Tue, Jan 9, 2018 12:00 AM
– Manil Maharjan
This is a continuation of ShareSansar’s beginners guide to share market investment. Read Part 1, Part 2 and Part 4.
In the second part of Beginner's guide, we were going through some of the investment options available for amateur investors when we discussed about IPO and FPO. Now, we will continue on other investment options:
Mutual Fund Schemes: If you feel spending Rs. 100 per share is something that can give you sleepless nights and restless days, then let’s learn about another cheaper but equally lucrative investment option. It’s quite agreeable that spending in shares and trading them in secondary market is prone to expose us to more risk. In such a situation comes an investment instrument called “Mutual Fund Scheme”. This is basically recommended for small and unexperienced investors as such shares could be purchased in Rs. 10 per Kitta. The return from these instruments is also almost similar to that of other Rs. 100 denominated shares as we can sell them later in higher price in secondary market or hold them to receive dividends for them (cash dividends).
Now what about risk factor, there might be a question? These mutual funds are maintained and regulated by highly competitive investment management entities and there is relatively low risk associated with investment. It’s like, you give your money to competent investors and fund managers to invest and receive benefit from that same investment. There’s still an indirect risk in such that the funds are usually invested in stock market itself, but investing Rs. 10 for every shares means the risk factor is very minimal and the investment is also diversified. Let it also be clear that the investors are required to invest at least Rs. 1 thousand i.e. 100 kitta. Also see:
You might also feel like “Aren’t there any other options that require less than Rs. 10 per kitta of investment?” I would say, “Yes, there are”. There are total of 11 Mutual Fund Schemes that are currently being traded in secondary market. Some of them are way higher than Rs. 10 but there are few others which are even below Rs. 10 per share. It could also be an investment option for some who would like to purchase those shares with below Rs. 10 and sell it later when their value jumps up. You can avail the complete list of mutual funds currently being traded and their updated value from ShareSansar’s Mutual Fund tab. Auction shares Now this could be something different from the above mentioned 3 instruments. This is more than buying shares as there’s one more thing to be familiar with. Presumably, auction is something we have heard for long now. Simply put, bidding for something in such a price that can standout among others is what auction basically means. Similar phenomena also take place in the share market where the companies offer their public shares to the highest bidders.
It has already been discussed about right shares in earlier section. Most often, such right shares are not fully subscribed by their rightful owners due to various reasons. In such a case, the company offers those shares into auction. In this case, you may/may not get those shares in the par value i.e. Rs. 100 as the price depends on the bidders who quote their desired amounts to purchase those shares. There’s a general practice among the investors to mention the price that is some 12-15% below the market price of the share of auctioned company in the secondary market. To make it clear with an example, if there’s a XYZ Bank which is putting its shares in auction, the investors basically check the price of the shares of that company in secondary market. If it is Rs. 200 on the previous day of application, the investor might mention a price of Rs. 170 (15% less) with a hope that other investors would be quoting further low price therefore giving him hold of those shares. One thing to be clear while applying for auction shares is that we are required to apply for minimum 100 kitta of shares. Next, we are supposed to visit the designated venue to submit our auction bid application with certain form charge as of now. Another equally important fact to be taken care of is the allotment of shares is not certain as this depends on other competitive bidders. For an example, when Everest Bank whose price in secondary market was hovering around Rs. 1200 auctioned its shares, people who had applied quoting even with less than Rs. 200 per share got the shares. In another case, there are examples where the price in auction had been higher than market price. Finally, the happy part of the story is that no broker charges are stipulated while purchasing the shares in auction. Therefore, it is generally advised to bid competitively with such a margin that even if the share price of the company declines in the secondary market, there is little room for loss. To wrap up, some 15-20% margin in bidding process is usually viewed as acceptable practice. See the latest ongoing auctions.
What are the actual investment procedures? Having said all that, most of you probably have started thinking “I would like to invest as well. On the top, I have some seed money to begin my investment portfolio as well”. Now the only thing that might have been holding you back is the problem of information gap. First, it’s very important for you to know which all companies are offering their primary shares. As public companies, those companies are obligated to disseminate all their financial information through national media. You got to be well-informed about the financial milieu of your nation as the investment that you make today is for your own prosperous future and you should be one to take responsibility for that. For you to bridge your information gap, there are several online portals like ShareSansar.com that are dedicated solely towards share market.
Once you have got hold of the necessary information, the next step you will need to proceed with is by actually applying for those public issues. Barring the procedure of applying for the auction shares, you basically have 2 ways to apply for the shares at public offering. First, it’s the manual process where you need to visit the branch of the ASBA partner financial institutions. Here, attached is the link to the article that was intended to guide the interested investors to carry out their ASBA application process at the time when United Modi Hydropower was offering its shares at IPO. Except few updated information, the basic procedures to apply for other IPO shares are still the same: How to apply for IPO via ASBA process
As previously discussed, one can also opt to apply online for making their investment at IPOs and FPOs. This is relatively easier process and guide for the same could be availed through the following link. This is basically an example to apply for recently opened FPO of Nepal Grameen Bikas Bank through the online banking platform of NIC Asia Bank. Those with their bank accounts other than NIC Asia Bank can see the guide from their banks to apply for the issues.
Read Part 1 and Part 2.
Disclaimer: Views expressed in the current series of articles are solely from the investment experiences of the author. These are not the complete pictures of investment.