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You need to have a CDS account. The process is very easy, just call one of 28 stock brokers and collect the registration form. Fill the form and submit with a copy of the national identity card and utility bill (within last 6 month) that proves your address to the broker. Generally within 2-3 working days your CDS account will be created. You may call the brokerage office to find out whether your CDS account is created. When it's ready, you may call your advisor to ask him to make your first transaction. ** above listed are the minimum requirements and you may provide additional details based on the requirements by the selected broker.
02. I'm not rich! How much money is needed to start trading?
You may even start with Rs. 100 depending on the stock that you select to buy. Generally stocks trade in lots of 100. Therefore if you wish to buy a stock that's trading around Rs. 50, to buy 100 shares you will need about Rs. 5000 (50x100) + 56 (rough commission = 1.12%*). Similarly there are companies that trade at very low prices e.g. around Rs. 0.80. Assuming that you are planning to buy 100 shares of such stock then your total cost would be about Rs. 80 (0.80x100) + 15.36 (rough commission of 1.12% subject to a minimum brokerage of Rs. 10 and a minimum CDS fee of Rs. 5. ) So really you can start with any amount. Just go for it. You can invest more as you gather knowledge about them. *This transaction cost is for transactions up to Rs. 50 million. For transactions above Rs. 50 million the cost will include aminimum brokerage of 0.2% and other costs amounting to 0.4125% of the value of the transaction.
In order to get the CDS account, you must fill the following forms. In addition to these your broker may request you to fill in more information depending on different services that they offer. Most information requested in these forms
I. II. III. IV. V.
are very straight forward, nevertheless you may wonder what the below really means
Duly completed CDS Forms 1 & 1A; A copy of the NIC; If you don't have your NIC a copy of the Passport should be provided. If you don't have either the NIC or a Passport then a copy of the Driving License should be provided (with an affidavit affirming the NIC number and that both NIC and Passport are not available); If your current address is different from the address in your NIC, a utility bill to prove your residence; If the above utility bill is in your parents name proof of relationship should also be provided.
05. How fast can I earn money in the stock market? What's the minimum guaranteed return?
The return (profit) you make from a stock is as simple as buying the stock at a lower price and selling at higher price*. After deducting buying commission (1.12%) and the selling commission (1.12%) you will get your net profit. Therefore your returns depend entirely on the price movement on the stocks you bought. Price can move in either direction for various reasons. So simply there is no guaranteed return in stock market investments nor can we say how fast you can make money. In fact you could well lose your money if you do not select your stocks wisely. Your returns entirely depend on how wisely you select your stocks. *There are other forms of returns from stocks such as dividends.
09. I want to start trading stocks, what advice would you like to give me?
If the stock trading is new to you, it's very important that you gather as much knowledge about this domain as possible. We would recommend for you to observe the market, more specifically few selected stocks for few days. Consider that you have bought them with paper money (not real money) now keep an eye on to see how your money is progressing. This will give you a good feel of how prices fluctuate with you having to invest your actual money. Practice makes it perfect! Further read as much as you can. The more you read about the information related to stock markets and the Colombo Stock Exchange the more it gears you up for the real thing. Especially with the power of the internet, no information is far away from any person. Knowledge is power!
Talk to an expert, who you can trust and who can give you honest opinion about the state of the market, good stocks that
12. My advisor never has time for me. I don't think I'm getting a fair treatment.
Most investment advisors are very busy simply given the fact that the CSE has experienced an exponential growth over the last few years. Therefore, they naturally have very little time with each investor within the market hours. If you feel that your advisor does not give you enough attention please re think whether you are pushing for the information enough. Therefore, part of the blame should also come to you for not being able to extract the information you were seeking. Nevertheless, if you still believe that your advisor is not giving you proper attention you may anytime request the broker to change your advisor or select another advisor of a different brokerage where you know is generally good.
13. Why should I invest in the share market and not in a savings account or a fixed deposit? What are the additional benefits?
If you invest your savings in a bank deposit you are sure to get an interest at the end of each month, (unless otherwise the bank goes bankrupt!!!) However, the return you get is fixed. If you invest in the share market with the correct knowledge and a bit of caution, your returns could best be explained as unlimited. But you should also keep in mind that the share prices always fluctuate and there is a risk that you will make a loss. You should only invest in the stock market if you can take that risk. Every investment has its pluses and minuses. It is up to you to decide which investment best suits you based on your expectations and the amount of risk you are willing to take. As they say, higher the risk higher the return!
You have to deposit a sum that is equivalent to the value of the shares you buy plus the commission, to the bank account of your broker within 3 market days of the trade occurring (by T+3).
The negative side can be that, as you are on your own, the tendency of making mistakes is high unlike in a scenario when you are talking to your advisor where they could provide you with greater insights of what is right and wrong. Therefore the correct approach would be to strike a balance of both; you can be independent when placing orders but it is highly advised that you keep in touch with your advisor on regular basis to hear the hot news in the market. Sometime all of us need a reality check!
18. Is it true that Colombo Market is controlled by a handful of individuals and all others are playing to their tune?
Well, we really don't know the answer to this. As you may be aware Colombo exchange is still a smaller exchange compared to some of the exchanges in developed countries. What is important to note is that, this very myth or fact is there against most of the very big and developed markets as well. So frankly speaking, you should really not worry too much about these when nobody has a direct answer, just focus on whether there are opportunities for you to benefit. And what is more important to understand is that economic and market conditions in most circumstances are more powerful than the power of few individuals. Therefore if the country's political, economic, social and technology trend is looking good, those are even better reasons why you should not be concerned about such matters when investing in the market. Nevertheless if you are convinced that this is indeed a fact and your money is at risk due to this, we suggest you consider alternative investment vehicles.
Share market is similar to any other market. The prices depend on the demand and supply of the shares. For example, if there are more people wanting to buy a stock than to sell it, the price will be driven up because those shares are rarer and people will pay a higher price for them. On the other hand, if there are a lot of shares for sale and no one is interested in buying them, the price will quickly fall. Apart from this, economic and political conditions will also have an effect on the share prices.
05.What are ASI and MPI? How do we know whether the market is 'up' or 'down'?
06. ASI stands for All Share Price Index. This measures the price movements of all the shares of companies listed on the CSE. If this index is higher on a particular day as at end of trading than the previous day's close the market is said to have improved and vice versa. 07. MPI stands for Milanka Price Index which measures the price movements of a selected group of 25 stocks, a list which is reviewed each quarter.
05. What's the difference between limit orders and market orders?
Limit orders are the most common orders investors place. It is an order in which the maximum buying price and the minimum selling price is specified. Market orders are bit complex than limit orders. These are orders to buy or sell a security at the best price or prices prevailing in the market at that point in time. A price is not specified in this order and the trade will be executed at the best price. But the system will automatically calculate a protection price each time a market order is placed to prevent market orders being executed at extreme prices.
06. I see some companies having N.0000 and X.0000 shares? What's the difference?
'N' stands for ordinary voting shares of a company. People who hold these shares are the owners of the Company. They have the right to vote for or against important decisions the company is making. 'X' is ordinary nonvoting shares of a company and as the name suggests does not have the right to vote. Both voting and non-voting shares will be entitled for dividends and all other rights attached to the two types of shares will be similar unless otherwise specified in the Articles of Association of the Company. As for example, Commercial Bank of Ceylon PLC is having voting shares as well as non-voting shares.
Voting shares COMB.N0000 Non-voting sharesCOMB.X0000
07. Once I place an order is it final? Can I amend the price or the quantity of my order?
Yes, you can amend the price and the quantity of your order prior to it being executed. If it is partially executed the price and quantity of the un-executed portion of the order can be amended. You can also cancel any order prior to being executed and if partially executed any un-executed portion can be cancelled.
09. I have heard that advisors can trade shares without our knowledge. Is this true?
Yes it is. This will largely depend on the rapport between you and your advisor. But if you do not want your advisor to trade shares without your knowledge you can transfer all or part of your shares to a 'locked balance' in your CDS account. That is if you are planning to hold that particular share for a longer period of time.
13. What is 'locked balance' and 'trading balance' of the CDS account?
Trading balance would be visible to the brokers and trading would be permitted on the said trading balance, as done presently. On the contrary, the locked balance will not be visible to the brokers thereby maintaining the confidentiality of the information and also safeguarding you from any possible unauthorized sale by the broker. However, you can transfer shares between these two balances on a written request made by you.
XD date means the market day immediately following the date on which the shareholders pass the resolution relating to the dividend distribution. If you buy the share on the XD date, you will not be entitled for the dividend. The seller will have the right for the dividend.
17. How do I know whether the Company I've invested in is performing well?
You will be entitled to get an Annual Report (which sets out the financial position and performance of the company) once a year and quarterly reports or half yearly reports will be published on the CSE website. It is very important that you go through these data to see whether the Company is performing well. But unfortunately past performance only will not guarantee a good return in future.
18. If a company does not pay dividends does it mean that the company is not performing well?
By all means NO! You should always look at the income statement of the Company. The Company could be making profits but does not want to pay dividends because it has attractive ventures to invest in, which could be more advantageous in the long run. But if you expect a short term return then you should think twice before investing in such a company.
19. I don't understand the financial statements. How do I analyze the performance of a Company?
As an alternative you can use the financial ratios which are commonly used to interpret the wealth of information given in financial statements. This is a fairly easier way to find out whether a company is doing well or not. You can also use the technical analysis which makes use of charts and patterns (among other things) to predict the price movements of shares. You will also have to do some basic research about the company, including but not limited to the quality of its management, the cash flow position of the company, competitive position in the industry and whether its shareholders friendly.
20. Why do I always hear about Bulls and Bears in stock markets? What did these animals do?
Although America is not the country where the concept of stock markets originated, arguably it is by far the best country that made stock markets popular and also America has the biggest stocks markets in the world in terms of turnover and market capitalization. Therefore most wording that you hear related to stock markets are coming from U.S. Like we find elephant and water buffalo's in Sri Lankan forests, some of the common wild animals found in U.S. are Bulls and Bears. Bull signifies market going up. Bear signifies market going down. So if you happen to hear "!today market had a bull run!" or "! banking sector reacted bullish to new tax reforms.. " this means to say it went up. Similarly any reference to bear meaning it went down. What made going up related to Bull and going down related to bear is the 'Attacking styles of these Animals'. As you know Bull always put its opponent up into the air with their horns when attacking while bear push the opposing party down when attacking. This is the reason you get to hear a lot about Bulls and Bears in stock markets.
22. Can I use a different broker from the one I have been using?
You may maintain multiple accounts through several broker firms. You can also transfer securities across accounts held with different broker firms.
23. What are other securities available on the CSE for trading?
Apart from ordinary shares, debentures and units of funds are traded in the CSE.
A debenture is a security that pays a fixed return, has a nominal value and in some instances a fixed maturity. Debenture holders are not owners of the company, they are merely creditors. As such they don't have voting rights. However, unlike shares the return for the debenture holders (i.e. interest) is certain. Whether the company makes a profit or not, they have to pay the debenture holders interest, at the agreed upon interest rate. Further, the debenture holders rank higher than shareholders of a company in the case of a liquidation.
The SEC has directed the CSE to apply a formula confirmed by the SEC in selecting stocks on which to apply the 10% price band. For the stocks captured using this formula a 10% upward and downward price band is imposed on the previous day's closing price. This price band will be applicable for 5 market days from the date of imposition. The list of companies on which the price band is applied will be published on the CSE website.
27. Can we trade shares which have a price band in the normal way?
Yes you can trade. But the price you quote should be a maximum of 10% upward or downward on the previous day's closing price.
PART-C IN THE GAME 01. I bought stocks, but every day I see all other stocks going up except mine. Why am I so unlucky?
You are 'probably' not unlucky. This is a common dilemma that most investors go through. Each day at least one stock starts a rally and makes a significant gain in its price. By nature we get attracted to that stock and tend to think 'why did not I buy that' or 'if I had bought that stock'. But in reality stock rallies last for only a few days, all the other times the stock remains dull and stagnant. Unfortunately for the investor, when they continue to see different stocks rallying each day for about couple of weeks, they get the feeling that everything else moves except the stocks in the investor's portfolio. May be you have made the wrong selection. But if you think that you have made the right selection, then your time will come. And the stock that you selected too will start its rally. But nobody knows when! Just be patient and hold.
If the market price is less than the intrinsic value then the share is undervalued. The market has not identified the true worth of the share. If the market price is higher than the intrinsic value then the share is overvalued. It is advisable to buy shares that are undervalued because its price may reach its true value in the long run.
Order qualifiers are used in specific circumstances. Most orders placed by investors are with no qualifiers. If there are Fill or Kill (FOK) is an order qualifier that requires the immediate purchase or sale of a security at the specified price or better. If the whole order cannot be executed immediately it will be cancelled. These orders cannot be entered during pre open. If Immediate or Cancel (IOC) is placed on an order it requires immediate purchase or sale of security for the specified price or better for the whole or part of the order. If the whole order or part of it cannot be executed immediately it will be killed. These orders too cannot be entered during pre open.
Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able to normally. Normally margin amount would be some percentage of your portfolio value. This will help the broker to sell your portfolio and recover the money in case you default your payment. Therefore this can be considered a win-win for both the investor and broker. You can do this only through a Margin Provider registered with the Securities and Exchange Commission of Sri Lanka. Most brokers of Colombo Stock Exchange are registered margin providers. Please check the list to see if your broker too is listed there.
Most of us buy stocks for only one reason and one reason only, that is to SELL one day at a higher price and make a profit. But it is true that most of the time investors tend to get hesitant when trying to sell, thinking that that stock will reach higher so that they can sell at an even higher price. But in reality after a rally most stock prices will take a downward trend for some time. It's important for you to understand that stock rallies don't happen every day and most of the time, they last for only 2-3 days. This is a common scenario in any market worldwide. Therefore the best way that you can make up your mind to sell is to determine the price at which you sell at the point of buying. You may decide, that I will exit when I get 10% return, or even 5%, 35% or even 150%. It's very crucial that you be realistic in this figure. You may consult advisor and experts when arriving at this figure. Once the stock price reaches the price you expected its best that you consult your advisor and experts again and make you exit (sell) accordingly. Most of the time too much greed will only end up in sorrow! EXIT when the time is right. Once you made the sale, that stock is gone, it would be best you take that stock out of your radar (until one day that the same stock becomes attractive again). Stocks are there for you to make money and exit. Don't get emotionally attached to them.
09. I have made few bad mistakes and I have lost big! Feel like quitting! Any advice?
It's good that you used the word 'mistakes', that mean you know you did something wrong. It is very important that you learn from your mistakes and not to do them again. If you continue to make the same mistakes over and over again, then there is nobody to blame but you. So even though you lost consider that your loss is worth the lesson you have learnt. Stock trading is all about learning and mastering the techniques. Most probably you would never find an investor who has not made a loss in their lifetime of trading. Probably they have lost many times, but if you happen to read about any great investor, you will notice that they all have lost, but more importantly they have learnt from their mistakes. It's your decision whether to quit or not, but keep in mind that you can't ride on your luck every day. Unless you select your stocks with an underlying reason, you are meant to make loses at some point, and surely your loses will be big when that day comes.
PART-D IPO(INITIAL PUBLIC OFFER) 01. I hear a lot about IPOs these days? What is it actually?
Initial Public Offer (IPO) is the method by which a company first enters the share market. The company invites the general public to invest in the shares of the company using a document called a Prospectus. This prospectus has the information about the issue (no. of shares, price per share, how to apply, etc), information about the history of the company, financials, future strategies and so on.
02. Often in an IPO the issue closes on the same day it opens. How does that happen?
Although there is a day to open the subscription list, you can start applying from the day the Company makes available the Prospectuses to the market. With high investor demand it is very common for IPOs to get oversubscribed. By investing early you can make sure you don't miss out on the chance of applying for a good stock.
Prospectus gives out the details of the company, details about the shares to be issued, industry information, procedure in applying for shares and so on. You can get the Prospectus from your broker and also from the respective company. Go through it to see whether you like the company and if you are interested you can fill in the application form and submit it to your broker or to any address specified in the Prospectus along with the required remittance. You should carefully go through the procedure to be followed in applying for shares to make sure your application does not get rejected.
04. I never get allotted the total number of shares I apply for in an IPO. Why is this?
As a result of the increased investor confidence in the share market, companies going for IPOs get oversubscribed. That is, the company gets applications for more than the number of shares they are issuing. As such the companies have to decide on a ratio or a method to allot shares to all the people who invest in a fair manner. Because of this you will not get the total number of share you apply for. The basis of allotment will be published by the company on the CSE website once it is decided upon.
You can apply jointly with a maximum of two (2) other applicants (your spouse or children above 18 years of age). As such a maximum of three (3) applicants will be accepted as joint holders. You should fill in information for all applicants in the spaces provided in the application form.
The important dates pertaining to the rights issue will most likely be given in the Circular which will be sent to you if you are entitled for the rights issue. Further, the CSE will also announce the dates in the ATS and also on the website. It always pays to check the announcements regularly!
05. Can I buy additional shares over and above the number of rights allotted to me?
Yes, this would be possible due to some shareholders not exercising their rights. You can fill in the form 'Application for additional shares' and submit it along with the required remittance. But the number of additional shares allotted to you will depend on a scheme proposed by the Directors and approved by the shareholders.
A warrant is a security which gives the holder the right to buy the shares of a particular company at a pre determined price on a pre determined date. Warrants could be issued by a company as a separate issue or it could be coupled with a rights issue. This security denoted by the letter 'W' could also be traded on the stock exchange. The companies issue warrants to enable them to raise funds in a future date and in the Sri Lankan context mostly as a sweetener for rights issues.
This is more commonly known as a bonus issue. This is a situation in which you are given shares free of charge in a specific proportion to their current holding. The required funds are taken from the reserves of the Company.
11. What is a share split/sub-division? Is it true that the price goes down immediately after the sub-division?
Share sub-division is when one share of a company is divided in to a higher number in a particular ratio (i.e. 1 share sub-divided into 2 or 1 share sub-divided into 4, etc.). This is done with the purpose of increasing the liquidity and tradability of a share, when the share price of a company is very high. The price of one share after the sub-division will definitely go down but the total value of your shares will remain same because you have more number of shares. Share consolidation is the opposite of this.
PART-F FOREIGN INVESTORS 01. Is the Sri Lankan market open for foreigners to invest?
Yes, foreign citizens as well as non-resident Sri Lankans can invest in the CSE. For this purpose foreign investors should have an account called "Securities Investment Account" (SIA) [formerly known as SIERA] and non-resident Sri Lankans should have an account called "Rupee Account for Non-resident Sri Lankan Investment" (RANSI).
RANSI stands for Rupee Account for Non-Resident Sri Lankan Investment. Non-resident Sri Lankan citizens who have taken up employment abroad or set up a business and continue to live abroad could remit money for investments in Sri Lankan companies through RANSI Accounts (Rupee Accounts for Non-Resident Sri Lankan Investments), maintained with authorized dealers.
Funds channeled through this account could be used for investment in Government Securities, shares of companies, debentures, Units of Unit Trusts and in real assets such as land and building. All inflows arising out of these investments could be credited to this account and would be free to be taken back without exchange control restrictions.
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A copy of the valid Passport CDS Form 1 - Application for opening of a Securities Account for Individuals CDS Form 1(A) - Declaration form to be submitted for Individuals Billing proof as per the Rules issued by the Financial Intelligence Unit of Sri Lanka SIA account details with proof Further if you are opening the CDS account using Power of Attorney (POA) a copy of the POA is also needed.
A copy of a valid Sri Lankan Passport. CDS Form 1 - Application for opening of a Securities Account for Individuals CDS Form 1(A)- Declaration form to be submitted for Individuals CDS Form 1 (C) - Declaration form to be submitted for non-resident Sri Lankan individuals Proof of residency document as per the Rules issued by the Financial Intelligence Unit of Sri Lanka RANSI account details with documentary proof
04. Are there any minimum requirements that foreigners have to fulfill prior to investing?
There are no minimum requirements in terms of funding. If you have opened the CDS account by providing the above details you can start trading at any moment.
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The Hongkong Web Tel : +94 11 4472224 AmericanExpress Web Tel : +94 11 4414141 Habib Web Tel : + 94 11 2326565 Standard Web Tel : +94 11 2433302 Citibank Web Tel : +94 11 4794711 Deutsche Web Tel : +94 11 2447062 State Web Tel : +94 11 2326133 ICICI Web Tel : +94 11 4242448 Indian Web Tel : +94 11 2320515 Indian Web Tel : +94 11 2447163
and
Shanghai
Banking
Corporation :www.hsbc.lk
Bank : http://www.americanexpress.com Bank Chartered Limited : http://www.hbl.com Bank : http://www.standardchartered.com/lk/en/ : http://www.citigroup.com/citi/global/lka.htm Bank : http://www.db.com/srilanka/ Bank of India : https://www.onlinesbiglobal.com/64LK/web/index.htm Bank : http://www.icicibank.lk/ Overseas Bank : http://www.iob.in/colombo.aspx Bank : http://www.indianbank.in/colombo.php
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http://bespokeinvest.typepad.com/bespoke/ http://www.asiaetrading.com/2010-exchange-statistics-for-asia/
08. How is Sri Lankan Economy doing over the last few years?
Sri Lankan economy has been enjoying a very steady economic growth despite the global economic meltdown and had achieved GDP growth of 6.90% in the year 2010 and the country's Central Bank is predicting 8.2% growth in the year 2011. Sri Lanka's strongest sector is Services with a contribution of approximately 57.7% to the GDP in the year 2009 while Industry and Agricultural sectors contributed 29.7 % and 12.6% respectively. Sri Lanka has a very good infrastructure system and an effective banking system making the perfect environment for new businesses. Sri Lanka heavily encourages foreign investments and offers vast range of incentives to foreigners who want to setup business in Sri Lanka.