If you have wondered how to buy shares of the most profitable companies on the Nairobi Securities Exchange- Safaricom PLC, Equity Group Holdings, Kenya Commercial Bank or East African Breweries. In that case, this article is for you.

What is The Stock Market?

What is the stock market? A stock market is a place where buying and selling of publicly traded companies take place.

A stock represents fractional ownership of a company. Stocks are also referred to as securities or shares.

Why Buy Shares?

There are two ways to make money when you invest in stocks. These are:

1. Dividends

According to Investopedia, a dividend is the distribution of a company’s earnings to its shareholders. When a company makes a profit, it shares some of the profits with its shareholders through dividends.

Let’s say company A made a profit of 100,000 and decided to give a total dividend of Ksh 50,000 to its five shareholders. If the total number of shares of the company is 100, the dividends issued will be 50,000 /100, which gives Sh 500 per share. If person X owns 50 shares, he will get 50*500 which is 25,000.

That’s just a simple example to show you how companies issue dividends.

2. Capital Gains

You have probably heard of the term buy low, sell high. If not, it’s the process where investors buy a particular company’s stock at a given place and only sell it at a price higher than their buying price.

For example, when Safaricom went public, one share traded at sh 0.05. As I write this, one Safaricom share is trading at Sh 30. If person Y bought 1,000 shares at IPO for sh 50, he could now sell them at sh 30,000.

How To Buy Shares at The Nairobi Securities Exchange

1. Open a CDS Account

To trade shares at the NSE, you need a trading account that is facilitated by the Central Depository and Settlement Corporation (CDSC)

This body facilitates the holding and transferring of shares traded at the stock exchange.

Where do you open a CDS Account?

2. Choose Your Stock Broker

You open a CDS account with the assistance of your stock broker. You cannot buy or sell shares directly; you need a broker to help you do so.

There are many stock brokers at the NSE, as you can see on the NSE website.

How Do You Choose The Right Stock Broker?

1. Investment Costs

Stockbrokers have fees like account maintenance fees, trading fees, brokerage fees, transaction costs and many more.

Comparing brokers is feasible to get the one who charges lower fees. If you care about your investment returns, always prioritize brokers with low costs.

On average, most brokers charge around 2% for any trade.

2. Technology

We live in an era where we can access everything on our phones. You should also access your trading account on your phone. You do not need to visit your broker’s physical offices whenever you have issues with your account.

3. Regulation

Make sure your stock broker is authorized by CDSC and regulated by Capital Markets Authority(CMA)

4. Customer Service

As a client, you want to be treated right and have a great experience in your investing journey. Prioritize brokers with an excellent public image and who have good customer reviews

Assets Traded at The NSE

The main asset traded at the NSE is stocks; however, we also have Real Estate Investment Trusts (REITs) and a gold ETF.

How Much Money Do You Need to Invest?

To invest in the Nairobi Securities Exchange, you need to trade the minimum number of shares which is 100. Thus the money you need to get started depends on the stocks you want to buy.

For example, as I write this, East African Breweries is trading at Sh 142.50 per share. That means to buy 100 shares; I would need Sh 14,250.

At the same time, Safaricom is trading at Sh 29. This means I would need to raise Sh 2900 to buy Safaricom shares.

Taxes

Capital gains tax is 15% This is tax charged when you sell a stock at a higher price than you bought it for.

Dividend income is subjected to a withholding tax of 5%