotions out of the investing and you make better rational decisions. 

Always plan your budget, track your spending, and analyze how much money you can set aside. You should always prefer a Systematic Investment Plan (SIP). 

A SIP allows you to invest a fixed amount regularly in your preferred stocks or mutual fund schemes. SIP is more popular in mutual funds, but brokers like Zerodha offers SIP of selected stocks as well.

SIP also helps you to average the market fluctuations to earn higher potential returns. You can eventually increase your invested amount as you gain some confidence.

#4. Diversify Your Portfolio

The thumb rule in investing is to allocate money to a diverse range of assets. Diversification minimizes the risk of losing money if a certain asset performs poorly. 

Diversification can be done within the asset class, industry, and timings. You might be tempted to park all your money in an industry that is in an upward direction. 

But it is always wise to distribute between industries, offsetting market cap exposure, and balancing the risk of equity shares with stable, but lower return bonds or debt mutual funds. 

Finally, you can also start SIPs to ensure you have invested in securities across different market timings.

Bottom Line

Investing in the stock market is a life skill that needs to be honed with a little patience, time and regular learning. With thoughtful investing, you can let your money work for you and achieve your financial goals.

About Rajan Dhawan

Rajan has covered personal finance and investing for over 5 years. Previously, he was in the IT field for 8 years after completing his MCA but his deep interest in personal finance led him to become an investing expert. He is passionate about investing, stocks, startups, and cryptos.

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