Kenya boasts a diverse economy, improving infrastructure, and a young, dynamic population.
But high interest rates and instability in the banking sector have left many Kenyan stocks trading at multi-year lows, offering investors a great entry point for exceptional long-term returns.
So, how do you get started investing on the Nairobi Securities Exchange (NSE)? Here are a few tips.
Start By Bulletproofing Your Finances
While investing in stocks is one of the best ways to build wealth over time, a positive return is not guaranteed.
Volatility, however, is pretty much a sure thing.
So, to minimize risk, it’s crucial that your finances be ironclad.
- In any given month, do you spend less than you earn?
- Have you paid off all of your high-interest debt?
- Do you have an emergency fund equal to at least six months of living expenses?
If you’ve answered each one of these questions with a hearty “Yes!” you’re in a great place to begin thinking about investing on the NSE.
Find an Online Broker
Before you can start putting your money to work on the NSE, you must first open an account with a licensed stockbroker.
There are more than 20 brokers trading on the NSE, but I’m partial to those that offer an online trading platform. Online trading gives you the freedom to buy and sell shares whenever and wherever you want.
Here’s a list of Kenyan stockbrokers that presently offer online trading:
- AIB Capital (Website)
- Dyer & Blair (Website)
- Faida Investment Bank (Website)
- Genghis Capital (Website)
- Kingdom Securities (Website)
- NIC Securities (Website)
- SBG Securities (Website)
- Suntra Investment Bank (Website)
Mind the Fees
Almost all of the above brokers will charge an account opening fee, an account maintenance fee, or both.
The amount of these fees varies from broker but is typically about Ksh1,200.00 (roughly US$12.00) to open the account and Ksh100.00 (roughly US$1.00) per month to keep it active.
There is no minimum amount required to fund your account, but when you decide to purchase a stock, you must buy at least 100 shares.
At this moment, the least expensive share listed on the NSE was priced at KES 1.05. You could, therefore, buy 100 shares of this company (Mumias Sugar) for KES 105.00 plus the broker’s commission. But, if you’d like to purchase shares of Jubilee Holdings (currently priced at KES 470.00), you’ll need to invest a much larger sum (KES 47,000.00).
In addition to the account maintenance fee, your stockbroker will charge commission and fees on every trade you execute. The commission rate is the same across all stockbrokers and is equal to:
- 1.78% of the total value of transactions less than KES 100,000, or
- 1.50% of the total value of transactions more than KES 100,000.
The Documentation You’ll Need
In order to open an account you’ll need to provide your broker with the following:
- Two color passport size photos
- Your national ID document or passport (a notarized copy is acceptable for investors living outside Kenya)
- A signed CDS-1 Form (click here for sample)
Most brokers will also ask for one or more of the following: a copy of a recent utility bill, the first page of your bank statement, or a copy of your PIN certificate.
When the process is complete you will be the proud owner of a Central Depository System (CDS) account.
A CDS account is an electronic account that stores all of the shares you own. Think of it as a satchel (or portfolio). You can move this satchel from stockbroker to stockbroker, and all of the shares that you have accumulated move along with it. So, if you find the level of service from your broker to be lower than you expected, rest assured that you can easily take your business elsewhere.
After the account is set up, your broker will instruct you how to fund it and how to place an order to buy shares.
Do You Live Outside Kenya?
If so, you may find it difficult to collect dividends. Typically, Kenyan companies deliver dividends via direct deposit into a specified bank account or by a cheque denominated in Kenya shillings, which can be next to impossible to cash in the US or UK. And Kenyan banks require you to appear in person in order to open a local bank account.
Therefore, unless you’ve got plans to visit Nairobi in the near future, make clear to your broker that you would like to open a nominee account. This allows the broker to collect dividends on your behalf and to deposit them directly in your trading account.
So, there you have it. Follow these steps and you’ve got everything in place to start investing in Kenyan shares.
But how do you choose that first stock? We’ll cover that in the next post.
It’s Your Turn
What questions do you have about investing on the NSE? Let me know in the comments, and I’ll do my best to get answers for them.
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