Hey friend, want to start investing in the stock market but you lack money? Here’s a full guide on how to invest in stock market with little money in 2020.
A big misconception about investing in the stock market is that it requires large capital to enter the stock market.
Due to which people with less money do not invest in stock market.
But what if I say, you can invest in the stock market with as little as 100-500 INR & make enough money.
Yes, it is possible in this digital era.
Making large money with such a small investment in the stock market requires time & you should give it.
You can’t become successful in one night.
But as time passes your investment doubles & triples like compound interest.
Only the thing is you have to invest consistently after taking a basic knowledge about investing in the stock market.
Then no one can stop you to earn money from the stock market.
One main thing you should do is to choose a good trading broker which offers low brokerage.
The important points to be considered before investing in the stock market with little money:
- Understand your investment goals
- Learn basics
- Invest in good returnable stocks
- Manage your savings
- Start slowly
- Stay away from penny stocks
- Invest in surplus funds carefully
- Diversify your investment
- Invest in Mutual Fund
- Be realistic
- Avoid emotion-based investment decisions
So, are you interested to learn how to implement these investment strategies?
If yes, then have a look.
1. Understand your investment goals:
Starting with a proper investment goal will help you to make extra money in the stock market.
So, you should first understand the following questions:
- why do you want to invest in stocks?
- How much money do I want to earn from stocks?
- What is my budget for investing in the stock market?
- Will there be any necessity for money in the coming 1-2 years?
- what are your plans to use this fund?
- Are you going to buy a new house next year or want to save for your retirement?
Answering these questions will help you to choose the best stocks suitable for you, which will then make you that much profit.
You should also be understand that what is your aim to invest in stocks to maintain your capital or to achieve high income & growth.
After answering these questions you need to understand how much money are you going to invest regularly by knowing your level of risk.
Choose which risk category fits for you.
- High risk
- Medium-high risk
- Medium risk
- Medium-low risk
- Low risk
Your profit depends on which risk bucket you choose, as the risk increases profit also increases & as the risk decreases profits also decreases.
I recommend you to go with medium-low risk stocks in the starting of your stock market investing journey.
As you have done risk assessment you can choose the stocks that will generate a good return in the long run of about 5-6 years that’s quite a long period but the chances of risks become low in long term investments.
Now let’s move to the next important point to be considered.
2. Learn the basics:
You don’t need to become an expert to invest in the stock market, you have to only learn the basic fundamentals of it.
There are two markets involved in the stock market investment:
- Primary Market/IPOs
- Secondary Market/Stock market
1. Primary Market/IPOs:
A business or company enters the IPO market to raise funds from the public for the future growth of the company by giving company shares in return which called the primary market.
2. Secondary Market/Stock market:
The shares after given to the investors then it goes to the secondary market or the stock market where the shares get traded between other investors.
This is market where you are going to buy & sell the shares.
The basic key point is the stock market helps you to invest in shares of companies along with bonds, derivatives, mutual funds.
Now, to buy the correct stocks you have to do some work:
- First, you have to make a list of stocks based on your risk portfolio. (You’ll get it on google.)
- Second track & analyze these stocks daily on the BSE as well as NSE (Either go with the best stock market analysis platform- moneycontrol)
- The main point here is to select a good broker.
(5paisa is India’s best trusted & low brokerage platform to invest in the stock market, where you will get advanced charts for analysis & it is easy to understand for a beginner.)
PS: You can get a discount on your every investment or trade if you open a Demat account from our referral link.
Finish, now you have all the basic knowledge that on must have while investing in stock market.
Learn more knowledge about stock market & how to buy & sell the stocks.
3. Invest in good returnable stocks:
Learning the basics of the stock market is not enough, you need to look for good returnable stocks in the market.
While researching & analyzing the stocks you have to find the stocks that have given the best returns for a long time.
BONUS TIP: There are 7 sectors that will be in boom in the future for long term: 1. IT (Information Technology) Sector. 2. Automobiles Sector. 3. Infrastructure Sector. 4. Pharma sector. 5. Housing Finance Companies. 6. Logistics. 7. FMCG (Urban Consumption).
Good returnable stocks are fundamentally & technically very strong due to the management of their business.
So, they have the potential to jump high in future.
Some important tips to find a good returnable stock:
- Earnings per share (EPS)– It is the amount that each share would get if a company paid out all of its profit to its shareholders. (EPS should be high)
- Price to earnings ratio to growth ratio (PEG)– It helps you understand the P/E ratio in a little better way.
- Price to earnings (P/E) ratio– It computes the relationship between the earnings of a company and its stock price. (PE should be minimum)
- Price to book value ratio (P/B)– It compares between the value the market set on a company to the value the company which has stated in its financial record books.
- Dividend yield.- It measures the return on a dividend as a percentage of the stock price.
- Dividend payout ratio (DPR)– It measures what a company pays to the investors in dividends compared to what the stock is earning.
Analyze stocks with these parameters on Stock analysis and screening tool for investors in India which will make it super easy for you to invest in.
Now, Let’s move to manage your savings.
4. Manage your Savings:
You should make a plan for saving extra money for your investment.
Make an estimate of your monthly spending, requirements, & most important emergency fund on a paper.
After making an estimate if you have 500-1000 Rs in your hand for the investment then it is well & good but if not then minimize your unnecessary spendings.
Learning to manage your savings will help your investments to grow very fast.
You will learn it with the practice over time.
5. Start slowly:
As the saying, “Slow and Steady Wins the Race” you have to invest slowly in the stock market otherwise you will lose your money.
Exactly, what you are gone do is make investments on a regular basis based on your savings, don’t invest in large quantities.
Which means if your have 500 rupees to invest then look for the stocks that best fits in this budget, don’t go for the high risky stocks.
Slowly as your savings bucket fill invest it.
The benefit of investing slowly is your risk level becomes low as well as your investment keeps on increasing day by day.
6. Stay away from penny stocks:
Penny stocks are the stocks having high risk because sometimes they’re manipulated by some big investors.
Stocks below 10 rupees are known as penny stocks.
It is not necessary that every penny stock is bad, some of them become multi-baggers over time if they are fundamentally & technically strong enough.
When the demand for any stock decreases due to financial reasons it falls & known as a penny stock which either rises or falls more in the future.
So, I highly recommend you not to go with penny stocks.
7. Invest in surplus funds carefully:
Investors get attracted by the high gain of surplus funds provided by the companies even though they have not that much capital.
For ex: If you have a capital of 1000 rs & the stock price costs 900 then it is not the right decision to buy that stock only for the benefit of the surplus fund.
Many beginner investors with little money tend to buy stocks that fit within their budget which is good but when they analyze surplus funds they change their decision which is wrong.
Even though the company having very strong fundamentals, if you put your money into it at the wrong time then it could be counterproductive for you.
Now let’s diversify your investment.
8. Diversify your Investment:
As the saying, “Don’t put all your eggs in one basket” you should not invest all your capital in one stock rather you should invest your money in various sectors.
You have to diversify your money in different sectors due to which if loss happens in one sector other sector will recover it.
You invest all your money only in one sector or stock & if in future something goes wrong with that stock you will lose all your savings at once.
So, make smart decision & invest in various gaining stocks or sectors as mentioned above in the bonus tip.
9.Invest in Mutual Fund:
Another way of investing in stock market is through mutual funds.
Mutual funds are the funds which invest in large sectors of the stock market, you only have to put your money in any good mutual fund & they will invest your money according to their strategy.
Mutual funds start as low as 500 Rs.
You have an option to invest it on monthly basis though SIPs which lets you increase your funds month by month.
Your invested funds are properly managed by the high level fund managers.
Best platform for investing in mutual funds is Grow.
10. Be realistic:
You have to think realistic that means don’t invest by expecting that one stock stock will rise or fall.
First, you need to analyze that stock based on the above mentioned parameters then decide what you should do.
Some people who don’t have knowledge or beginners invest their money trusting someone else advice.
Investing like this is like shooting in the dark.
11. Avoid emotion-based investment decisions:
This is most important point of all.
Newbie investors don’t have control on their emotions at all, if they look one stock is rising they buy the stock without thinking.
And if that stock is falling they got stressed that they will lose their money & sell it.
They do this type of investing based on their emotions, sentiments.
By doing this they fall in the situation from where they definitely make their own loss.
Overall it is totally wrong, you have that parameters, indicators, charts to do analysis do it & don’t depend on your emotions at all.
If you can’t control your emotions then don’t invest in share market, first try to control it then come back.
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My referral link with discount code:
Hey investor, i hope you have understood how to invest in stock market with little money.
Only you have to save your money & invest on stock market wisely.
As you gain experience over the time & profit on your investment you can invest in large quantity & will make a big profit.
Keep learning, keep smiling!
PS: If you have any doubt regarding to this article or didn’t understood something then feel free to ask us via comment section, we are here to solve all your doubts.
Common FAQs about how to invest in stock market with little money:
To start investing in the stock market with little money follow the points:
1. Understand your investment goals
2. Learn basics
3. Invest in good returnable stocks
4. Manage your savings
5. Start slowly
6. Stay away from penny stocks
7. Invest in surplus funds carefully
8. Diversify your investment
9. Invest in Mutual Fund
10. Be realistic
11. Avoid emotion-based investment decisions
There is no such minimum amount but you can start with as low as 500 Rs.
This because you have also pay for the brokerage to buy & sell the stock.
Yes, definitely you can.
Only you have such patience with proper knowledge & understanding of the stock market.
Rich people have their class & they invest in private and commercial real estate, land, gold, and even any art work.
In the case of the stock market a beginner should always start investing in the evergreen sectors which are:
1. IT (Information Technology) Sector.
2. Automobile Sector.
3. Infrastructure Sector.
4. Pharma sector.
5. Housing Finance Companies.
7. FMCG (Urban Consumption).
6 Best stocks that a beginner should buy are:
1. Reliance Industries
2. HDFC Bank
3. Hindustan Unilever LTD
4. Tata Consultancy Services LTD.
5. Crisil LTD.
6.Bajaj Finance LTD.