In the past, investing in equity involved a high cost (high brokerage charges of about 2 per cent of the transaction value) and a number of hassles (shares were traded in the physical form, which involved a lot of paperwork and often resulted in bad deliveries due to signature mis-matches, forgery, etc.).

Today, the entire scenario of equity investing has changed for the better. Shares are now traded in the electronic (dematerialized) form and costs of investing have reduced dramatically.

Another significant improvement has been the increase in the number of mediums through which an investor can transact in equity. From just personal visits to a broker’s office and the basic telephone used in the past for equity transactions, today, an investor can use his cell phone, the Internet, call centres and kiosks for his equity trades. 

Another radical convenience, that is available to an investor today, is the seamless linkage between his demat account (which holds his equity shares in dematerialized format), his bank account and his broking account). For instance, if an investor purchases shares through the Internet, once his trade is executed by the broker, the shares purchased by him will be transferred to his demat account and his bank account will be debited for cost of shares and relevant expenses. All this will be done without the investor having to make efforts at every stage for the necessary actions.

Step 1: Open the necessary accounts

Before you start investing in equity, you need to open the following accounts:

Broking account.
This is an account you open with a broker. You will need to fill in an application form, which will require you to submit details such as your full name, address, Permanent Account Number (PAN), etc. Once your application has been processed, you will receive a broking account number.

Demat account.
This is the account, which will hold shares purchased by you, in electronic form. This works like a bank account. In case of a bank account, you deposit and withdraw your money and receive a bank statement periodically, which shows you how much money is remaining in your account. Similarly, in case of a demat account, shares purchased by you are deposited into your account and shares sold by you are withdrawn from your account, and you receive a statement periodically, showing the shares remaining in your account.

A demat account can be opened with a depository participant. It is preferable to have your demat account maintained with your broker or an entity affiliated to your broker. This ensures prompt transfers to and from your demat account of shares purchased and sold by you without any effort required to be made by you (you simply need to issue necessary one-time instructions to your broker).

Bank account.
You can use an existing bank account for your equity investments.

Step 2: Decide your mode of transacting – in cash or with margins

You have two options of investing in equity:

1. By making purchases in cash and taking delivery of the shares or
2. By undertaking margin trading (you pay only a portion of the cost for purchases and your broker funds the balance) and squaring off your positions (you don’t take delivery of the shares. You simply book your profit or loss).

If you decide to undertake cash purchases, you need to have sufficient funds in your bank account to make the purchases.

If you decide to undertake margin trading, you need to pay the broker the margin amount and start your trading.

Step 3: Deciding on which mediums to use for transacting
There are a number of mediums you can use to transact in equity. These are:

Visits to the broker’s office/branches.
You can simply visit your broker’s office or closest branch and undertake your transaction by interacting with a counter representative.

Your telephone.
This is the traditional way of transacting. You simply call your broker and place your order. This facility is available in the form of call centres*.

The Internet.
Register yourself with your broker’s internet portal and use the equity-trading platform available to conduct your trades.

Kiosks.
Kiosks are like booths or cabins placed at prominent locations across the city. Simply enter a kiosk and execute your trade. A kiosk is used for trading through the internet. The only difference is that instead of using your home computer, you can use the kiosk located outside your home.

Now you are ready to start investing in equity.