Investing is one’s choice whether it is equity or debt bonds through companies or government. Since there are many investment alternatives, like placing money in a bank on fixed deposit account to earn interest, or committing it into corporate or treasury bonds, some investors face a challenge of choice.
And with the current growth and development of the financial sector in East Africa due to the influence of international companies, more complicated financial instruments are introduced.
The development of the East African capital markets has also allowed Rwandans to participate in any of the region’s investment opportunities, a part Tanzania whose capital account is not liberalized.
Only institutional investors and Rwandans in diaspora have showed active involvement in either debt or equity investment opportunities available at the region’s stock exchanges.
Only few individual investors based in Rwanda participate because they have basic information and knowledge about these financial products.
Unlike bonds which are debt securities, owning stocks or shares means you are a partial owner of the company, and you get voting rights in certain company issues.
With the Rwanda Capital Markets Advisory Council (CMAC) making stride efforts to bring more companies on board, it is expected that early next year we could have a company listed on the Rwanda Over The Counter (OTC) market.
This will give us an opportunity of owning some of the lucrative businesses in the country. But what does it mean?
When you buy these shares, also known as equities or stocks, you become a part-owner of that business which could generate returns through dividends. But the return is not guaranteed.
Since you have become a shareholder, you have a say in the company’s affairs by voting at company meetings and, of course, the ability to share in its fortunes.
It should be noted that if the company does well, the value of your investment rises but if the company does badly or makes losses your shares could fall in value and you don’t get dividends in that period.
Bond instruments almost offer assured returns in most cases since their rate of return doesn’t fluctuate much periodically.
However, the value of every equity portfolio fluctuates in relation with the market index from period to period. This in the case of investing in listed companies.
The fluctuation could impose pain upon investors owing to the volatility of the market and that is why such risk of equity investments is sometimes matched by higher returns in the equity market.
But some companies issue shares without necessarily listing on the stock market especially those which start life with friends and family members as shareholders.
These businesses are called unlisted firms and their shares are often referred to as ‘unquoted’. But listing.