The Bombay Stock Exchange has hit a milestone of 10 crore investor accounts. A tweet by Ashish Chauhan, managing director and chief executive officer at the BSE, recently announced that the last one crore was hit in just 91 days. Many of you are now investing, taking a leap of faith in the stock market.
Young men and women are looking to make the most of the opportunities available.
Many elderly, too, want to ride India’s growth story. Overall, India probably has 8-9% of the population interested in the stock market. For years, a pet peeve of stockbrokers was that 80% of the demat or trading accounts see no activity. They have spent resources to map the journey of a dormant investor account. It all begins with an initial excitement in the stock market. It lasts till the investor suffers their first loss.
After digesting that first loss, a cautious approach leads to a gradual comeback. The activity level continues till they suffer another loss. At that moment, the investor account goes into a dormant status, never to get active again. A primary reason to invest is to beat inflation and generate wealth. You can do that by investing directly in equity shares or indirectly through mutual funds or exchange-traded funds.
There is a frenzy around the concept of stock market investing led by large fintech companies. Technology is a massive enabler, and it allows individuals to make choices. Those maybe with the knowledge or without. There are many stock market universities online for you to learn about the basics of investing. Stockbrokers create them to tap new customers.
Knowledge as a tool for investing is a correct approach. The onus of enhancing your financial knowledge quotient is on you and not on the stockbroker through whom you invest. A stockbroker giving out knowledge will always have a motive to get you to trade regularly. They earn their income by distributing financial products to you. So does a bank, insurance company, or a mutual fund.
What can you do
A few basics could help at the start. You need to understand clearly the reasons to invest. If your objective is to generate wealth for your long-term goals, you are on track. You will hear many stories about how people quickly made money in the stock market. By buying and selling shares quickly, some people have made money and would do so in the future. However, that is not the norm.
A lot of people lose money within no time. You may want to ask those trading in a commodity like Nickel. Earlier this month, prices of the item surged 250% in a day, throwing the global commodity market out of gear. Russia’s war on Ukraine triggered chaos, and many who had bet on short-term fall in nickel prices had to suffer losses that run into billions of dollars.
Equity markets are no different. When you buy equity shares, you are betting on the future profits the company would make. However, factors beyond the company’s control could hurt share prices when you least expect.
Buying equity shares low and selling them high is easily said than done. That makes you a stock picker. However, the path to get there is not easy and is more often fraught with risks. You need the ability to manage risks. That depends on your confidence in your future income. If you are sure about a steady income, you can regularly invest in equity markets. Equity markets are the last place to enter if there is any income uncertainty. You cannot time the market without adequate knowledge. Even with a lot of knowledge, markets can go against you.
Investing directly in stocks without prior experience due to the fear of missing out (FOMO) is not good. Your investments can create wealth for you only if you can beat the average inflation rate in the economy over the years. For that, you need to know about asset allocation. Align your investments to your goals. The next step is to get a professional advisor to help you.
10 crore
Bombay Stock Exchange has hit a milestone of 10 crore investor accounts. The last one crore was hit in just 91 days, according to the MD and CEO of BSE.
(The author is editor-in-chief at www.moneyminute.in)