How To Invest in Shares in Kenya For Beginners [2023]

To the majority of Kenyans, the stock market may seem like a very complex sector reserved only for the finance elite who understand the Kenyan market dynamics.

However, the above notion can be further from the truth since investing in the stock market is actually much simpler than most people think.

To invest in shares in Kenya simply involves buying and selling shares in a share market and for Kenya, the Nairobi Securities Exchange (NSE) is where the action happens.

Trading in the NSE is usually confined to business hours from Monday to Friday, 9 am to 3 pm excluding holidays and it involves buyers and sellers trading shares of listed companies spanning various sectors of the Kenyan economy including agricultural, automobiles, banking, construction, energy, insurance, manufacturing, telecommunications etc

To begin trading on the NSE, there are a few fundamental basics in understanding how the NSE operates since there are rules and regulations to ensure fair play within the participants as well as also protect the interests of investors.

How do I earn from shares in Kenya?

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.

In general, you can earn from shares in Kenya through two primary methods:

Dividends: Dividends are portions of a company’s profit distributed among shareholders based on the number of shares held.

Capital Gains: Capital gains are share profits realized after buying low and selling high.

Moreover, depending on the type of shares invested in i.e ordinary/preference whereby each possesses a distinct characteristic which offers different rights and benefits to their shareholders.

Some of these characteristics include;

Voting rights: Ordinary shareholders have voting rights while preference shareholders do not

Dividend payments: Ordinary shareholders’ dividends depend on the company’s financial performance hence not fixed while preference shareholders’ dividends are fixed.

Capital distribution in liquidation: Ordinary shareholders are paid last upon a company’s liquidation while preference shareholders are prioritized in such a scenario.

Convertibility: Ordinary shares cannot be converted into any other class of shares while some preference shares may be converted into ordinary shares after a specified period or under certain conditions.

How can a beginner invest in shares in Kenya?

Starting out as a beginner stock market investor may pose various challenges. However, if approached with proper knowledge and preparation, it can prove to be a great way in building a stable financial future.

Below are some of the tips you should learn before investing in shares as a beginner in Kenya.

Educate Yourself: Through understanding the dynamics of how stock markets operate, you will be able to know the different types of shares, benefits/risks associated with shares, overview of Nairobi Stock Exchange (NSE) in terms of its mandate, functions, NSE listed companies etc

Set Financial Goals: Depending on your intended purpose of investing in shares, you can influence your investment strategy in terms of whether it’s long-term wealth building, retirement planning, or short-term gains.

Create a Budget: According to your financial capabilities, you can choose to divert a portion of your income for share investment purposes without affecting your essential expenses.

Open a Trading Account: Choose your preferred stockbroker in Kenya and open a trading account. However, you should base your choice on a variety of factors including regulation/compliance, reputation/history, fees/commissions, security, trading platform, account minimums, customer service etc

Choose Stocks Wisely: Begin with well-established and financially stable businesses as well as consider companies with high development prospects in industries you understand.

Diversify Your Portfolio: Avoid putting all your money in a single stock. By distributing investments across several businesses and industries, diversification lowers risk.

Monitor Your Investments: Stay informed about market trends and company performance. Review your portfolio frequently, and make any required adjustments.

What do I need to buy shares in Kenya?

To invest in shares in Kenya requires prior registration to a licensed stockbroker in Kenya in order to obtain a trading account to be used for all trading transactions within the NSE.

However, not all stockbrokers are created equal and as such, there are specific factors that should guide you towards your choice for a reliable stockbroker in Kenya.

Factors to consider when choosing a stock broker in Kenya

Regulation & compliance: Before settling on a stockbroker, you should first ensure that they are licensed by the Capital Markets Authority (CMA). This is to ensure that they operate within the legal boundaries, meet the required financial standards and also protect your investments.

Reputation & history: By researching a stockbroker’s track history, you can be able to gauge their trustworthiness in handling your investments.

Fees & commissions: The availability of account maintenance fees, trade commission rates or any other additional charges may impact the overall value of your trades whereby long-term investors may benefit from lower fees.

Trading platforms: Your trading experience is determined by the trading platform offered by your preferred stockbroker. In Kenya, there are stockbrokers who offer online trading as well as mobile trading options.

Customer service: Customer support is very essential especially in instances of troubleshooting account issues or queries regarding your investments.

Security: To safeguard your financial data, it is necessary to choose a stockbroker with high account security standards such as 2FA or encryption to prevent data theft.

In addition to a stockbroker, you will also need the below to be able to buy shares in Kenya.

1. Copy of your national ID/passport.
2. KRA PIN certificate
3. Bank account for funds transfer
4. Trading account provided by stockbroker
5. Sufficient funds to complete transactions

How do I choose shares to buy in Kenya?

Choosing the right shares to buy in Kenya requires careful consideration and research in order to realize a profitable investment outcome.

Before settling on buying shares of a particular company, you should first perform a thorough analysis on particular aspects regarding the company which include;

Company performance: Analyze the company’s growth prospects in terms of financial performance trends based on revenue growth, profitability, and debt levels.

Dividend History: A company’s financial potential can also be gauged by its dividend payment history in relation to its income.

Industry and Market Trends: Evaluate the company’s growth potential within its current sector under the prevailing market conditions.

Management and Leadership: Assess the company’s management team in terms of experience and overall competence.

Market Capitalization: A company’s size as well as years of operation can be a useful factor in determining its stability.

Analyst Recommendations: By relying on industry experts such as financial analysts, an in depth analysis of a particular company can be achieved.

Risk Tolerance: Depending on your risk level and financial capability, you can proceed and invest accordingly.

How can I buy shares online in Kenya?

To buy shares online in Kenya, follow these steps:

Choose an Online Broker: Your excitement of owning shares is now within reach, but first, you must identify a licensed trader to handle your transactions.

You must be asking, how can one identify a licensed trader? Select a reputable online brokerage platform that offers access to the Nairobi Stock Exchange. NSE has a list of approved stockbrokers on its website to further guide you towards your choice.

Open a CDS Trading Account: Create an account on the brokerage platform by providing the necessary personal information and documentation.

To invest in shares in Kenya, 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:

1. Duly filled CDS 1 form provided by the agent or bank
2. Two passport-size photos
3. ID card
4. KRA PIN
5. Articles of Association and Memorandum of Association (in the case of a limited company)

Fund Your Account: Transfer funds from your bank account to your brokerage account. 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.

Research and Select Stocks: 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.

Place Buy Orders

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 buy shares. You can buy shares through:

1. A stockbroker or Online broker approved by NSE
2. Bank custodial services. Major banks in Kenya among them Equity Bank, KCB, and Cooperative Bank provide custodial services.
3. Mobile Traders approved by NSE

You buy shares through filling in a purchase order form from any of the above mentioned dealers. In the form, you fill in the number of shares you wish to have and at what price.

Instruct your stockbroker to buy shares of the company or companies you are interested in at the prevailing market price or a specified price.

Settlement: Upon implementation of your instructions, the shares are deposited into your trading account while the corresponding funds are simultaneously deducted from it.

Monitor Your Portfolio: Keep track of your investments through the online portal and stay updated on market trends.

What is the minimum amount to buy shares in Kenya?

The minimum amount to buy shares in Kenya varies depending on the stockbroker and the specific company’s share price. Generally, brokers have different minimum investment requirements.

Some may allow you to start with as little as Ksh 5,000 to Ksh 10,000, while others might require a higher minimum investment. It’s advisable to check with your chosen brokerage firm for their specific minimum investment criteria.

In addition, you may also be 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 Safaricom at the time of writing this article is Ksh 44.90. To buy a minimum of 100 shares, you need Ksh 4,990.

Can I buy shares without a broker in Kenya?

No, individuals cannot buy shares directly from the Nairobi Stock Exchange without a broker. The NSE requires all buy and sell transactions to be conducted through licensed stockbrokers.

How do I transfer company shares in Kenya?

The process of transferring company shares in Kenya involves the following steps:

1. Fill out a share transfer form that is available from either the company website or through any of its regional offices.

The form states clearly the names & addresses of both the current/new shareholder as well as the total number of shares being transferred in addition to any other important information that may be required.

2. Ensure the form is duly signed by both the current and new shareholder. In some cases, it may require verification by a commissioner for oaths.

3. Submit the completed and signed share transfer form to the company’s registrar or any other designated authority responsible for share transfers.

4. Pay any applicable share transfer fees to the company.

5. Upon completion, the company will update its shareholder records and issue new share certificates in the name of the new shareholder.

What documents are required for share transfer in Kenya?

For a share transfer in Kenya, the following documents are typically required:

1. Share Transfer Form: This form includes details of both current/new shareholder, the number of shares being transferred, and other relevant information.

2. Original share certificates of the current shareholder must be submitted along with the share transfer form.

3. National ID/Passports of both current and new shareholder

4. Copy of the KRA Personal Identification Number (PIN) certificate of both the both current and new shareholder

5. Indemnity form (optional) Depending on the specific company’s requirements, additional documents may be necessary, such as a duly signed indemnity form.

How do I transfer shares after death in Kenya?

Transferring shares after death in Kenya involves the following steps:

Step 1: Get a Grant of Probate or Letters of Administration. If the departed had a valid will, the executor in that document needs to apply for a Grant of Probate from the High Court.

However, in the absence of a will, then a family member has to apply for Letters of Administration in-order to be granted administration rights to the deceased’s estate.

Step 2: Notify the Registrar of Companies regarding the death of the shareholder either through a copy of the Grant of Probate or Letters of Administration.

Step 3: Fill out a Share Transfer Form with the details of the deceased shareholder and the new shareholder (the beneficiary).

Step 4: Submit the duly filled form together with supporting documents such as Grant of Probate or Letters of Administration and any other relevant documents to the company’s registrar.

Step 5: Upon verification of the submitted documents, the company’s registrar will update the shareholder records and issue new share certificates in the name of the beneficiary.

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.