In 2010, the investment buzzword will be Initial Public Offers. An IPO is the first sale of stock or shares by a private company to the public.
IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.
In Rwanda, the government is set to sell some of its shares in the beer and soft drinks maker BRALIRWA, the largest insurer SONARWA and also some of its stake in telecom giant MTN Rwanda.
The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, being listed on a stock exchange comes with heavy regulatory compliance and reporting requirements.
Companies much issue a prospectus to prospective investors showing the audited financial health of the company. That way, investors can gauge for themselves whether buying a piece of that company is a worthwhile investment.
When you decide to buy a piece of BRALIRWA, the investment broker will decide to allocate you your full shares only if the total investment is equal or less to that that is sought by government for the sold stake.
If the IPO is oversubscribed, meaning if the investors sought to buy more shares that those available, shares will be allocated according to some rations which will usually favor giving full allocation to small national investors and limit the investment of big foreign investors who have the financial muscle.
After allocation of shares, you will get a share certificate which is a like a title deed for your investment. It will only show the number of shares because as soon as the shares start trading the cost per share will rise or fall.
You can check the value of you investment by checking the price of your share in stock exchange market reports which are usually posted in the media.
If your shares appreciate considerably you can approach a broker and sell them. However share prices can also fall. Only long term investors really gain from investing in shares.
You stand to benefit from the stock market by accumulating savings in small amounts over time though investment, earning income through dividends when companies declared profits and decide to distribute part of the profits to shareholders, interest income on bonds, wealth or capital gain whenever the prices of securities listed in the market go up.
However, it is important to note that a one -off investment in the Capital market does not make sense. It is therefore the accumulative investment over time that creates opportunities for growth in wealth through the Capital Market.
Listed securities are easily acceptable as collateral against loans from financial institutions and also offer liquidity, when one needs to convert their securities into cash urgently.