How to get started in investing in capital markets

18 Aug, 2017 - 00:08 0 Views
How to get started in investing in capital markets

eBusiness Weekly

We have looked at investing in capital markets in Zimbabwe, the basics of investing and why it is prudent to do so in this environment. We also looked at the various options available, as in shares or stocks and bonds, cash equivalents such as savings and cheque accounts, certificates of deposit, money market deposits, and Treasury Bills.

The next step was to examine how the capital markets work, describing the various institutions that enable one to invest. These include the Securities or Stock Exchange itself, securities dealers or stockbrokers, and Investment Management companies or Asset managers. The role of related organisations like the Central Securities Depository, the Investment Protection Fund and of course, the Securities and Exchange Commission was explained.

Having laid the mechanics of investing bare for you to go to the next stage, it would then be prudent for us to take you through the process step by step.

The Main Steps

The main steps to guide you through the investment process are:

  1. Selecting the stocks, or shares you want to buy, for example Delta, NMB, or SeedCo etc.
  2. Opening a personal bank account with any local bank.
  3. Approaching a stockbroker/Investment Manager or Custodian and opening an investment account.
  4. Once accounts have been opened, depositing funds into the account provided by the stockbroker.
  5. Instructing your broker to purchase the number of shares of a company of your choice that you want to buy stock.
  6. The broker executing the purchase on your behalf and when the purchase has taken place, notifying you of the purchase.
  7. An electronic share certificate issued out to you at the Central Securities.

Selecting the shares or stocks

You select the companies you wish to buy shares from the companies listed on the Zimbabwe Stock Exchange or Finsec. To select your shares, you first need to establish what your investment objectives are.

Short-term objective (Less than 2 years)

If you want to withdraw your investment in less than 2 years, you select companies that have past stable share prices.

In other words, those that are not volatile and have many products in the maturity stage. This implies that they will pay higher dividends.

Your main aim is to reduce the risk that when you want to sell your shares the price would have dropped.

If your funds are committed for a period less than two years (e.g. when you are saving for your child’s university fess, for a business venture, or a car) you are advised to avoid companies that are launching new products and start-ups as their products have a potential of failing. While these might potentially yield higher returns, they tend to be of high risk. Since your funds are committed, they may not be such a good idea.

On the other hand, you can invest in such companies in the short-term using funds that are not committed. These companies tend to yield exceptionally higher returns as people aren’t aware of their potential, and the share price is often very low.

The criteria for selecting the companies you want to invest in include those whose products are in high demand, with management teams with a proven record, and are compliant in terms of the laws of the land. This information can be found in the media, from the companies themselves, and of course asking people in the know such as investment management   firms.

Long-term objective (Above 2 years)

The main focus of long term investors is building wealth. You may want to invest in the stock market so that you may finance your future retirement, your toddler’s college education several years from now, buy a good house, or you just want to see your money grow.

In this case it is recommended that you invest in companies that are introducing new products, researching on new products or future technology, registering patents. In other words, you are investing in any form of innovation that you think will positively impact on the lives of people in the future by creating value.

Companies such as this include those that may be investing in areas such as renewable energy, bio technology, innovative solutions, and any other industry that has a future. These companies are high risk, but so are their returns. To minimise the risk, you diligently choose those companies with good management and reasonable share prices and diversify your investment. Looking at the share price of similar companies will help.

Opening a Personal Bank Account

Once you have selected the company(s) to invest in, you open a bank account with a local bank. The account will be useful for when you sell your shares, or when you receive dividends from the company(s) you hold shares in. The main requirements to open individual bank accounts vary but usually they require your National ID, Proof of Residence, a passport-size photo, and payslip where this is available.

Approaching a Stockbroker

A stockbroker is an agent who facilitates for the buying and selling of shares on the stock exchange. As an individual, you cannot trade shares on your own without the services of a registered stockbroker.

Fill in the forms to open an account with the broker, and also obtain forms of a custodian if the broker recommends one. The choice of opening a custodian account is at the investor’s discretion.

Most stockbrokers will assist you in the opening of a depository account. You are encouraged to use a registered stockbroker to avoid being defrauded.

A list of registered custodians is available at www.seczim.co.zw Stockbrokers may require you to have minimum investible funds to open an account and start trading. These vary according to the stockbroker and you are advised to ‘shop around.’

Most stockbrokers do not have any monthly fees, but will charge you when you transact (see below.) As part of their service to you, some stockbrokers will also give you access to their stock market research and analysis, charts, and other market data when you open an account with them.

 Depositing Funds into your Account
Once you receive confirmation from your broker that the account has been opened, deposit funds into an account provided by your broker and notify them of the deposit. Once the funds reflect in your account (with the broker), you can send an instruction to your broker to purchase shares.

For example, 200 shares of company XYZ Ltd at the current market price. The broker will send the order to Zimbabwe Stock Exchange via their electronic platform. Once they are available, the trade is executed, and you will receive a notification from your broker of the  purchase.

 

Issuance of Electronic Share Certificate

After you have purchased the shares, you will be issued with an electronic share certificate by the CSD. If you want a hard-copy of your certificate, you can request one at a cost from the CSD. But you will need to convert it into electronic form when you want to sell your shares. We encourage investors to keep their certificates in electronic form i.e. dematerialised form to enable safekeeping by the CSD and for ease of trading.

You are now officially a shareholder or investor!

New Know Your Customer (KYC) Requirements

The Securities and Exchange Commission of Zimbabwe (SECZ) in a notice to all Securities Market Intermediaries and the investing public, introduced new Know Your Customer (KYC) requirements for opening an investments account with an Investment (Asset) Manager, Securities Dealer (Stockbroker), Custodian or Central Securities Depository (CSD) Securities depository Account.

The New KYC requirements were approved by the Reserve bank of Zimbabwe (RBZ)’s Bank Use Promotion and Suppression of Money Laundering Unit (Financial Intelligence Unit. The Initiative, undertaken as part of SECZ’s mandate to promote financial inclusion, facilitate the Ease of Doing Business and Securities Market development, is meant to promote the participation of the general public on the local capital market. This will also be achieved through the promotion of online trading and settlement of securities transactions before the end of the third quarter 2017.

Below are the Documents required:

Zimbabwean in Zimbabwe

ID Card

Zimbabwean Bank Account Details

Completed Securities Trading Account Opening Form

Zimbabwean in the Diaspora

ID Card

Zimbabwean Bank Account Details

Completed Securities Trading Account Opening Form

Foreigners Valid Passport

Completed Securities Trading Account Opening Form

Companies – Local and Foreign

Certified copy of Certificate of Incorporation

Board Resolution

National ID Card or Valid Passport for signatories

Completed Securities Trading Account Opening Form

Join us next week as we continue our journey to financial inclusion as we talk about how the markets work in Zimbabwe. If you have any queries, comments or want to tell us about your hustle, visit www.myzimhustle.co.zw , go to the MyZimHustle facebook page, visit @MyZimHustle on Twitter or whatsapp 0775 574 587 (whatsapp only)

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