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1. What are Shares and Types of Shares?
A share is a right of ownership on a certain portion of a company. This happens when a company issues or sells a portion of its shares to the public thus entitling them with future profits and losses associated with the shares which serve as a capital.
It’s common for companies to have different classes of shares, each of them conferring different rights to shareholders, such as voting power and the right to dividends or capital. Let us walk you through the most common types of shares a company may issue.
Equity share are also called ordinary shares. The holders of equity shares are the real owners of a company. The ordinary shareholders have voting rights in the meetings of the company. They are entitled to receive dividends as are declared by the board of directors. The equity share capital cannot be redeemed during the life time of the company.
Preferential Shares have certain preferences as compared to other types of shares. The main preferences of these shareholders over others in brief are as under:-
Deferred Shares are also called founders Shares. They were used to be issued to the promoters of the company. Dividend on deferred shares was paid after the claim of all other shareholders has been met including equity shareholders. The deferred shareholder has one vote. These shares enabled the promoters to control the working of the company with a very small investment.
2. Why do Company Sell their Stocks?
Companies sell stocks to raise investment capital. Stocks are units of partial ownership in the company and have associated revenue (dividends) and value (stock price) and are one of several options available to companies to finance expansion. Companies typically only list stock on the stock market after achieving a certain size, and some companies never list.
3. When is the right time to buy shares?
4. What is DSE?
DSE is a short term for name The Dar es Salaam Stock Exchange Plc – a secondary market for financial products. The Dar es Salaam Stock Exchange is a body corporate incorporated in 1996 under the Companies Act, 2002 as a company limited by guarantee without a share capital. It became operational in April, 1998.
5. What products are traded at the Dar es Salaam Stock Exchange?
The products traded at the DSE are financial products. Currently the financial products traded are Shares and Bonds; Shares are also known as Equities and Bonds are also known as Debt instruments. Collectively, the products traded at the DSE are referred to as Securities.
6. What amounts can an investor buy Shares and Bonds?
An investor can buy as little or as much as he or she can afford. It is also possible to invest very little money in groups of small investors pooled together by fund managers in the market.
Shares are bonded in minimum lots of 100 shares and above in the main market boards. Fewer shares than 100 are available on the odd lots board.
Bonds are sold in minimum bundles of Tzs. 1 million for Treasury bonds and Tzs 500,000/- for Treasury bills. Small investors can pool their money together and buy a bond with the help of a fund manager.
7. How a Stock Exchange works
A stock exchange is the platform where financial instruments like shares/stocks, bonds and derivatives are traded. Market participants have to be registered with the stock exchange and authorized by the Capital Markets and Securities Authority (CMSA) to conduct trades. This includes companies issuing securities, brokers/dealers executing the trades and investors. All of this is regulated by CMSA, the Government Agency established to promote and regulate securities business in the country.
8. Who is a shareholder?
A shareholder is an investor who buys shares with an expectation of profit. Profits in shares are through dividends, gains in share prices, bonuses, rights etc. A shareholder owns a piece of the company (his/her profits equal to the number of shares he/she owns).
9. What is a Bond?
A bond is a loan between a borrower and a lender. The borrower promises to pay the lender some interest (quarterly or semi-annually) on principal at some date in the future. The borrower also promises to repay the initial money invested by the lender. The lender lends and expects to make a profit. The profit from a bond is gained in the form of an interest. At the moment some bonds in the market have an interest rate of between 12% and 15% depending on the type of bond it is, and when it was issued. At the Dar es Salaam Stock Exchange, the lender is called an investor and the borrower the issuer.
10. Who can Buy Bonds?
Any individual, Church, School, College, University, Investment Group, Insurance Company, Bar, Pension scheme and many others can buy bonds.
11. Can a Bond be sold before maturity?
Yes. In times of need or emergencies, an investor can sell his or her bond easily and quickly in the market. The interest on a bond grows on a daily basis and so a bond has new value and price every day. An investor can therefore buy or sell a bond on any day of his or her choice. There are no penalties for selling a bond before the maturity date.
12. What is a stock exchange?
A stock exchange is a central ‘market place’ in which companies or entities that want to issue their securities (shares or bonds) for sale in a public environment can trade their shares alongside other ‘issuers’.
Willing buyers and willing sellers place orders on the exchange’s trading system. Collectively, these orders constitute the market for a share. The aggregation and ranking of the orders defines the price at which a share will sell. The highest ‘bid’ (purchase price) and lowest ‘ask or offer’ (sale price) together are called the ‘double’. Investors in shares should thoroughly understand the difference between a Market Order and Limit Order.
In terms of the Capital Markets and Securities Act, 1996 (Cap. 89 of the Laws of Tanzania), any stock exchange operating in the country must be approved and licensed by the Capital Markets and Securities Authority (CMSA). Currently, only DSE has been so licensed.
13. What makes the stock exchange market different from other markets?
The main thing that makes the Stock Exchange Market different from other markets is the types of products traded, how they are traded, and how they are paid for and transferred.
14. What products are traded at the Dar es Salaam Stock Exchange?
15. What amounts can an Investor buy?
An investor can buy as little or as much as he or she can afford. It is also possible to invest very little money in groups of small investors pooled together by fund managers in the market.
16. What are the Benefits of Owning Shares?
17. How do I start trading?
One would need a Trading Account, which Smart Stock Brokers (T) Ltd will assist opening for you free of charge.
You would be required to submit the following to open the Trading account;
After opening the Account you would place an order to buy desired securities and Smart Stock Brokers would assist you all step of the way.
All processes can be done in person or through an email (see contacts) whichever is convenient for our client.
18. Why do I need to work through an authorized broker (Smart Stock Brokers (T) Ltd?
The Capital Markets and Securities Act (CMS Act) stipulates that only brokers that have been authorized by the Authority may enter orders to buy or sell securities listed on any exchange in Tanzania and Smart Stock Brokers (T) is licensed and authorized.
19. Can I use the DSE website or the DSE mobile app instead of a broker?
20. What is the minimum amount I can invest?
21. How frequently can I buy or sell shares?
As frequently as you want, during the market’s business hours when the exchange is open for business. The DSE market is open from 1000hrs to 1600hrs (EAT) except on weekends (Saturdays and Sundays) and public holidays.
22. How are the shares transferred to me (in hard or soft copy)?
Shares traded on DSE are in an electronic format, held in the Central Securities Depository maintained by the Central Securities Depository and Registry Company Limited (CSDR).
23. How can I track the ongoing value of the shares I’ve bought?
To help you track the frequent change of values of shares bought, Smart Stock Brokers sends daily market reports to keep you up to date. Also the daily market reports are found in the DSE website.
24. Why do share prices fluctuate?
Share prices move up and down due to changing market expectations about the listed company’s future performance which reflects through fluctuations supply and demand. If more people want to buy the shares of a particular company, its market price will increase. Conversely, if more people want to sell a share, its price will fall. This is because the market is always building future expectations into prices.
25. How do I know which shares to buy – and when to sell them?
26. When is the right time to buy shares?
27. What is a Capital Market?
Capital market is the market for securities where either companies or the government can raise long term funds. One way that the companies or the government raise these long term funds is through issuing bonds, which is where a person buys the bond for a set price and allows the government or company to borrow their money for a certain time period but they are promised a higher return for allowing them to borrow the money, the higher return is paid through interest that accrues on the money that the government or company borrows. Another way that the companies or government can raise money in the capital market is through the stock market, most of the time you don’t see the government as a part of the stock market, but it can actually happen so we need to include them. But how the stock market works is that the companies decide to sell shares of their stock, which is basically ownership in the company, to ordinary people and other companies, as a way to raise money. The people who buy the stock are usually given dividends each year, if the company has agreed to pay out dividends, so that is another possible return on their investment. The capital market actually consists of two markets. The first market is the primary market and it is where new issues are distributed to investors, and the secondary market where existing securities are traded. Both of these markets are regulated. Example in Tanzania Capital Markets and Securities Authority (CMSA) is in charge of regulating the capital market.
Primary Market refers to the market, where the company lists security for the first time or where the already listed company issues fresh security. This market involves the company and the shareholders to transact with each other. The amount paid by shareholders for the primary issue is received by the company. There are two major types of products for the primary market, viz. Initial Public Offer (IPO) or Further Public Offer (FPO). Primary markets facilitate the issuance of new securities e.g., the sale of new corporate stock or new Treasury securities. Initial Public Offering (IPO) is the process in which the shares of the private companies are listed for the first time in the stock exchange for allowing trading of its shares to the general public.
The primary market is where securities are created. It’s in this market that firms float new stocks and bonds to the public for the first time. An initial public offering, or IPO, is an example of a primary market. An IPO occurs when a private company issues stock to the public for the first time. The securities are firstly offered in the primary market to the general public for the subscription where a company receives money from the investors and the investors get the securities; thereafter they are listed on the stock exchange for the purpose of trading
Once a company gets the security listed, the security becomes available to be traded over the exchange between the investors. The market that facilitates such trading is known as the secondary market or the stock market. Secondary markets facilitate the trading of existing securities e.g., the sale of existing stock. Securities traded in secondary markets should be liquid.
The secondary market is where securities are traded after the company has sold its offering on the primary market, it is also referred to as the stock market. Example of secondary markets are New York Stock Exchange (NYSE), London Stock Exchange, and (NASDAQ) are secondary markets, Dar es Salaam stock exchange (DSE), Nairobi Stock Exchange (NSE) etc. The defining characteristic of the secondary market is that investor’s trade among themselves without the involvement of the issuing companies. In this market existing shares, debentures, bonds, options, commercial papers, treasury bills, etc. of the corporates are traded amongst investors. The secondary market can either be an auction market where trading of securities is done through the stock exchange or a dealer market, popularly known as over the counter where trading is done without using the platform of the stock exchange. It is also referred to as the stock market.