Beginner’s Guide: Basics to know before starting investment in Share Market?

Basics to know before starting investment in Share Market
Basics to know before starting investment in Share Market

The stock market in Nepal has gained popularity over the past couple of years. There was a spike in the number of people involved in the stock market during Covid when people needed jobs but, could not leave the house.

NEPSE(Nepal Stock Exchange) looks over the transactions of the securities by allowing a trading platform for people. It is the only stock exchange platform in Nepal. The market capitalization of the companies listed on NEPSE has reached Rs. 330,765.9 crore as of January 2024. 

Here are the basics to know before starting investment in Share Market and how you can begin your trading journey:

1. Fulfill basic requirements for share trading

Fulfill basic requirements for share trading

You will have to fulfill the basic requirements of share trading. You need to have a bank account, a Demat account, and a Meroshare account, that will allow you to apply for an IPO (Initial Public Offerings) online. You should open a TMS/broker account to start trading in the secondary market.

2. Understand the types of Share Market

types of Share Market

The stock market in Nepal can be divided into two markets: 

  • The Primary Market: In simple terms, the primary market is where the stock units are issued to the general public. The primary market consists of very less risks. For example: Apply for IPOs (Initial Public Offerings).
  • The Secondary Market: The secondary market is where you can buy and sell the shares. You need to open a broker account to start trading. You can appoint a broker to buy or sell shares for a small fee. Any transaction is not possible without a broker.

3. Know about owing shares

Know about owing shares

Shares are the smallest unit of a company. So, buying a share means you are purchasing a portion of the company. There are many benefits of owning a share of a companyThis gives you the authority to take part in the company’s decision-making and you are also entitled to receive part of the profit the company earns in the form of bonus shares or cash dividends.

4. Know about your investment options

Know about your investment options

Entering the share market, you need to know what your investment options are. Nepal has several investment options for investors like:

  • IPO: IPO or Initial Public Offering is the first offering made by a private company to the general public and becomes a publicly traded company. IPOs are often used by companies to raise capital for expansion, growth, or other financial needs of the company.
  • FPO: The FPO stands for Follow On Public Offering. It is done when the company who already issued its IPOs needs additional funds. It is a public issue made after a successful Initial Public Offering.
  • Mutual Funds: A mutual fund is a fund gathered by investors to create a diversified portfolio. It money pooled is invested by professional investors in different companies in different sectors and the profit is shared. It lowers your risk and is a safe option for beginners.
  • Bonds: Unlike shares, the bond is just a loan taken by a company or the government. There are five different government bonds – Development Bonds, Citizen Saving Bonds, Foreign Bonds, Special Bonds, and National Saving Bonds. You receive interest annually on the bonds.

5. Know about the right share

Right shares are the shares that are offered to the existing shareholders. When the company listed in NEPSE issues shares again, it offers the existing shareholders the first right to purchase the share. It is issued when the company feels the need to raise capital again. 

6. Knowing about share auction

Share auction is the process of selling the shares to the highest bidder. During margin calls or regulatory requirements, the exchange announces auctions to sell the share.

It allows you to discover the price of the share and makes trading more efficient in the stock market.

The stock market may seem scary for beginners but, be patient and keep learning to understand it. Once you understand the ways of the stock market, you will become more familiar and the easier will it be to make your investment choices. The first step is being curious about the market, the rest will follow through with time.

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How many people invest in the stock market in Nepal?

According to Nepal Rastra Bank’s Financial Inclusion Survey, 23.9% of the country’s population holds investments in the share market.

Is the bonus issue a primary or secondary market?

It is issued in the primary market.

How can I buy shares in Nepal?

You can buy shares in the primary market and the secondary market in Nepal.

What is the tax on shares in Nepal?

The tax on capital gains from shares is 5% for residents and 10% for non-residents.

What is the concept of right shares?

The right share is given to the company’s existing shareholders.

How do you buy shares at an auction?

At an auction, the buyer enters competitive bidding and the seller offers competitive offerings. The highest bid wins.

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