Investing in stocks: 3 ways to invest in stocks

Equity investing refers to participating in the ownership of a business. Stocks have high growth potential, but are also considered a high risk investment compared to debt securities or fixed income securities. Therefore, it is important to choose the company well before investing. Here are some ways to participate in equity.

Equity shares

Investors can buy shares of a company to participate in its capital. In the case of listed companies, the shares are listed on the stock exchange and one can buy them on the stock exchange itself. To be able to buy shares of a listed company, a bank account and a demat account with a depository participant is essential. In order to be able to buy or sell shares, a trading account must also be opened with the broker.

Investing through ETFs

Instead of investing in a particular stock, it is possible for an investor to participate in the entire index (eg Nifty or Sensex). This can be done by buying exchange traded index funds. The process of investing in such funds is similar to investing in stocks. Investing in ETFs offers investment diversification.

Equity Money Market Funds

One can also invest in stocks through equity-oriented mutual funds. These plans invest 65% or more of their corpus in equity-oriented securities. Investments in shares of various companies are made in accordance with the investment objective of the scheme. Investments in MFs can be made online via MF websites and/or distributor-enabled MF transaction portals. The investment can be made in one go or in SIP.

Points to note

  • Capital gains from equity transactions are subject to long-term and short-term capital gains.
  • It is advisable to seek the services of a qualified and experienced investment adviser when it comes to investing in stocks.

(Content on this page is courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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