What is dematerialization?
Before there were electronic shares and online trading like we see today, there were physical share certificates that we had to go and get for shares of every company that we bought. In 1996, a process called dematerialization was introduced. It is the process by which physical shares can be converted into electronic shares. This was done to make the whole process cost effective and less time consuming for everyone.
Why was dematerialization done?
It became very difficult to keep track of a bunch of papers and the loss of a bulk of these papers can lead to the fall of businesses associated with the share market. Also 0.5% of the price was being given as stamp duty, and now this money is being saved. The dematerialized shares receive their bonus and dividends directly into their accounts and therefore there are no chances that these will get lost in transit.
There are two depositories, namely, Central Depository Services India Ltd (CDSL) and National Securities Depository Ltd (NSDL). These two are registered with the Securities and Exchange Board of India (SEBI).
What is rematerialization?
Even after the shares are dematerialized, a person can opt to rematerialize them again, converting them back into physical shares. Some people do this in order to avoid the maintenance charge on their demat account. When the shares are rematerialized, the authority of the account goes back to the company issuing the shares. For this process, the person has to contact their depository participant and ask them to provide a Remat Request Form. After getting back the form, the depository participant temporarily blocks the investor’s account and submits the request to the depository and the issuer of the share. After this is confirmed, the depository prints the physical certificates and send it to the investor. The account balance, which was blocked previously, is debited.
Both processes of demat and remat take a total of 30 days from the day of request submission.
Check in detail: Dematerialisation & Rematerialisation
How to trade online?
Before the internet reached every household, people had to call their brokers and ask them to buy shares for them. This was most inefficient as the time that was destroyed while waiting for the broker to receive the call, check the share price and then buy it, resulted in the change in share price by sometimes a few rupees. But with the advent on online trading, a person can buy or sell stocks at the click of a button from wherever he wants. Trading in the stock market has become as easy as online shopping nowadays. Just one click on the smartphone is enough to conduct trades in the market. One platform allows a person to trade in stocks, currency, derivatives , commodities etc.
It is very important to know how to choose the right stock as per your needs. Basics of fundamental analysis and technical analysis needs to be understood before taking any decision. This should be the foremost action before you start trading in stocks. It is best to analyze and choose your own
rather than listening to people and buying shares according to their thinking and analysis.
How to open a demat account?
The first and one of the most important steps is to choose a proper brokerage partner. The broker should be very reliable in nature, and you should check the reviews beforehand. There should be no incident of server crashes at peak times due to many trades taking place at once. Look into if the broker receives all information on time and is able to disseminate it efficiently. This broker will help you open a Demat account and Trading account. A trading account helps you buy and sell shares in the stock market whereas the Demat account stores the bought shares, in a digital form.
You need to check the brokerage costs before opening an account with the broker. A fee called a brokerage fee is charged by the broker whenever the customer places an order in the market. This fee can either be a flat fee or a percentage of the trading volume.
The second step is to open a Demat and Trading account with the chosen broker. An online form needs to be filled in order to open an account. Basic details like your PAN number, bank details, identity proof, address proof, DOB etc. At the end you will need to e-sign the document which will be sent on the registered mobile number. After submitting the application, an account will be opened, and you will receive the login credentials.
After receiving the login credentials, you need to login to your account and explore the trading platform as well as conduct trades using it.
The broker has to release a contract note within 24 hours of any trades initiated by you. This contract note will contain a summary of all the trades undertaken by the you and it is wise to check the contract note every day in case of any discrepancy arising.
How to choose stocks for trading?
To efficiently trade on the stock exchange, we can use many methods to analyze a company, from fundamental analysis to technical analysis. Fundamental analysis entails looking at the company’s valuation, important ratios and most importantly, measuring a company’s intrinsic valuation. If the current market price of the company’s shares is more than the intrinsic value, then the investor should wait for the price to fall before buying it. And, if the price of the share is currently lower than the intrinsic value, the share can be bought in order to make profits.
Technical analysis entails reading and analyzing charts. It is used to forecast the direction that the prices will go, by studying its history and trends over a period of time along with the volume traded. Different charts and graphs are used in technical analysis, like Bollinger bands, MACD, Candle charts etc.
A beginner can read the paper of listen to various news channels and derive which companies to invest in, after doing their own due diligence. They can also take the help of their broker, who normally call with suggestions if the opportunity arises.