Going by the huge number of successful people who have built wealth in the stock exchange proves that investing in stocks is a great way to ensure financial growth and stability. However, it is important to remember that this is not a quick and easy way to make a tone of money.
Investing in stocks basically means buying shares in companies that have been listed in the Nairobi Securities Exchange which then entitles you to part of that organisation’s earnings. Companies like Safaricom, KCB, Sasini, Kenya Airways among many more.
Things you need to know before investing in stocks in Kenya
1. Know the companies you want to buy shares in
The first thing you need to do when you decide to invest is to conduct sufficient research on the companies that have been listed in order to find the ones you are interested in.
You need to figure out what you investment goals are. Do you want to earn dividends or gain in share value? This will help you know which organisations to buy shares in that will help you achieve your goals.
2. What is a CDS account?
A Central Depository and Settlement account (CDS) is basically like an electronic portfolio where all your shares are stored. This account is created when one registers with a stockbroker.
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3. How Much Money Do I need To Invest in Stocks?
There is no minimum amount required to fund your CDS account, but when you decide to purchase a stock, you must buy at least 100 shares.
So, how do you get started investing on the Nairobi Securities Exchange (NSE)?
Here Are Tips On How To Invest In Stocks In Kenya
1. Start By Bullet-proofing Your Finances
Even though investing in stocks is a great way for you to build wealth, you are not always guaranteed of success. You have no assurances that your investments will pay off and as such you need to prepare for the worst.
Therefore before you spend all your money investing in stocks, take some time and ensure you are living well below your means so that if your investments don’t pay off you won’t be left penniless.
Start by paying all your high interest loans and setting up an emergency fund that can sustain you in case your source of income disappears.
2. Find a Broker
An investment broker is someone or an organisation that give you as an investor the platform to buy and sell shares. Before you can start investing in the NSE, you need to open an account with one of the licensed brokers in order to get a CDS account.
There are quite a large number of licensed brokers in Kenya with some even offering an online trading platform. Some of them are banks while some are just investment firms.
Check Out A List of Licensed Brokers Here
It is up to you to conduct your research and find out which one would be best for you. There are some things to consider when it comes to choosing a broker.
Almost all of the brokers will charge a certain fee for opening an account, an account maintenance fee, or both.
These fees vary from broker to broker depending on the level of service. However, typically stockbrokers charge about KES 1,200 to open the account and KES 100 per month maintenance.
Paying commissions is a standard practice in trading and your stockbroker will definitely charge commission.
With commission however, the rate is the same for all stock brokers and is equal to: 2.1% of the total value of transactions less than KES 100,000, or 1.85% of the total value of transactions more than KES 100,000.
The Documentation You’ll Need
There are some documents you are required to produce before you can open your CDS account. These include; two colour passport size photos, your national ID or passport and a signed CDS-1 Form.
Some brokers will also ask for a copy of a recent utility bill, the first page of your bank statement, or a copy of your PIN certificate.
When the process is complete you will be the proud owner of a Central Depository System (CDS) account and you can start buying the shares you wanted.
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Stocks are subject to risks and returns are not guaranteed. This should however not scare you away from investing. All you have to do is ensure you invest in a smart way and have a lot of patience otherwise you will be driven into bankruptcy.
By Michelle Wanjiku
Source: Investing Africa