Investing in shares in Kenya is now easier than ever. What with the availability of online platforms and digitalization of the Nairobi Securities Exchange (NSE). You need a computer, internet connection, and cash to kick-start this process. If you are a beginner, it is better to understand the terms and operations involved.
Nairobi Stock Exchange(NSE) is the platform that facilitates the trading of shares of listed companies. You can buy and sell through this platform. This is where you get all the shares clustered under different sectors. There are currently 11 sectors in the NSE platform. These are Banking, Construction and Allied, Insurance, Manufacturing, Automobile and Accessories, Energy and Petroleum, Agricultural, and Telecommunication among others.
Central Depository & Settlement Corporation Limited (CDSC) is a company mandated by Capital Markets Authority (CMA) to transact and hold securities and documents of title on behalf of investors.
Central Depository System (CDS) is an account provided by CDSC through which you can buy, sell or store shares. You must have one to trade in shares.
What is a Share
A share is an intangible asset that denotes ownership of a unit of a company. You become a shareholder of a company by holding shares and enjoy benefits in the form of dividends and voting rights.
Why Invest in Shares
Investors enter into shares trade for different reasons. The most common reasons are:
- For trading. Under this category, you buy low and sell high. You are investment is mid-term
- For long-term investment. Here, you buy shares and wait for their prices to rise as you earn dividends.
- To have ownership rights. In this case, you want to have voting rights in the company you are investing in so that you can control its future.
- You can invest in shares as a store of value. If you have excess funds, you can invest in stable companies so that you can take advantage of dividends.
- Shares are accepted by banks as collateral. If you don’t have conventional securities, you can pledge your shares by filling CDSC 5. Your shares will be frozen until you clear the loan upon which you sign CDSC 6 to unfreeze.
The Process of Investing in Shares
The following are steps to take in your shares investment journey:
- Open a shares trading account (CDS)
- Identify a Trader
- Research on which shares to buy
- Deposit Funds
- Buying Shares
A) Opening a CDS Trading Account
To trade in shares, you must open a Central Depository Account (CDS). This account is no different from your bank account and you can use it to hold or trade in your shares. You can open this account at any local bank or through CDSC agents. You can open a CDS account as an individual, jointly with another person, or as a registered company.
You must provide the following documents:
- Duly filled CDS 1 form provided by the agent or bank
- Two passport-size photos
- ID card
- KRA PIN
- Articles of Association and Memorandum of Association (in the case of a limited company)
B) Identifying a Trader
Now that you have an account, your next step is to load it with shares. Your excitement of owning shares is not farfetched, but first, you must identify a licensed trader to handle your transactions. You must be asking, how can one identify a licensed trader? NSE has a list of approved stockbrokers on its website.
C) Research on Which Shares to Buy
Before you buy shares, go through the listed companies and track their performance records. Check their last declared profits, the dividends, and major structural changes in their management. You can obtain their financial statements from their websites. Your stockbroker can assist you by providing valuable information. Make use of NSE and CDSC websites.
D) Deposit funds
Now that you have made up your mind on which shares to buy, it’s time to avail the funds. Most stockbrokers require you to fill standing orders or direct debit forms. If you are using a bank, you are required to sign a funds transfer form.
E) Buying Shares
You are now a step to owning part of your chosen company. Your account is now ready and funded. You have three ways through which you can acquire shares. You can buy shares through:
- A stockbroker or Online broker approved by NSE
- Bank custodial services. Major banks in Kenya among them Equity Bank, KCB, and Cooperative Bank provide custodial services.
- Mobile Traders approved by NSE
You get shares by filling in a purchase order form from any of the above dealers. In the form, you fill in the number of shares you wish to have and at what price. You are guided by the current prices provided by NSE. The minimum quantity of shares you can buy is 100 units. The amount will depend on the particular share price for example the price of Equity Bank at the time of writing this article is KES 44. To buy a minimum of 100 shares, you need KES 4400.
The Bottom Line
Your investment in shares will take you places if you thread carefully. Bear in mind that share prices are not fixed. Shares are subject to rising or fall in value. Once you invest in shares, you must track their performance.
You need to exercise patience. Do not invest emotionally. Stick to the initial purpose you had when starting. If you aimed to invest, you won’t expect a rise in share price within a short time.
Shares are affected by several factors both internal and external. Internal factors are those directly affecting the structure or management of the company. If a company is making profits, it will declare good dividends which will create demand for its share leading to a share price increase. External factors are those not within the control of the company like a recession.
A good investor buys low and sells when prices are high. You must study the market trends and strive to get the right time to sell or buy. Spread the risks by buying shares of several credible companies. Finally, invest only what you can afford to lose.