investing in the stock market- benefits _ prospects

7/28/2019 Investing in the Stock Market- Benefits _ Prospects

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(Member of The Nigerian Stock Exchange)Registered by Securities and Exchange Commission

INVESTING IN THE CAPITAL MARKET:BENEFITS & PROSPECTSINTRODUCTION

Unlike other types of market structures, the capital market is unique in both features and

operational fundamentals. The Market has therefore come to be recognized as the pillar in everystrong and dependable economy all over the world owing to its vital role in creating avenues forinvestors and companies to raise long-term funds for their investment purposes. Apart from servingas a source of raising long-term funds, investors also approach the market to create wealth throughinvestment in instruments traded in the market. Hence, for individuals with early retirement in mindor having the intension to undertaking a long vacation, the capital market can serve as platform toraise the needed finance.

One would then say that every government, corporate entities or private individuals requires capital(funds) to finance their operations and to engage in long-term investments. To achieve this, acompany raises money through the sale of securities stocks, debentures and bonds in the

company's name. These are bought and sold in the capital markets. In this write-up, well takereaders through the various opportunities open to investors in the market and how they can takeadvantage of same to grow their wealth.

The capital market is divided into two segments; the primary market and the secondary market.While the primary market is the avenue to raise fresh issues (by companies known as the issuers)for subscription by investors, the secondary market is in place for the trading on securities earlierissued in the primary market.

REGULATORY AUTHORITIES/FUNCTIONSThe daily activities or transactions carried out at the capital market are regulated by institutions set

up by government to efficiently manage the affairs in the market. The Securities & ExchangeCommission) with its sister regulatory institutions (The Nigerian Stock Exchange, a self regulatoryorganization and the Central Securities Clearing System) are vested with the responsibility ofensuring the proper functioning of the capital market through the formulation and implementation ofguided policies. With the necessary regulatory frame work in place, investors in the market are wellprotected of their investments.

DYNAMICPORTFOLIOLIMITED


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SECURITIES AND EXCHANGE COMMISSION

Set up by Government, the Securities and Exchange Commission (SEC) is the apex regulatoryinstitution of the Nigerian capital market. It is a statutory body supervised by the Federal Ministry of

Finance.

The Commission has evolved over time, having started with the establishment of the Capital IssueCommittee in 1962 as an essential arm of the Central Bank of Nigeria. This was purely a non-statutory committee, which later metamorphosed into the Securities and Exchange Commission(SEC) in 1978. This followed a comprehensive review of the Nigerian financial system, with thepromulgation of the SEC Decree Number 71 of 1979. The Decree has been reviewed severaltimes. The last review was in 1999 which paved way for the promulgation of the Investments andSecurities Act (ISA) Number 45 of 1999. The ISA vastly enlarged the powers of the Commission,and also saddled it with the dual responsibilities of:

Regulating the capital market with a view to protecting the interest of all investors in themarket; and

Developing the capital market in order to enhance its efficiency, and to pave the way for aprivate-sector-led economy.

The SEC is vested with various functions among which are:

9 Regulate investment and securities business in Nigeria;9 Register and regulate all types of Securities Exchanges, Capital Trade Points and central

depository and clearing companies;9 Ensure investors protection in the market;9 Registration of market operators;9 Register securities that are to be offered to the public.9 Maintain surveillance over the securities market to ensure orderly, fair and equitable

dealings.9 Register and regulate Securities Exchange; Capital Trade Points; Futures, Options and

Derivatives Exchanges; Commodity Exchanges and any other recognized InvestmentExchange

9 Keep and maintain separate registers of foreign direct investment and foreign portfolioinvestments;

9 Approve and regulateCollective investments including all collective investment schemessuch as unit trusts, esusu schemes, pension funds and other such schemes;

9 Approve and regulate Mergers, acquisitions, take-over and other forms of businesscombinations under the Act.


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THE NIGERIAN STOCK EXCHANGE (NSE)

On the other hand, a self-regulatory organization set up by a group of individuals, The NigerianStock Exchange (NSE) basically provides market place and facilities for trading (buying and

selling) of securities in the secondary market. Established in 1960 as an organ of the Nigeriancapital market, The NSE was originally know as the Lagos Stock Exchange at inception, it waslater reconstituted into The Nigerian Stock Exchange in 1977. Vetted with the responsibility tocontrol and regulate quotations on the Exchange as well as correlating the stockbroking activitiesof members, The Exchange presently has eight (8) branches in the main cities in Nigeria; theyinclude Abuja, Kaduna, Port-Harcourt, Kano, Onitsha, Ibandan, Yola and Benin.

Functions of the Exchange include, among others:

Provide appropriate machinery to facilitate further offerings of stocks and shares to the

general public.Promote the increasing participation by the Public in the Private sector of the economyProvide opportunities for raising new and fresh capital.

THE CENTRAL SECURITIES AND CLEARING SYSTEM (CSCS)

To aid effectiveness in transaction on the floor of the Nigerian Stock Exchange, the CentralSecurities and Clearing System (CSCS), was set up in April 14, 1997 with the main purpose ofclearing and settlement of trades for the NSE. It is also known as the Central Securities Depository(CSD). Consequently, the settlement cycle reduced with effect from March 2000, from T+5 to T+3(T+5 i.e. transaction day plus 5 working days, T+3 i.e. transaction day plus 3 working days).

MARKET INTERMEDIARIES

Of course, there are a number of market facilitators which include the Issuing Houses,Stockbrokers, Investment Advisers, Portfolio Managers, Registrars, Trustees, Receiving Agents,Reporting Accountants and Solicitors, among others with various roles to play in the market.

INVESTMENT BASICS

Many private investors' first foray into financial trading in the capital markets is via the stockmarket. It is relatively easy to understand, offers a wide selection, features many recognizablecompanies and products, is readily accessible, and its high trading volume creates liquidity thatallows investors to "get out" with relatively little hassle.

MARKET TRADING INSTRUMENTS

The capital market instruments for trading include; Equities, Preference Stocks, Bonds, andDebentures etc.


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BUYING & SELLING OF SHARES

As stated earlier, there are two (2) major avenues through which investors can buy and sell shares;they are the primary and the secondary markets. The primary market provides for only buying of

shares or other capital market instruments directly from the issuing company which could bethrough Initial Public Offer (IPO), Offer for Subscription, Rights Issue, and Private Placement etc.The price at which shares are bought in this segment of the market is usually lower than that of thesecondary market. This means that potential investors can buy shares of Company XXX through aReceiving Agent, when its shares are being flouted in the market.

On the other hand, the secondary market enables investors to trade in securities which had earlierbeen issued in the primary market symbolized by the Stock Exchange. Thus, this market providesa mechanism which enables investors to buy and sell existing securities. The investors cantherefore buy and sell shares through a Stockbroker who trades on these shares on the floor ofThe Nigerian Stock Exchange with the provision of market facilities by the Exchange.

INVESTMENT BENEFITS/PROSPECTS

The primary aim of any investor is to get a good return on his or she investment. Investing in thecapital market goes with a lot of benefits and prospects, if investment decision is wisely takenputting into consideration the viability of the company which an investor wishes to invest, criticallyanalysis of its fundamentals, past financial performance, management structure, businessenvironment, market competitiveness, economic environment and of course political environment,among others.

The benefits/prospects therefore which investors derive from investing in the capital market can notbe overemphasis, such include;

Capital Appreciation: It entails the difference between the price at which a share of a company isbought and the price at which it is sold. If for instance, an investor bought the shares of CompanyXYZ at N2.00 per share, and after three (3) months he sold the shares for N3.50 per share, theinvestor is said to have made a capital appreciation of N1.50 or 75 percent.

Dividend Payment: Shareholders are entitled to dividends, if declared. It is a sum of moneyagreed upon by the directors of a company to be paid to its shareholders from the companys profitin a given financial year. Dividend is proportionally based on per share which means as muchshares an investor has, more dividends are expected. In the case of investment in Bond however,interest payment is made to the bond holder on monthly basis as the case might be while theprincipal will be paid back to the investor on the expiration of the bond tenor.

Bonus Issue: Shareholders are also entitled to bonus issue, if declared. Depending on the ratedeclared, it enables a shareholder to acquire additional shares from the company where heinvested in, without necessarily paying for these shares.


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Participate In Rights Issue: Shareholders are opportune to participate in Rights Issue of thecompany where they invested. Although Rights Issues are paid for by the investors but the price isusually lower than the prevailing market price.

Participate In Decision Making: Shareholders have the right to attend Annual General Meeting

(AGM) of the company which they invested in, participate in its decision making and exercisevoting right.

Collateral For Obtaining Loan From theBank: It will interest investors that they can use theirshare certificates as collateral to obtain bank loans for individual use or business development.

Preparation Towards Personal Pension Plan: Buying of stocks could be used as individualpreparation towards personal pension plan. This, in the sense that an investor who is opportune toinvest considerably in the stock market during his earlier age, could completely rely on hisinvestment as a means of income at old age (when he becomes unproductive).

CONLUSIONThe high private investor participation, varied product offerings, limited margin and extensivegovernment regulation all combine to make the capital markets relatively safe for non-professionaltraders. The capital markets generally offer ease of access and encouragement to privateinvestors, limited leverage opportunity and, as a result, limited upside potential. Investors are saferwhen they engage the services of a professional in managing their portfolios. Stockbroking firms aswell as portfolio managers are well on ground to render these services. Investors are advised notto be scared about the professional service charges placed on their investments, rather theyshould be concerned with the benefit they will derived when their investments are professionallyhandled. The risk associated in investing without engaging a professional is more costly that thecharges you are to pay to experts to guild you through your investments. There is therefore nodoubt that investing in the capital market is of immense benefit to investors who most importantlyinvested in well analyzed and viable stocks with good prospect in terms of investment returns, andthese as indicated earlier could only be well handled by professionals.

DYNAMIC RESEARCHDYANMIC PORTFOLIO LIMITED20, CAMPBELL STREETLAGOS ISLANDLAGOS.

For more enquiries, please contact usor call 234-2702508, 07028185437 and08052230864.

investing in the stock market- benefits _ prospects

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