The book is How to Invest in Stock Market by Rabindra Bhattarai.

Because of its popularity, I wanted to see what was inside the book. Also, having written an ebook on the same topic, I was curious. So I bought the book. It was a small book (around 100 pages), so it took me less than an hour to complete it.

In this article, I want to briefly review this book, including the book’s contents, who should read it, what you will learn, some shortcomings, etc.

‘How To Invest In Stock Market‘ by Rabindra Bhattarai

This book contains the basic terminologies, definitions, and brief explanations of the capital market of Nepal. It is a book for beginners who want to learn about the stock market of Nepal.

You will learn the basic idea about how the stock market works. Mr. Bhattarai has clearly explained the concepts of primary and secondary markets. Further, he has also provided information on what investors need to learn before investing in these markets.

Additionally, the book also provides information on the Nepal Stock Exchange (NEPSE), Securities Board of Nepal (SEBON), Central Depository System (CDS), and other governing bodies of the market.

In the final chapter, Mr. Bhattarai has explained his concept of 3i in investment—information, interaction, and investment. It is a good learning concept for beginners in the stock market.

Overall, the book is a good read to understand the basic terminologies and concepts of the financial market of Nepal.

Who Should Read It?

This book is for beginners who have little or no knowledge of the stock market. It is for newbies and aspiring investors who are curious to learn about investing.

It is not for professional investors. Also, most of the management students might have already learned these concepts in their academic courses. So students who have studied finance in BBS, BBA, or MBA might not need to read this book.

This book is not for you if you are looking for advanced concepts and in-depth knowledge about the stock market and financial analyses.

I, for instance, already knew more than 90 percent of the concepts in this book. It is because I have been investing in the market for years. Only a few concepts and terminologies were new to me. So this book is not for someone like me.

What Will You Learn?

As I said, you will learn the basic concepts and terminologies related to the stock market of Nepal. In brief, you will learn:

• What is the stock market, and how it works
• Primary and secondary stock market
• The concepts of common stock, preferred stock, dividends, bonds, mutual funds, right shares, capital gain tax, etc.
• NEPSE and its history
• Market indexes
• Reading stock tables
• The basic concept of fundamental and technical analysis
• SEBON, CDS, and market regulations
• General investment tips

Limitations

As this book is for the beginners, there were no detailed explanations and in-depth discussions of the concepts. The title of the book is How to Invest in Stock Market. But to be honest, the ‘how to’ part was missing. It will only teach you about the concepts required to invest in the stock market.

Most of the information used in this book is easily available in academic (finance) books and websites like NEPSE, SEBON, CDS, ShareSansar, etc. The author offers only a few new concepts of his own.

Mr. Bhattarai has explained the concepts of derivatives, short selling, and OTC (over-the-counter) markets. But he has not properly clarified that these are currently not applicable in the stock market of Nepal.

Lastly, he has used many Warren Buffett quotes in the book, which I think is overly done. He could have used quotes from other finance gurus like Peter Lynch, Benjamin Graham, Charlie Munger, George Soros, and more.

Final Thought

Even though the book’s title has ‘how to’ in it, the book is more about understanding the terminologies and basic concepts about the stock market of Nepal. Further, it does not provide detailed steps and processes of stock picking, analyzing, and investing.

Mr. Bhattarai explains fundamental and technical analysis concepts but does not explain how one can learn such analysis. He also fails to explain what criteria investors should check when picking stocks.

Overall, the book is a good read for anyone interested in the capital market. But like I said, if you are already an experienced investor or have been involved in the market for a while, the concepts will not be new to you.

A quick disclaimer: This article is my personal view of the book. I do not intend to influence anyone to buy or not buy this book. This is not a sponsored post (although it would have been cool had this been a sponsored post).

Buy the book from Daraz here.

Read More:

• 10 Things You Should Know About the Stock Market of Nepal
• How To Invest In the Stock Market of Nepal: A Simple Guide To Investing In The Secondary Market

The post Book Review: ‘How To Invest In Stock Market’ By Rabindra Bhattarai appeared first on Biliz Maharjan.

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The number of investors in the stock market of Nepal has been increasing immensely. Within one year, the number of IPO applicants has almost tripled in number.

However, most of the new investors only seem to be active in the primary market of Nepal. It means that they only know how to apply for an IPO (Initial Public Offering). Most of them have no idea of how to invest in the secondary market of Nepal. I have gotten many questions from friends and other people regarding how they can invest in the secondary market. I wish to help them through this article.

Before I begin, you should know the basics of the stock market. I have written a few articles previously on this topic. If you haven’t checked them out, you probably should. It will give you the idea of the following:

• What is the stock market?
• How does it work?
• How to start investing in the stock market?
• A brief history of the stock market.
• A few essential points to know before you invest.

If you are already aware of these things, you can skip reading the previous articles.

Here are the links to my previous articles:

1. Stock Market 101 – How to Start Investing in the Stock Market of Nepal?
2. 10 Things You Should Know About the Stock Market of Nepal

The Secondary Stock Market of Nepal

I have briefly discussed the secondary stock market and the steps to invest in this market in the previous articles (no. 2). In this article, I will talk about it in more detail.

Firstly, what is the secondary market? It is the market where investors can trade shares of companies listed on the Nepal Stock Exchange (NEPSE). When you first buy stocks in the primary market through an IPO, the shares are not listed on NEPSE. It is only after the allotment process that the shares get listed.

Once the shares are listed, and the first trade takes place, a new price is set for that particular stock.

So when a buyer agrees to purchase the stock at a certain price that the seller has asked for, that price becomes the LTP (Last Traded Price) of the stock (Supply and Demand, as explained in detail in article no. 1). If you want to buy that stock, you will have to set a price close to the LTP. The LTP at the end of the market time will be the closing price of the stock for that day.

What You Need to Invest in the Secondary Market of Nepal

Although this has already been discussed in my previous post, I’m going to share it again because you must have these things to invest in the secondary market.

1. Demat Account

If you have invested in IPOs, you probably have a Demat account in your name. A Demat account is an account to store your shares, just like a bank account stores your money. It is compulsory to have a Demat account to invest in the stock market. To open a Demat account, you can go to any of the companies licensed by SEBON as a Depository Participant (DP). Usually, banks, merchant banks, and stockbrokers are licensed to open a Demat account for their clients. These companies will take a certain fee for opening your Demat account. Then, the DP will provide you with your Demat account number (also known as BOID) and MeroShare credentials.

2. MeroShare Account

A MeroShare account is an account that gives you access to your shares electronically. This account allows you to view the details of your shareholdings and the current value of your portfolio. Furthermore, it also gives access to your transaction history and your purchase sources. Applying IPOs, FPOs, right shares, etc., can also be done through your MeroShare account. Your MeroShare account is usually opened along with your Demat account if you specify it clearly while filling up the form for your Demat account. To access your MeroShare account, you have to go to https://meroshare.cdsc.com.np/ and log in with the credentials provided by your DP.

3. Stockbroker/Trading Account

If you want to buy/sell shares in the secondary market, you need a stockbroker account. A stockbroker buys and sells shares on behalf of clients. There are currently about 50 stockbrokers in Nepal. You can find the appropriate stockbroker and open an account with them. Some stockbrokers are licensed as DP, which means you can open your Demat account, MeroShare account, and stockbroker account all at the same place.

A trading account gives you access to an online system known as the Trade Management System (TMS), where you can place your buy/sell orders yourself. You will not need to call your broker to place the order. Further, you can also open your trading account at the stockbroker’s office itself. Your stockbroker will provide you with the process and other details necessary for the trading account. Stockbrokers usually ask for collateral when you open a trading account with them. Collateral is an assurance amount (either in cash or cheque) that allows you to purchase shares worth four times the amount you have provided as collateral to the broker. For example, if you want to purchase shares worth Rs. 1,00,000 through the trading account, you will have to provide a collateral amount of Rs. 25,000 to the broker.

(It is better to call the stockbroker and ask them about the process of opening stockbroker and trading accounts. Different brokers have different ways to do so. Some allow you to open a trading account online, while others ask you to visit their office and submit the documents. Usually, the documents required are a KYC form, a Citizenship copy, a DP confirmation letter, a TMS agreement form, and a cheque for collateral. The documents will also be available on the broker’s website.)

4. Bank Account

It is quite obvious that you need money to buy shares. Therefore, you must link your bank account with your Demat account, MeroShare account, and stockbroker account. If you purchase an IPO, the amount will be automatically deducted from your bank account, which you have linked with your Demat/MeroShare account. In the secondary market, however, you can pay your broker from any of your bank accounts. A bank account is also required when you receive cash dividends. The dividend amount will be automatically credited to your respective bank account.

How To Invest In The Secondary Stock Market of Nepal?

Follow these steps to start investing in the secondary market of Nepal.

1. Pick a stock

The first thing you need to do is pick a stock that you are interested in buying or selling. Then, you need to find out the current trading price of that stock. You can do that in the market depth section of the NESPE website or that of the TMS. You can also see the number of stock orders (quantity) that the buyers and sellers place for that particular stock.

2. Decide the Price and Quantity

After picking your stock, you must also decide how much of that stock you want to buy and at what price. Before you place your order, you have to be clear about the price and quantity. It is for both buy and sell. In the case of selling, you need the shares in your Demat account before you sell them. Otherwise, it will not be a valid order.

3. Place the Order (Use Any One of These)

a) Offline Order

There are two different ways you can invest in the secondary market – online and offline. The offline method is where you call your stockbroker to place your orders to make the transaction.

After you have picked your desired stock and decided the price/quantity, you have to call your stockbroker and ask them to place the order for you. Make sure that you set your price by looking at the LTP and the buy/sell prices in the market depth. By doing this, you will have a high chance of making your transaction happen. If your transaction does not happen during the day, your order will be canceled, and you will have to place a new order again the next trading day.

Your broker will inform you via text message/phone call/email at the end of the working day if the transaction takes place. You can also check this through the TMS if you are trading online.

b) Online Order

The online method is where you place the buy/sell order by yourself through TMS. Make sure that you have opened a TMS account and it is activated. In order to purchase shares, you must have submitted the collateral amount to your broker. You do not need collateral to sell shares.

You can also view the market depth from your TMS account.

To place your buy/sell order through TMS, you need to know how to use the system. You can learn it in this video in detail.

4. EDIS (Only Required for SELL)

EDIS stands for Electronic Deposit Instruction Slip. You use it to transfer the shares in your Demat account to the broker’s account. EDIS is only necessary when you sell your shares. You don’t have to use EDIS when you buy shares.

Share transfer using EDIS is done through your MeroShare account. So, you need to follow certain steps inside your MeroShare account to complete the share transfer process. Watch this video to understand the entire process in detail.

5. Final Steps

BUY: If you had bought shares, you would have to pay your broker within a few days. You can do so either by submitting a cheque or through an online medium like ConnectIPS. The broker will credit the shares to your Demat account within 5-7 days of the transaction if you have paid them in time. If that does not happen, call the broker.

SELL: If you had sold shares, first, you need to transfer the shares from your Demat account to the broker’s account through EDIS. Then, you can collect your cheque from the broker within 5-7 days of the transaction. You can also ask them to pay you via ConnectIPS.

In Conclusion

I hope this article was helpful to those who were in doubt about the process of investing in the secondary market of Nepal. Make sure you have watched the two videos I have recommended in this article. The process of investing in the secondary market is not as complicated as it seems, especially now that there is an online system. But remember, as I have said in my previous article, I highly recommend you study the company properly before you purchase the shares in the secondary market, especially if you are a new investor.

Summary

How To Invest In The Secondary Stock Market of Nepal?

1. Requirements: Demat account, Mero share account, stockbroker/trading account, and bank account
2. Pick a stock
3. Decide the price and quantity
4. Place the order
5. EDIS (for sell)

Frequently Asked Questions (FAQs)

1. How many stock markets are there in Nepal?

Currently, there is only one stock market in Nepal. It’s the Nepal Stock Exchange (NEPSE).

2. How can I invest in the Nepal stock market?

To invest in the primary stock market of Nepal, you need a Demat account, Meroshare account, and a bank account. You can invest in IPOs and FPOs from your Meroshare account.

To invest in the secondary stock market of Nepal, you will also need a stockbroker/trading account. You can use the online trading system (TMS) or invest in stocks offline by calling/visiting the stockbroker’s office. The details have been explained in the above article.

3. How can I learn about the Nepal stock market?

You can learn about the Nepal stock market for free online from different blogs and Youtube channels. Furthermore, you can also take share training in Nepal. However, the most convenient way to learn about the stock market is to start investing. You don’t have to invest large sums of money. Instead, you can start with small investments (Rs. 5,000 to 10,000) and learn how the market works first. Lastly, you must always remain informed about the market by reading news about companies and market trends.

The post How To Invest In the Stock Market of Nepal: A Guide To Investing In The Secondary Market appeared first on Biliz Maharjan.

Nepal Stock Exchange (NEPSE) is the only stock exchange in Nepal. The number of investors in the stock market of Nepal has been increasing in the past months. From experienced investors to newbies, everyone has the same purpose for investing in stocks – to make money.

Investing in stocks is a good way to make some money. You can earn passive income by investing in stocks. A passive income is an income generated from a source where one does not have to be actively involved every time. How is investing in stocks a passive income? Because after you invest your money in stocks, you will receive dividends as income from your investments.

If you are a newbie in the stock market, you should first understand what stocks are and how the stock market works. You can learn about it in my previous article on the stock market.




The stock market of Nepal is at its growing stage. As of writing this post, the index of the market is at 1,645.67. I will be discussing the 10 things you should know about the stock market of Nepal in this post. So, let us begin.

If you are already involved in the market and are an active investor, the following might not be new things for you. But I assure you that they can add some value to your knowledge of the stock market.

1. Establishment and Early Days

The Nepal Stock Exchange (NEPSE) was established in the year 1993 AD (2050 BS). But, it opened its trading floor only on 13th January 1994. The first companies to be listed on NEPSE were Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. In the early days, trading of securities took place through an open cry-out system. Trading through computers began in 2063 BS.

2. Structure

NEPSE has a paid-up capital of NRs.50,00,00,000. The shareholders of NEPSE include the Government of Nepal, Nepal Rastra Bank, Employees Provident Fund, Rastriya Banijya Bank (former, Nepal Industrial Development Corporation), Laxmi Bank Ltd., Prabhu Bank Ltd., and other securities businessperson (brokers). The detailed structure is shown below.

(Source: Nepal Stock Exchange Ltd.)

3. Securities Board of Nepal (SEBON)

The Securities Board of Nepal (SEBON) was established by the Government of Nepal on June 7, 1993, as an apex regulator of Securities Markets. It has been regulating the market under the Securities Act, 2006. The major functions and duties of SEBON include; issue necessary securities regulations and directives; share registration of public companies; issue license to operate stock exchange; regulate and systematize the issue, transfer, sale, and exchange of registered securities;  issue license to stockbrokers, dealers, merchant bankers, and fund managers; issue license to depository company, depository participant, and credit rating agency; and more.

4. Primary and Secondary Markets

a) Primary Market

A primary market is a market where investors can buy the stocks of a company when it is issued in the market for the first time. The companies issue stocks primarily through an IPO (Initial Public Offering). The public will be able to invest in the shares of the companies by applying for the IPO. The process of applying for an IPO is explained in point number 6 below. Investors can apply for an IPO and buy the shares of the company at a base price (which is usually Rs. 100 per share for companies in Nepal).

The public can also invest in the primary market through FPOs (Follow-on Public Offerings) – a process by which a company, which is already listed on the Nepal Stock Exchange, issues new shares to the public. Both new investors and current shareholders can invest in the FPO of a company.

b) Secondary Market

The secondary market is where investors can trade (buy/sell) the stocks of companies that are already listed in NEPSE. To buy/sell a stock in the secondary market, an investor has to pay the price at which the company is currently trading in the market. The process of investing in the secondary market is explained in point number 7 below.

5. Requirements to Invest in the Stock Market of Nepal

There are several things necessary to start investing in the stock market of Nepal. You must ensure that you have all these things ready before you begin investing. The following are requirements to invest in the stock market of Nepal.

• Demat Account
• MeroShare Account
• Stockbroker/Trading Account
• Bank Account

a) Demat Account

A Demat account is an account to store your shares, just like a bank account is an account to store your money. It is compulsory to have a Demat account for you to invest in the stock market. To open a Demat account, you can go to any of the companies that are licensed by SEBON as a Depository Participant (DP). Usually, banks, merchant banks, and stockbrokers are licensed to open a Demat account for their clients. These companies will take a certain fee for opening your Demat account. The DP will provide you with your Demat account number (also known as BOID) and MeroShare credentials.

b) MeroShare Account

A MeroShare account is an account that gives you access to your shares electronically. This account allows you to view the details of your shareholdings and the current value of your portfolio. Furthermore, it also gives access to your transaction history and your purchase sources. The application of IPOs, FPOs, right shares, etc. can also be done through your MeroShare account. Your MeroShare account is usually opened along with your Demat account if you specify it clearly while filling up the form for your Demat account. To access your MeroShare account, you have to go to https://meroshare.cdsc.com.np/ and log in with the credentials provided by your DP.

c) Stockbroker/Trading Account

If you want to buy/sell shares in the secondary market, you need a stockbroker account. A stockbroker buys and sells shares on behalf of clients. There are currently about 50 stockbrokers in Nepal. You can find the appropriate stockbroker and open an account with them. Some stockbrokers are licensed as DP as well, which means you can open your Demat account, MeroShare account, and stockbroker account all at the same place.

A trading account gives you access to an online system, known as the Trade Management System (TMS), where you can place your buy/sell orders yourself. You will not need to call your broker to place the order. You can open your trading account at the stockbroker’s office itself. Your stockbroker will provide you with the process and other details necessary for the trading account. Stockbrokers usually ask for collateral when you open a trading account with them. Collateral is basically an assurance amount (either in cash or cheque) that allows you to purchase shares worth four times the amount you have provided as collateral to the broker. For example, if you want to purchase shares worth Rs. 1,00,000 through the trading account, you will have to provide a collateral amount of Rs. 25,000 to the broker.

d) Bank Account

It is quite obvious that you need money to buy shares. A bank account will be linked with your Demat account, MeroShare account, and stockbroker account. If you are purchasing an IPO, the amount will be automatically deducted from your bank account, which you have linked with your Demat/MeroShare account. In the secondary market, however, you can pay your broker from any of your bank accounts. A bank account is also required when you receive cash dividends. The dividend amount will be automatically credited to your respective bank account.

6. Investing in the Primary Market

To invest in the primary market, first, you must have fulfilled all the requirements listed in point number 5 (except stock broker/trading account). Most of the new investors do not know how to apply for an IPO in the stock market of Nepal. In the early days, people had to fill up forms and apply for IPOs by visiting the issue-managing companies. Thankfully, we have an easy way to apply for IPOs now. However, here you need an additional requirement – CRN Number. You can receive your CRN number by filling up a C-ASBA form at your bank (Remember: Your CRN number is provided by the bank, not your DP. Also, the bank must be the same one which you have registered in your Demat Account). Here are the steps to apply for an IPO in the primary market.

• Step 1: You must have the following – Demat Account, MeroShare Account, and CRN Number.
• Step 2: Log in to your MeroShare Account by going to the link provided above in point number 5 (b).
• Step 3: Go to My ASBA > Select Apply for Issue > Select which issue you want to apply for.
• Step 4: Fill up the details including how many units you want to apply, the bank from which you want to debit the amount, and provide your CRN Number.
• Step 5: Confirm the details by providing the Transaction PIN. (You must set up your transaction PIN when you first log in to your MeroShare account).
• Step 6: It’s done! You can check your application details by going to the Application Report section of My ASBA.

7. Investing in the Secondary Market

To invest in the secondary market, you will need all the requirements listed above in point number 5. The first step to investing in the secondary market is that you must be aware of the market. You must know how the market works and how the prices of stocks are determined. You must also be aware of the current stock trading prices. These are provided on the official website of NEPSE in the Stocklive section or the Marketdepth section. Here are the basic steps to invest in the secondary market.

1. Decide which company’s stock you want to buy and how many units you want to buy.
2. Check the current trading price of the company.
3. Place a buy order either through TMS or by calling your broker and asking them to place the order for you.
4. Your broker will notify you via call/text/email when your order has been executed.
5. Pay the money to your broker and get the shares in your Demat account.

The process is similar if you want to sell your shares.

(It is highly recommended to study a company properly before you purchase its shares in the secondary market, especially if you are a new investor.)

8. Market Timings

The Nepal stock market (NEPSE) opens at 11:00 a.m. and closes at 3:00 p.m. from Sunday to Thursday. On Fridays, the market opens at 11:00 a.m. and closes at 1:00 p.m. (Updated: 15 June 2022)

9. Circuit Breakers and Price Range

Circuit-breaker points represent the thresholds at which trading is halted market-wide for single-day gains/declines in the NEPSE index. Circuit-breakers are applicable in three stages – when the market gains/declines by 4%, 5%, and 6%.

• If the market gains/declines by 4% in the first hour of market opening (i.e. from 11:00 am to 12:00 pm), the trading will be halted for 20 minutes.
• If the market gains/declines by 5% in the second hour of market opening (i.e. from 12:00 pm to 1:00 pm), the trading will be halted for 40 minutes.
• And, if the market gains/declines by 6% at any point, the trading will be halted for the rest of the day and the market will be closed instantly.

Price Range applies to individual companies listed in NEPSE. The circuit breaker for individual companies applies at a 10% price movement upward or downward. The trading will be halted for the company’s stock at a price higher or lower than 10% of the last traded price.

10. Fees, Commissions, and Tax

Investors have to pay certain fees and commissions to brokers and regulatory bodies when trading shares. Below are the details.

• Broker commission: 0.4% to 0.6% per transaction amount (Update: It has been reduced to 0.27% to 0.40%)
• DP Charge: Rs. 25 per company
• SEBON fee: 0.015% of the transaction amount
• Capital Gain Tax (CGT) for individual investors: (Updated: July 16, 2021)
  • 7.5% of Net Profit with a holding period of fewer than 365 days
  • 5% of Net Profit with a holding period longer than 365 days
• Tax on cash dividend: 5%
• Tax on bonus shares: 5% on par value

These were the 10 things you might or might not have known about the stock market of Nepal. I hope this article was insightful. You can share your thoughts and queries in the comments section below or you can write to me personally if you want to know more about the stock market of Nepal.

Like I said, investing in stocks can be a good way to make money. But it can also lead you to lose your money if not done with proper information. I advise you to gain as much knowledge as you can on the stock market before you start investing. The more you learn, the more you will be able to earn. So make your decisions wisely and seek help from the people who know about investing in the stock market. Lastly, have fun with investing because it’s not just about making money, it is also about enjoying the process.

The post 10 Things You Should Know About the Stock Market of Nepal appeared first on Biliz Maharjan.

Here’s why you should invest in stocks – To make money.

Who doesn’t like making money, right?

But you might say that you are making enough money from your job or that you have enough saved up in the bank. Why bother investing in stocks?

Let me tell you something – You can never make more money by keeping it in the bank. To be honest, you will not be saving your money. In fact, you will be decreasing your purchasing power by putting it in the bank. It’s due to inflation (which I will be discussing later).

If you are new to stocks and the stock market, read – Stock Market 101 – How to Start Investing in the Stock Market?

There are two main ways through which you can make money in stocks.

1. Capital Gain
2. Dividends

Capital Gain

Capital gain is the profit you earn by selling a stock at a higher price. Simply explained – suppose you bought a stock at Rs. 250 per unit, and after a few months you sold the stock at Rs. 400 per unit. You made a profit of Rs. 150 per unit (Rs. 400 – Rs. 250) in that particular stock. Your capital gain is Rs. 150 per unit.

So, if you had bought 100 units of the stock, here’s the simple math:

Bought at Rs. 250 * 100 = Rs. 25,000

Sold at Rs. 400 * 100 = Rs. 40,000

Capital Gain = Rs. 40,000 – Rs. 25,000 = Rs. 15,000

Dividends

Dividends are a portion of a company’s earnings distributed to its stockholders. When you buy stocks, you are actually buying a small portion of a company. When the company makes a profit, it distributes a portion of the profit to the stockholders in the form of dividends. In the case of Nepal, dividends can be received in two forms – cash dividends and bonus shares.

Why Invest in Stocks?

I know I have answered it already – to make money. But, let’s go a little deeper here.

Investing in stocks not only helps you make money through capital gains and dividends but is also one of the best ways of utilizing your money to stay ahead of inflation. Investing money in stocks is way better than keeping your money in the bank. Why? Because of inflation. Explained in simple terms, inflation is the purchasing power of a single unit of currency.

You might have heard your grandparents say, “In our days, a pair of shoes used to cost only Rs. 20.”

Gone are those days. Now, a pair of shoes cost way more than it used to 60-70 years ago. How did that happen? Because of inflation.

Staying ahead of Inflation

Now that the concept of inflation has been clarified, let’s see how investing in stocks helps you beat inflation. Currently, the annual inflation rate in Nepal is around 6%, which means the price of a product will increase by around 6% in the next year.

As of writing this article, the banks provide an interest rate of around 4% in a savings account (around 8% in fixed deposit). So, if you keep your money in the bank, you are going to get only a 4% return annually in your savings.

This means that if you put your money in the savings account, you are actually losing the purchasing power of your money by 2% (6% – 4%).

Now, if you invest in the stock market, where you can get around 10% return on your investment (or even more), your purchasing power has increased by 4% (10% – 6%). You are still making 2% more in stocks if you had invested in a fixed deposit (10% – 8%). This is how you can stay ahead of inflation and increase your purchasing power if you invest in stocks instead of putting your money in the bank.

Stock Returns

You’ve now understood about capital gains and dividends. Dividends are distributed by the company, so there’s not much you can do about it. But, what about capital gains? How much gain can you expect if you invest in stocks?

To explain this, let’s look at the history of the stock market of Nepal.

Nepal has only one stock market – Nepal Stock Exchange (NEPSE). You can learn more about NEPSE here.

Disclosure: This is not a prediction or projection of the performance of an investment strategy. This is merely the historical performance of the NEPSE index and it does not guarantee future results. DO NOT take this as an investment recommendation.

Related:

• 10 Things You Should Know About the Stock Market of Nepal

The history of the stock market clearly shows that, in the long run, the market tends to move upwards. So it is almost certain that you will be making money if you invest in stocks and hold it for a longer period of time. As Warren Buffett says;

The best time to buy is whenever you have money; and the best time to sell is never.

This means that the longer you hold your stocks, the more money you can make.

Easy to Invest In

Unlike investing in real estate or starting a business, investing in stocks is fairly easy. You do not require a large sum of money to invest in stocks. For starters, you can invest a small portion (about 10%) of your monthly income in stocks.

To invest in stocks, simply open a Demat account and a trading account with a stockbroker. Then you are ready to go. Learn more about how to start investing in the stock market here.

You must, however, do some research and take advice from someone who knows how the market works. Do not just randomly select a company to buy stocks. Study the market and have a basic understanding of companies and investing philosophies.

Stocks are also very liquid, which means you can easily sell them and quickly receive cash whenever you are in need.

A Few Things to Consider

I’ve mentioned the four major benefits of investing in stocks.

1. To make money
2. Staying ahead of inflation
3. Stock Returns
4. Easy to invest in

Now, before you go ahead and start finding stocks to invest in, you must consider a few things that might help you.

Save to Invest

As I said earlier, save at least 10% of your monthly income to invest in stocks. Stop eating out every day. Also, stop eating and drinking at expensive restaurants and cafes. Trust me, it is going to save you a lot of money. If you are a smoker, think about how much you spend on cigarettes each month. Do the math. You don’t have to run to the stores every time you see “on-sale” signs. Look inside your closet. There already is a lot of stuff you don’t need. Sell the old stuff that you have lying around, unused, at your house. These tips might seem small, but they can actually help you save a lot of money.

Diversify

Don’t put all your eggs in one basket. This is a famous sentence in the world of investment. You don’t want to invest everything in a single stock. Learn to diversify your investments. Diversification minimizes your overall risk, especially if you are a newbie. Invest in multiple sectors so that if one sector fails, other sectors will be there to compensate.

Invest in Stock-Alternatives

The capital market is not only about stocks. There are debentures, bonds, mutual funds, index funds, and so forth. Debentures will provide you a steady rate of return on your investment in the form of interests. Mutual funds can provide good returns as they are usually diversified and are managed by professional investment bankers. Bonds and index funds have not been started yet in Nepal. But, these are also good alternatives to stocks.

Go Long-Term

We have already seen that in the long run, the market will grow. Here’s a 90-year historical chart of the famous S&P 500 Index of the US.

S&P 500 Index – 90 Year Historical Chart

This also proves that markets move upward in the long run. If you apply a long-term strategy while making your investments, you are most likely to make more money. Warren Buffett is a perfect example of a long-term investor.

Warren Buffet’s net worth increased drastically as he got older. It is not because he certainly started making more money in his old age. It is because, when he was young, he had invested his money in stocks and businesses that provided him handsome returns as the years passed by. He compounded his money through his long-term investment strategy and became one of the richest people in the world.

Patience

Here’s another famous quote by Mr. Buffett;

The stock market is a device for transferring money from the impatient to the patient.

If you want to become rich quick, then investing in stocks is not for you. You have to be patient to see your money grow. It takes time, but growth is certain. You have to not let your emotions and feelings drive your investment decisions. Don’t be stressed if the market is down. History has proven again and again that recessions and market-crashes come and go. Be patient.

Learn as much as Possible

The more you learn, the more you will earn. Investing is a continuous learning process. There is no course or book that can make you an expert overnight. You have to learn it practically. Yes, your knowledge will definitely get enhanced by taking courses and reading books, but it will not make you money until you actually invest in the market. Don’t be afraid to make mistakes. Making mistakes and learning from those mistakes will teach you to make wise investment decisions in the future.

Final Thoughts

People have different choices and priorities in life. Everyone is different. They have different career-paths and likes/dislikes. Investing might not be for everybody. But, I think everyone should invest at least some portion of their wealth in stocks or other assets. The rich invest in assets.

Some people make money, some lose money. If you make wise investment decisions, you might never lose money in the stock market. It is a great place to increase your wealth. All you need is determination and a little financial knowledge.

Disclaimer: Please do not take this article as an investment recommendation for any individual. This article is for educational and informational purposes only. I am by no means an expert in investing. I wrote this article on the basis of my knowledge, experience, and research on the topic. Use this information at your own risk.

(A quick shoutout to Feedspot: I am honored to be a part of the Top 25 Nepal Blogs by Feedspot. Thanks to Feedspot and the team. Check out their site here.)

The post Why You Should Consider Investing in Stocks appeared first on Biliz Maharjan.

When we think about the stock market, we usually have images of people looking at big screens, talking on the telephone, yelling numbers. You might have seen such images in the movies as well. I used to think the same way.

When I first got into the stock market, I had a lot of questions. 

• How does the market work? 
• How do investors buy/sell stocks? 
• Where do I go to buy stocks? 
• How much money do I need to invest in the stock market? What defines the price of stocks? 

These were some of the questions I wish I had answers to. Through this article, I would like to answer some of the basic questions related to the stock market. This article is only for beginners, for those who want to start investing in the stock market but lack basic knowledge about it.

What is the Stock Market?

Before saying anything about the stock market, let me first tell you what a stock means? A stock is part ownership of a publicly listed company. It is a small portion of the company that the stockholder owns. 

The term stock is used interchangeably with share. However, there is a slight difference between the two. But for now, let’s not get into the difference in detail. A stock market is a place where the stocks get exchanged. A seller and a buyer come together to make the exchange.

How Does the Stock Market Work?

To understand this, you will have to recall the first chapter of Economics – Demand and Supply. Now for those who have never studied demand and supply, here’s what it means: The basic theory of demand and supply explains how the price of a product is determined by the availability of a product (supply) and the desire to purchase the product (demand). 

The relationship between demand (D) and supply (S) is shown in the following diagram.

This diagram shows that the price is determined by the intersection of demand and supply curves. Studying the diagram further (see below), the price increases in two scenarios – when the demand increases (demand curve shifts towards the right) or when the supply decreases (supply curve shifts towards the left).

So basically, there are four takeaways from the theory of demand and supply.

1. When demand increases, price increases.
2. When supply increases, price decreases.
3. When demand decreases, price decreases.
4. When supply decreases, price increases.

The stock market works in the same way. When the demand for a stock increases, the price of the stock increases. In other words, if there is a high number of buyers of a particular stock, the price of the stock increases. Similarly, when the supply increases, price decreases. In other words, if there is a high number of sellers of a particular stock, the stock price decreases. So your number one rule in the stock market should be to buy when the price of a stock is low and sell when its price is high.

Nepal Stock Exchange (NEPSE)

The Nepal Stock Exchange (NEPSE) is the only stock exchange in Nepal. NEPSE lists stocks of public companies, which are the companies whose stocks can be purchased or sold publicly. It provides information about the stock market in Nepal. You can know about the prices of stocks and the current trading situation on NEPSE’s website. The stock market of Nepal opens from 11:00 am to 3:00 pm. Investors can only buy and sell stocks during this time of the day. The market opens five days a week, from Sunday to Thursday.

How to Start Investing in Stocks?

It is the most common question in the mind of a beginner investor. There are two ways to invest in stocks—through the primary or secondary markets. What is the primary market? When a company first lists its shares publicly, investors buy the shares in the primary market. This process is called Initial Public Offering (IPO). When you purchase the stock through an IPO, you have purchased it in the primary market. A secondary market is where investors buy/sell shares of already-listed companies.

To start investing in the stock market in Nepal, you will need a few things. At first, you will need a Demat account. This account is for holding all your shares together in an electronic form. It has been made compulsory by the Security Exchange Board of Nepal (SEBON). To open a Demat account, you have to go to a company that is a depository participant. Companies such as investment banks, stockbrokers, and merchant banks provide services to depository participants. If you do not know where to find them, go to your bank and tell them that you want to open a Demat account. They will guide you further.

Secondly, you will need a broker account. Stockbrokers bring buyers and sellers together. If you want to buy the stocks of a company, you do not have to find a seller yourself. Your stockbroker does that for you. In return, the broker takes a commission fee, which is usually a tiny portion of the transaction amount. There are about 50 stockbrokers in Nepal. You can choose any one of them and open an account. Once you open a broker account, now you can begin investing. If you want to buy a stock, place a buy order with your broker, and they will buy the stock for you. In addition, you can ask your broker regarding other processes of buying and selling stocks.

Lastly, you need a bank account for all your transactions. It will be linked with your Demat and broker accounts. The bank account is also necessary to receive the dividends distributed by the companies whose stocks you own.

Before You Begin

Before you begin investing, you must know the company whose stock you are purchasing. Study the company properly before you invest in its stocks. You must also know about the current market condition.

The market condition, in a simple way, can be known by the NEPSE Index. The index measures the stock market performance. The index value keeps on changing every day according to the performance of the stocks in the market. If the index value increases, the market is performing well. If it decreases, the market is performing not-so-well. However, a single day’s index value does not determine the performance of the market. You must monitor the market’s performance by comparing it to its past index values.

As I said, this article was only meant for beginners in the stock market. Now, you must have gotten a brief idea about the stock market and how you can invest in the market. I will write about the analysis of companies in my future posts.

Investing in stocks is a great way to increase your net worth. However, do not expect to make quick money in the stock market. You must always look for ways to increase your knowledge about investing in the stock market. To do so, I suggest you read books, articles, papers and watch videos related to them. The more you know, the better you will be at investing. So, keep learning. That is all that you need to do, especially when you are first starting.

Related:

• Why You Should Consider Investing in Stocks
• 10 Things You Should Know About the Stock Market of Nepal

The post Stock Market 101 – How to Start Investing in the Stock Market of Nepal? appeared first on Biliz Maharjan.