Students need to know about investing in the stock market of Nepal.
Most students rely on their parents for pocket money. They receive their allowance for food, entertainment, and shopping. Some have enough packet money, while others struggle to save their monthly allowance.
Kids are not allowed to handle large sums of money for obvious reasons. But parents teach their children that money is evil. “Money doesn’t grow on trees.” That is what most kids hear.
“I can’t afford to buy you expensive toys.” That’s another one.
All these activities are doing more harm than good. It teaches the child to have a scarcity mindset. And when they grow up, they learn the same about money.
Even schools fail to teach children about money. They focus on academic education and fail to teach real-life education about money. Schools make job seekers rather than job creators.
Financial education is crucial because money is involved in almost every aspect of our lives. The basics of earning money, spending, saving, and investing are a must-know for everyone.
So, as a student, if you learn about these aspects of personal finance early in life, it can be beneficial.
This article discusses the importance of investing for students—particularly in the stock market. Let’s begin with the basics.
The Basics of Investing In The Stock Market of Nepal
What is a stock?
A stock is part ownership in a publicly listed company. It means that a small portion of the company’s shares belongs to you. So, you will be a shareholder of the company.
Stocks are often called shares as well. You can use them interchangeably.
What is a stock market, and how does it work?
A stock market is a place where stocks are traded (or exchanged). If you own stocks of a publicly listed company, you can sell them to other individuals. Then, they will become the new shareholders.
When a stock is traded, a new price is set.
Let’s take an example here. Suppose you own 100 units of stocks of ABC company. You decide to sell them on the stock exchange at Rs. 450 per unit. If someone buys your stocks at that price, it will be the new market price of the stock. Again, if someone else sells their stocks of ABC company at Rs. 455 per unit, then that will be the new market price.
A stock market is often also called a stock exchange. There is only one stock exchange in Nepal—the Nepal Stock Exchange (NEPSE).
How to buy stocks in NEPSE?
To start investing in the stock market of Nepal, you first need to understand the two different types of markets.
1. Primary market
A primary market is where you buy the stocks of companies when they are issued for the first time. Stocks are issued for the first time through an IPO (Initial Public Offering).
Stocks issued in the primary market will not yet be listed on the stock exchange (NEPSE). It is done after the stock allocation process has been completed.
Companies issue IPOs at a base price (usually Rs. 100 per share). So if you want to buy 10 units of IPO, you must invest Rs. 1000.
2. Secondary market
Investors can buy/sell stocks of companies already listed on the stock exchange.
However, unlike in the primary market, you must purchase stocks at the market price in the secondary market.
Investing in the secondary market is riskier and requires more knowledge.
What are the requirements to invest in the stock market of Nepal?
The main requirements are:
- Demat account: It is an account that stores your stocks in a digital form. Demat account is compulsory to invest in both primary and secondary markets.
- MeroShare account: This account allows you to access your shares electronically. You need this account to apply for IPOs and check your stock transactions.
- Bank account: You need to link your bank account to your Demat and MeroShare accounts.
- Trading account: This account is necessary if you want to invest in the secondary market. You don’t need it to invest in the primary market. However, if you decide to sell the shares you bought from the primary market, you will probably need a trading account later.
Learn more about investing in the stock market from this free e-book.
Why students should invest in the stock market of Nepal
1. Early advantage
One of the crucial aspects of investing in the stock market is starting early. Warren Buffett—one of the world’s greatest investors—started investing when he was 11. Even though his investment did not do well at the time, his experience taught him valuable lessons.
Warren gained more knowledge and insights and became a spectacular investor. He is an inspiration to many investors in the world today.
As a student, you should not invest in the stock market and aim to become rich early. Most beginners often think that they can get rich quickly by investing in the stock market. But instead, they end up losing a lot of money.
Don’t make that mistake.
Your goal should be to start small and learn as much as possible.
2. Easy to invest in
You do not need a large sum of money to start investing in the stock market. You can start by investing in the primary market with just Rs. 1000.
Investing in stocks (especially the primary market) is not complicated. You need to understand about IPOs and how stocks are traded.
Starting a business or investing in real estate is more complex and requires huge capital. But, stocks are easy to invest in.
Moreover, stocks are liquid assets. You can sell them quickly and convert them into cash whenever you need it.
It is best to talk to someone who knows about the market and take some advice.
3. Make money
If you invest wisely, you can make good money by investing in stocks. There are mainly two ways to earn money in the stock market:
- Capital gains
Companies pay a portion of their annual income to the shareholders, known as dividends. The two forms of dividend payments are cash dividends and bonus dividends. Cash dividends are paid directly via bank account transfers. Bonus dividends are paid in the form of additional stock units for shareholders.
Capital gains are the profit you make by selling your stocks. Suppose you bought a stock at Rs. 300 per unit and then sold it at Rs. 450 per unit. Your capital gain in this transaction is Rs. 150 (Rs. 450 – Rs. 300 = Rs. 150).
4. Learning & other opportunities
Investing in the stock market is an excellent way to learn about personal finance and money management. As we said, financial education is an essential part of life.
A stock market is a place where you can make a lot of money. But it is also a place where you can lose a lot of money. Failure teaches you the most crucial life lessons. So, it is better to fail and learn earlier in life.
You will become wiser with your financial decisions.
With good knowledge about investing and finance, you can start a career in this sector in the future. Many financial institutions require good analysts and decision-makers. Your expertise can be in high demand. Companies will offer good money for you to join their organization.
Besides the academic curriculums, students should take a keen interest in other real-life activities. There are many things you learn with experience rather than reading them in textbooks.
Investing is one of the things that you must experience firsthand. You cannot become a good investor merely by reading about it in books or watching it online.
Students should consider investing in the stock market of Nepal because they will have an early advantage of gaining more insights and experience. Furthermore, the stock market is easy to invest in. You can make good money if you do it well.
Disclaimer: Investing in the stock market should be done with proper knowledge and guidance. You can lose your money in the stock market if you fail to do it wisely.