The stock market is where people like Warren Buffett made their money. The fortunes of famous billionaires such as Elon Musk, Jeff Bezos and Bill Gates are also deeply tied to stocks, as the Bloomberg Billionaire Index shows. It is no wonder that stock investing continues to attract more people looking to build wealth.
If you’re interested in stock investing and want to know how to go about it, this article explains everything you need to know on buying shares in Kenya.
The Nairobi Securities Exchange (NSE) is the place where investors buy and sell stocks in Kenya. The exchange hosts a diverse range of companies across sectors such as manufacturing, agriculture, banking, energy and real estate. There are about 60 NSE-listed companies in Kenya.
Why invest in stocks?
The primary reason people invest in stocks is money. But others may do it for influence. For example, if you’re the largest shareholder in a company, you could have powers to direct the company’s decisions as you please.
That said, there are different ways to make money with stocks. These are the two main ways people make money with stocks in Kenya:
Dividend payouts
When a company makes a profit, it may distribute a portion of it to its shareholders. The money that the company distributes to its shareholders is called the dividend. Many NSE companies pay dividends regularly, usually on semi-annual and annual schedules.
If you invest in a profitable company that pays dividends, then the more shares you have the more money you would receive.
Capital gains
If a company’s share price goes up, then there is capital gain for investors in that company. Capital gain is the main way people make money with stocks. Let’s say you bought a stock at Ksh10 and it goes up to Ksh15 after some time. In that case, you would have a capital gain of 50%.
Investing in stocks has another benefit. If you own shares in a company, you may use your shares as security to take a loan from a bank. This type of arrangement allows you to obtain the money you want without having to sell your shares.
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How to buy shares on the NSE in 5 simple steps
While stock investing may seem complicated if you’re a beginner, you’re about to find out that it is actually a simple process if you understand the steps. Let’s now explore the step-by-step process of buying shares in Kenya.
1. Choose a stockbroker
Stockbrokers are the agents that buy and sell shares on the NSE on behalf of investors. There are dozens of stockbrokers in Kenya to choose from. While many stockbrokers in the country are independent firms, some banks also have brokerage divisions.
Stockbrokers usually charge a fee to buy or sell shares for you. Brokerage fees and features vary across the board. When choosing a stockbroker, consider the fees they charge and whether they support online trading. The lower the fees, the better for you because that would save you money.
2. Open a CDS account
The CDS account is the place where your shares are stored. You must have a CDS account to invest in company shares in Kenya. The CDS account is similar to a bank account, except that it holds shares instead of cash. You open the CDS account through your stockbroker.
While some brokers allow you to open the CDS account online, others will require you to visit their offices physically to open the account. To open a CDS account in Kenya, you’ll need the following items:
- Your national ID or travel passport
- Passport-size photo
- KRA PIN
- Bank account details – for where your dividends will be deposited
Opening a CDS account involves completing a few forms.
3. Choose the stocks to buy
Once you have your CDS account set up, the next step is to decide the companies you want to invest in. The NSE offers investors a broad variety of stocks to buy, though not everything may be suitable for you for the start.
If you’re just starting out, the best companies to invest in are those whose business you understand well. For example, you may want to start with companies whose products you use or know well.
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4. Decide how many shares you want to buy
Once you have settled on the best NSE companies to invest in, now you can decide how many shares you want to buy. The least number of shares you can purchase on the NSE is 100 shares, but there is no maximum limit. Therefore, you can buy as many shares as you want as long as you have enough money to pay for them.
5. Fund your CDS account
Now you have your CDS account set up, you have settled on the companies to invest in and you have decided how many shares you want to buy. The next thing to do is to fund the CDS account. And that simply means providing money for the stockbroker to use to purchase the shares for you. Many brokers accept CDS account funding through bank deposit and M-Pesa transfer.
That’s it.
As you can see, buying company shares in Kenya is a pretty straightforward process. What you need to remember is that you should choose your stockbroker carefully. Working with the right stockbroker can save you money and help you achieve your investing goals easily.
I will like to invest in share what’s your best advice. Thanks for the tutorial.