Being a participant in the share market can seem daunting, particularly for new investors. However, with the right knowledge and tools, taking part in the share market can be an excellent way to grow your wealth over time. One of the tools needed for trading in the share market is a demat account. In this blog post, we’ll walk you through the step-by-step process of how to invest in share market for free with a demat account.
The Benefits of Investing in the Share Market
Investing in the stock market has many benefits. Firstly, shares have the potential to generate high returns over time. Unlike a savings account or a term deposit, shares offer capital gains and dividends. Secondly, investing in the share market allows you to diversify your portfolio. By diversifying your portfolio into a range of companies, industries, and sectors, you can spread your risk and potentially reduce the impact of any single company’s poor performance. Finally, investing in the stock market can hedge against inflation. As shares rise in value over time, owning shares can preserve your purchasing power.
Understanding the Potential Returns
To understand the potential returns from investing in the share market, it’s worthwhile to remember that there are two main ways shares generate returns – capital gains and dividends.
Capital gains occur when your shares increase over time. For example, if you purchase $10,000 worth of shares in Company A, and three years later the value of those shares has increased to $12,000, you have made a capital gain of $2,000.
Dividends are payments to its shareholders. Dividends are typically paid out of company profits and are an effective way to generate income from shares. For example, if you purchase $10,000 worth of shares in Company A and they pay a 4% dividend, you would receive $400 in dividends per year.
2. How to Open a Demat Account for Free?
Opening a demat account is a crucial step towards investing in the share market. Thankfully, opening a free demat account is relatively simple and can be done online in just a few steps.
- Exploring the Different Demat Account Options
Before opening a demat account, it’s imperative to understand the different options available. There are two main types of demat accounts – a basic services demat account (BSDA) and a regular demat account.
A BSDA is a demat account with limited capabilities. It’s intended for those with smaller portfolios and typically has lower fees. In contrast, a regular demat account has no restrictions on the number of securities held and may have higher fees.
- The Step-Step Guide to Opening a Demat Account
To open a demat account, choose a depository participant (DP). A DP is a licensed agent of the central depository system that holds your securities on your behalf. You can choose a DP based on factors such as reputation, ease of use, and fees. Once you have decided on a DP, you’ll need to provide some basic information such as your name, address, and PAN card details. You may also need to provide supporting documents such as a passport-sized photograph and proof of address.