Q. How to Invest in Shares and Securities:

Step one:      Determine the amount available for investment. This amount must be available for a reasonable period.

Step two:      Determine the objectives of your investment – mainly whether you want capital gains or dividend income or both. This will facilitate the choice of shares.

Step three:   Develop if possible, a diversified portfolio. Avoid investing in a single companiesshare as far as possible.

Step four:     Develop a business relationship with a member of the stock exchange; under the law transactions relating to listed securities can only take place through members of recognised stock exchanges. Please remember that your broker carries the ultimate liabilities for your transactions. He is perfectly entitled to ask for your references and credentials and also to request a deposit to cover losses and also where necessary advance to cover your purchases and wherever necessary shares with verified transfer deeds for delivery against your commitment to sell.

Step five:       Discuss with the broker your objectives and finalise investment strategy. Prior to finalisation of the portfolio please study all relevant information with regard to the company the shares of which you intend to purchase. Published annual accounts and prospectuses as well as brokerage house analysis and newspaper clippings will be very helpful. Concentrate particularly on parameters the determine the quality of the shares - earning per share, return on equity, book value, margin on sales, past record of dividends, health of the balance sheets etc.; the stock exchange publishes company analysis given the particulars of all listed companies for the period of five years. Information with regard to movement of the market is available from the quotation sheets of the stock exchange as well as the daily reports of the newspapers and real time information is available on market information system of the stock exchange.
 

Step six:          Three are several different types of buying/selling instructions that you can give your broker. You can sejt a limit with regard to the price; this is known as a limit order and restricts the broker to transact at the given price; you may also prescribe an upper and lower limit of price for the transaction to permit a certain freedom of action to the broker. You can set the time limit within which the transaction must be completed-you can specify that the order is good until the close of business of the day, valid for number of days or good until executed. When you are maintaining an open position you may specify that the broker should close the transaction at a particular magnitude of loss-this is known as the stop loss order.
 

Step seven:            Details of delivery and settlement are given elsewhere in this publication. It is important to remember that on the settlement date your broker expects you to make payment available against shares with varified transfer deeds that he has brought on your behalf and physical delivery from you of shares with verified transfer deeds that he has sold on your behalf. You will receive delivery from him of shares that you bought and payment of shares that you sold on the settlement date. Of course transactions relating to eligible securities can take place only through the Central Depository System and physical delivery is not involved change of ownership is through a simple electronic book entry; all this will be handled for you by your broker.

Procedure for Investment in Government Securities and Corporate Fixed Income Securities.

There are number of options with varying interest rates, maturity and level of risk available for those interested in fixed income. Listed in the stock exchange are various government securities and corporate term finance certificates. Please ensure that the maturity of the security matches your investment plans and the return is the best available given the level of risk that you want to take. Ratings by Credit Rating Agencies are particularly helpful to determine the level of risk. Your broker can also advise you on the suitability of a particular fixed income security. The risks involved are fluctuations in interest rates in the case of government securities and the risk of fluctuation in interest rates and corporate sickness and failure in the case of corporate securities. The delivery and settlement procedure for fixed income securities is on the spot basis.