Of late, the public interest in the share market in Nepal is steadily on the rise. At least in Kathmandu, observe people discussing anything, there must be one or two or more persons interested in the share market. But, what is it anyway?
A share, basically, is a unit of the ownership of a company. So buying or selling shares means you are buying or selling the partial ownership of the company. Share market, or the stock market, is where you can buy or sell shares. Usually, public companies issue shares for the public in order to raise their capital, but, besides shares, other instruments like debentures or bonds, and mutual funds are traded in the stock market.
As a shareholder, you can earn a part of the profits earned by those companies through dividends. Although share trade is an exciting opportunity to earn actively or passively, it is risky at the same time as investors may have to bear the loss should the business fail to perform. Thus, as a beginner, it is important that you need to understand the market well before investing your money on shares.
So, here we have for you the basic ideas on the share market’s operation in Nepal.
The Securities Board of Nepal (SEBON) is the government body that regulates the share market under the Securities Act, 2006. The major functions of SEBON are to issue necessary securities regulations and directives; register the securities of public companies; regulate and systematise the issue, transfer, sale, and exchange of the registered securities among others. Only the companies registered and approved by SEBON can list their shares in the primary and the secondary markets.
Types of share market
There are two types of share market where you can trade shares: the primary market and the secondary market. In the primary market, shares, debentures or bonds, and mutual funds are issued directly by a company at a base price. If a company is selling its shares for the first time, it is called an initial public offering or IPO. Similarly, if a company has its share already listed in the share market and it wants to issue new shares, it releases follow on public offering or FPO. Third, a company can issue right shares for the already existing shareholders at the base price.
Besides IPOs, FPOs and right shares, debentures or bonds, and mutual funds are also available in the primary market. Debentures are debt instruments that companies issue to raise their capital; that is, they are taking a loan from the public. These are low-risk securities in Nepal as the company is legally obliged to pay a fixed interest, usually a higher interest rate than fixed deposits, to such bonds even if they suffer losses for at least 7-10 years. Mutual funds, on the other hand, are collective investment schemes by a portfolio management company in which it pools money from investors and invests in stocks, bonds, and short-term debts.
In the secondary market, the shareholders as legal shareowners can sell their shares that they obtain through the primary market and the secondary market. Nepal Stock Exchange (NEPSE) is the sole stock exchange in Nepal where you can buy and sell shares in the secondary market.
How to invest in the share market?
In order to invest in the share market, we will tell you the step-by-step process after which you can be able to be an investor.
- First, you will need a bank account, you can open an account as per your convenience but make sure that the company provides Applications Supported by Blocked Amount (ASBA) service.
- The second thing you will need is a dematerialised account, simply known as a demat account. Most of the commercial banks in Nepal provide demat account services. Thus, if you have a bank account, you can apply for the demat account which will hold your shares. Besides that, other stockbroker companies also have demat account facilities. If you get dividends from the company you have invested upon, you will receive that in your demat account.
Any company which manages your demat account is called depository participant (DP) holder. The DP holder will provide you, the beneficial owner (BO), your beneficial owner identification (BOID) number, which is a unique 16-digit identification number. Normally, a DP holder charges Rs 100 to 150 annually for the management of the demat account.
- Obtain Meroshare login credentials from the DP holder. You will need to fill a different form for the credentials. Besides, you will also need your customer reference number (CRN), which will also be provided to you by the DP holder. Once you obtain it, you can log in to Meroshare platform from here.
- Once you are able to log in to the Meroshare through the web portal, you are ready to invest in the primary market. For that, you will need to wait for any openings of IPOs, FPOs, mutual funds, debentures, or bonds. You can check for openings through various news portals, but make sure such portals update regularly.
How to operate Meroshare account?
First, you will need to enter your login credentials including your DP holder, your user ID, and your password.
Then, you enter your dashboard once you log in. Now, you are able to see the values of your shares, opening, and closing IPOs and FPOs, and other basic details.
In order to apply for any of the openings, you need to go to My ASBA on the menu bar where you can get detailed information on offered openings.
Go to the ‘Apply for Issue’ tab on the page, open the details of the IPOs/FPOs, and enter the number of shares you would like to buy, enter your CRN number and apply for the shares.
If the openings are undersubscribed, the company issuing the IPOs/FPOs may reopen or extend their closing date. But, if such openings are oversubscribed, i.e if the number of applications is higher than allocated, shares will be distributed through a lottery.
How to buy or sell shares in the secondary market?
Now, if you want to trade shares on the secondary market, you will need to have a broker account from a registered broker company as banks do not provide such services. After signing up, you have two options:
- You can obtain login credentials for the NEPSE Trade Management System portal, from which you can trade shares directly. Cash transactions are also online here.
- You can opt for offline transactions, in which you have to be either physically present or contact brokers through phones for your desired transactions. For this, you need to issue an account payee cheque in the name of the broker company.
How do you earn with shares?
You can earn either actively or passively. Actively, you can engage yourself in the primary and secondary markets. You can buy shares in the secondary market, get dividends and bonuses, and sell them when selling is profitable. Passively, you can just buy shares from the primary and secondary markets and earn passively through dividends and bonuses shared by the companies from their profits.
But, you must understand that investments are subjected to market risks. So, you are advised to read all the documents carefully, look at the ratings of the companies, and analyse your risks before investing.