Beginners’ Guide Part A: Basics to start your investment in share market

With the growing size of our national economy, people have found and are still exploring many sectors where they can invest their money and expect handsome returns in some months/years down the line. Gone are the days when we only had banks/finances/cooperatives where we would deposit our cash and wait till those institutions could make some earnings and feed us with some 10-15% of interest.

It’s already been more than 2 decades that investment in share market of Nepal had stood out as one of the alternative investment options and the same has undergone lot of transformations to appear in its present avatar. However, it is strongly felt that many potential young investors are still out of the share market despite having some investable cash in hand, thereby letting the share market being dominated by the same old players and common interest groups.

Against this backdrop, this is the beginning to the series of articles which ShareSansar believes would convince more young investors to enter the share market. In the series of articles that would follow, we will attempt to throw some light about investment options, procedures and rational decision making if not fully enlightening to all such young investors.

What does owning shares actually mean?

In layman terms, shares or the stocks of any company is the portion of its ownership. Let’s simplify it further. If you come across a person who claims that he has got 20 “kitta” of shares of XYZ company, then you got to understand that he is an owner of certain percent of stake in that company. As a lawful owner, he therefore has an option to sell his ownership to others with an added value; or else he could also hold his ownership to be eligible to receive equal proportion of the company’s profits.

What pre-works should I perform before entering the share market?

There are few things that we have to take care of and fulfill before entering the share market. Below listed are few of them (however, not limited to them exclusively):

  • Make sure that you have some investable cash (at least Rs. 5,000) in this case as we shall specifically deal with Initial Public Offering (IPO). Also make sure that the seed money (at least Rs. 5,000 in this case) is free from any liabilities for at least for couple of months. This means you don’t need to spend this seed money for any emergency purpose for couple of months or so.
  • Open a bank account (savings account) at any bank that is most accessible to you. You can open account at any bank but make sure that the branch provides ASBA (Application Supported by Blocked Amount) service. It would be convenient later if you can open your account at a bank which provides online ASBA service. In that case, it is also recommended to subscribe to online/mobile banking service of that bank. 

You cannot apply for any public offers of shares without bank account and ASBA service. ASBA allows you to apply for any public share offers from any branches of the bank. If you have activated your online/mobile banking service in your account, you don’t even need to visit the bank to apply for the shares. The entire work can be done via online platform from whichever location that has internet access. Moreover, the bank where you have parked your money will pay you regular interest as ASBA system enables you to apply for the public offerings by holding the money right in your bank account.

Guess who could be benefited the most from such an online ASBA? Of course, the ones who don’t have the banks around their town/villages. The migrant workers who are currently staying out of the country would also be benefited as they can apply to any public share offerings from any country they currently stay provided that they have maintained some cash balance in their bank accounts. All the hydropower companies these days offer 10% shares to the project-affected people. In that case, if you are from one such project affected districts, you can avail the special financial provision from any corner of the world.

  •  Open a Demat account. Demat account is different from the previously discussed account as this account will not hold your cash but will hold your shares. If you buy any new shares, the same quantity will be credited in your Demat account and debited if you sell your shares in future. You can open your Demat account at any Depository Participant (DP) institutions that is accessible to you. Most of the commercial banks currently also work as DPs, therefore, you can opt for your Demat account at the same bank where you open your saving account. Those DPs generally charge Rs. 100/150 as service charge while opening your Demat account; however, some may even provide it free of cost. If the financial institution where you maintain your account doesn’t have Demat facility, you can always opt to another DP where you will be asked to provide your account number of the bank in order to link those two entities. Once again, it is recommended to open Demat account with online service so that you can check your Demat statement via online platform. 
  • Open one more account with a share broker. Though opening account with share broker is not mandatory for you in your initial stage of entering the share market through primary root, you will need it later while selling your shares

The “limited” or public companies are required to sell certain portion of their ownership to general public through a process called Initial Public Offering (IPO) in which public can apply for a share with Rs. 100 (or Rs 10.) as per share cost. Later when the transactions of these shares are conducted (buying and selling of company ownership), the value of such shares can either increase or decrease depending on various factors (company’s’ financial performance, market demand and supply etc.). Therefore, while selling your shares that you grabbed in primary market, you need to do it via the platform in secondary market. In this case, the role of share brokers come into the scene.

Now, let us return to the issue of opening account with share broker. We have a total of 50 share brokers in Nepal usually identified by unique broker identity number. For example, Creative Securities Pvt. Ltd. is Broker No. 40. There’s a good news for the enthusiastic investors based in few smaller towns as these brokers are gradually establishing their Remote Work Stations (RWS) or their branch offices in few smaller towns. Another good news is that it’s completely free to open your account at the broker office. You can avail the complete list of share broker offices here.

*Please make sure to visit the website regularly for upcoming episodes in the series where we shall be learning about investment options in Nepal and the actual benefits one can reap through these different investment instruments.

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