What Is A Demat Account & How Does It Benefit Me?
Demat Account is Dematerialised account where the financial securities like shares, bonds, debentures are stored in the electronic form.
Earlier shares certificates were issued in physical form, which was hard to maintain due to loss, theft and physical destruction of paper. This problem was solved by introducing the Demat Account where the securities are stored in the electronic form which provides hassle-free maintenance.
The benefits of Demat Account;
- Enable fast and immediate transfer of securities.
- Eliminate the risk of theft and loss .
- Provides safety of securities.
- Corporate benefits like bonus, right issue and dividend are settled quickly.
- Regular update of information and statement.
Procedure to open a Demat Account
- In order to open a Demat Account first an investor needs to decide from which broker he wants to open the account for example Zerodha, Angel One, Choice Equity Private limited, choose the broker by keeping in mind the brokerage charges.
- After choosing the broker, the person needs to submit the duly filled and signed Demat account opening form and KYC form along with needed documents like PAN card, Aadhar card, ID proof and passport size photos and cancelled cheque leaf.
- After opening the account broker will give client ID DP ID, Beneficiary ID for Demat Account number and Power of Attorney (POA) number.
- Now a person can operate his\her Account by entering client ID and password.
Demat Account transaction charges
- Opening charges will be nil for Demat Account.
- Safety charges (Custodian fee) is charged by the broker specification.
- Annual maintenance charges are the fees which are paid annually, when the holdings are more than Rs. 50,001-2 lakh the charges will be Rs 100 and Rs 750, depending on the number of transactions made, for above Rs. 2 lakh the charges will be Rs. 2,000-2,500.
- Transaction charges are Rs 1.5 for each share traded.
- Rematerialisation of share certificates the charges will be Rs. 25 for every certificate.
How to start trading in the stock market:
What is stock trading?
Stock trading refers to buying and selling stocks in the stock exchange in order to earn profits. At the end of the day, the trader books either a profit or loss.
In order to start trading you need to follow the procedure:
- Open a Demat account, in which shares bought are held in electronic form and shares which are sold are transferred to the buyer account digitally.
- Open a Trading, where the securities are bought and sold in the online system
- In the next step you have to deposit money needed to buy the stocks in the bank account which will be transferred to the trading account.
- Select the stock which you need to trade, before selecting the stock a trader needs to analyse the stock technically and fundamentally and understand the movement of the stocks.
- In the next step the trader needs to understand the trading platform and learn how to place orders specifying buy\sell, quantity, bid\ask price, delivery options and client ID.
- Place the order on the terminal as per your requirements.
- Once the order is executed you will get a contract note digitally.
- In T+2 days you get delivery if you bought the stocks, and the amount is credited to account if you have sold the stocks.
Demat Account is the account needed by the trader in order to trade in the stock market, it will store all the securities bought in the electronic form which eliminates the paperwork and it is an economical way of storing the securities, it provides safety to share certificates and enables to transfer the share digitally without any physical disruption. The older securities which are in the physical form can be electronic form.
Why does an investor need to analyze a stock before investing or trading?
Here is the answer
There are more than 6800+ companies listed in the both the exchanges, currently 1328 stocks are actively trading in NSE, hence there vast number of shares it is necessary to find the particular share which yields good returns to the investors.
How to analyse a stock ?
Basically there are two types of analysis
Fundamental Analysis is carried out to find a good stock for investing purpose, basically for long term, say a year and more.In this analysis we are going to find how fundamentally strong the stock is and find out the fair value of the stock.
Here is the tip in order to narrow our search we can select nifty50 stocks for our for research purpose,
There are 2 approaches to fundamental analysis
Top Down Approach
Bottom Up Approach
Top Down Approach:
Macro- Economic Analysis: In economic analysis we are going to analyze how the macro economic indicators like inflation rate, interest rates, GDP of the nation, money supply in the country will have effect on the selected stock. These all indicators have a direct or indirect effect on the Stock Markets.
For Eg: If money supply is more in the economy it will lead people to invest more in the market.
Industry Analysis: In industry analysis we will understand about the company’s business and its Environment, scopes of competition, government rules and regulation, what is sales trend in the industry, entry and exit in the industry and analyse how these factors have effect on our selected company.
Company Analysis: In company analysis we are going to conduct research on the financial stability of the company like analysing revenues, expenses, profits, capital structure and cash flows.
Bottom Up Approach
Bottom up Approach is similar to the top down approach but we carry out the research in the reverse way, firstly we do company analysis then move towards industry and then towards macro economy.
There are two aspects to Fundamental Analysis
Quantitative Analysis: Quantitative Analysis mainly focus the numerical aspects of the company like analysing the Income and Expenditure statement, Balance sheet and cash flow Statement
Income and Expenditure statement gives the fair view of the revenues expenses and profit of the company and find out the profit that can be distributed to the shareholders
Balance Sheet will depict the assets and Liabilities the company is holding
Cash flow statement gives the fair view of the free cash that is available to the company to out the expanding and growth activities.
Qualitative Analysis:Qualitative Analysis focuses on the qualitative aspects of the company like Goodwill and Brand Recognition, Competitive advantage, Business model and management and corporate governance.
Technical Analysis is analysis of the stock purely for the purpose of trading and speculation, it is used for the short term, we look at the price movement of the stocks, trends of the stock and the patterns that are formed on the price movements, the main assumptions of technical analysis history repeat itself
Price and volume charts are the most typical tools that are for technical analysis. A volume chart depicts the number of shares of a company that were bought and sold in the market during a day and price chart shows the prices in which the stock trades all over the day
For analysis, traditional line or bar charts, and candlestick charts can be used. A candlestick chart is a special kind of chart that is particularly relevant for technical analysis. It is in the form of a series of consecutive candles. Charts are used together with trendlines.
Trendlines indicate the direction of movement of a stock over a period of time. We will discuss them later too.
MOVING AVERAGES :
an average of a few days’ price is calculated. For example, if a five day pattern of a stock’s price is Rs.50, 53, 47, 45 and 52, it is difficult to tell the direction in which prices have actually moved; this is called a simple moving average (SMA). .
commonly used moving average concepts are exponential moving average (EMA) and linear weighted average (LWA) which give more weightage to the recent prices.
There are so many technical Indicators which are used in technical analysis to name few
Relative Strength Index