Investing in Shares

What is a share?

A share represents your ownership in a company. As a part owner you are investing in the future growth of the company.

What are the types of shares?

Ordinary Shares (N)

• A right to vote at the company's Annual General Meeting.
• An entitlement to a share of dividends declared.
• If the company is liquidated, shareholders will be settled after all the creditors, depositors, debt holder dues has been settled.

Non-Voting Ordinary Shares (X)

These shares have the same characteristics of Ordinary shares except the right to vote at the company's Annual General Meeting.

Preference Shares (P)

• Most preference shares have a pre-determined dividend rate which you are entitled to receive.
• A claim on the company's earnings before payment to ordinary shareholders.
• Entitled to priority over ordinary shares if the company liquidates.

Warrants (W)

This is a certificate giving you the right to buy shares at a stipulated price at a future date.

Is investing in shares risky? **************

There is an element of risk. However there are strategies to reduce and manage risk through the diversifying strategy

1. Your portfolio can be a mix of equity and debt instruments.
2. In the share market (equities), you can invest in several sectors. Thereby in an instance when one sector performs badly and another very well, you can offset your losses in one sector from the gains you made in the other sector.
3. Within a sector you can invest in several companies. Thereby if one company does not do well, your entire investment returns do not suffer as other companies may perform well.

Benefits of Investing in Equity

• Capital Gains -
  This is when a share's selling price exceed its initial purchase price. If the selling price falls beyond the purchase price, you would make a capital loss. Capital Gains are free of tax.
• Dividends -
  A company may decide to payout a portion of its earnings to shareholders. But companies are not required to pay dividends.
• Rights Issues -
  The company may extend this privilege to existing shareholders to buy shares at a specified and usually a discounted price, usually in proportion to the number of shares already owned.
• Distribution by the company -
  Shares shall be offered to the holders of existing shares in a manner which would, if the offer was accepted, maintain the relative voting and distribution rights of those shareholders.
• Liquidity -
  Shares quoted on a stock market are generally liquid. Therefore, they can be sold easily and you can get your money back in a few days.
• Higher Returns -
  In the longer term, shares have ensured a higher return to investors.
• Hedge against inflation -
  Shares are a good investment in an inflationary environment, since share prices increase to protect investors from the effects of inflation.

How do you buy/ sell shares?

1. In the Primary market from a new issue (IPO)

Shares can be purchased directly from the issuing company. The company publishes a prospectus with information about the company, financial status, future plans and the offer.

To buy shares: Once you have read the prospectus carefully, you may fill up an application form to purchase the shares. You can lodge these shares directly into the Central Depository System (CDS) of the CSE or hold the certificate.

To sell shares: You will have to open a CDS account through a stockbroker and instruct them to sell your shares in the secondary market.

2. On the Secondary market through a Stockbroker

This is a market in which an investor could either buy from or sell to another investor, subsequent to the original issuance in the primary market.

You must first find yourself a stockbroker /custodian bank and open a CDS account through that participant.

Once they confirm your CDS account number, you can contact your broker through the following ways to trade in the secondary market.

• Phone
• Fax
• Personal visit or
• The Internet

You must clearly instruct your broker of the

• Name of the company
• Number of shares
• The price

of the shares which you wish to buy or sell.
A single tier settlement cycle of trade day + 3 (T+3) is adopted to settle transactions.

• The buyer must make payment for shares bought by the 3rd trading day after the purchase (T+3)
• The seller will receive payment for shares sold by the 3rd trading day after the sale (T+3)

Transactions up to Rs. 50 Million - 1.02%
Divided as follows:

Brokerage Fees	- 0.640%
CSE Fees	- 0.084%
CDS Fees	- 0.024%
SEC Cess	- 0.072%
Share Transaction Levy	- 0.200%

Transactions over Rs. 50 Million 
Divided as follows:

Minimum brokerage (floor)	- 0.200%
CSE Fees	- 0.0525%
CDS Fees	- 0.0150%
SEC Fees	- 0.0450%
Share Transaction Levy	- 0.200%

The CSE trading records will indicate the brokerage as zero for transactions over Rs. 50 Mn. The Broker Firms are expected to insert 0.2000% or a higher percentage which is negotiated with the client as the brokerage before printing the Bought/Sold Notes

Taxation

No withholding tax or stamp duties are charged on transactions. However, a 10% tax is charged on Dividends, deducted at source.

For More

COLOMBO STOCK EXCHANGE
Level 4, West Block,
World Trade Centre, Echelon Square,
Colombo 1, Sri Lanka.
Tel: 94-11-2446581(Hunting)
Fax: 94-11-2445279
E-mail: info@cse.lk
Web: www.cse.lk