The stock market is one of the most well-known investment platforms among Malaysians. It was through investment in unit trusts, did Malaysians first get exposed to the stock market. So what do you need to know about investing in the stock market, outside of unit trusts?
First, open up either a CDS or nominee account with a registered broker
First of all, CDS means “Central Depository System”, and all CDS accounts are managed by Bursa Malaysia Berhad. An individual can choose to create a direct CDS account or a CDS Nominee account. To proceed, it is recommended to open a direct CDS account for Malaysians as the only advantage of a CDS accounts for candidates is that you as a shareholder do not need to worry about documents related to company training.
Familiarize yourself with different investment products on the stock market
There are different investment products available on the stock market, such as stocks, warrants, exchange-traded funds (ETFs), exchange-traded bonds and Sukuk, and real estate investment trusts (REITs). Before you start, it is advisable to familiarize yourself with the various investment products and find out which one is right for you. For example, stocks tend to be the most popular type of investment.
On the stock market, you get a small percentage of a public company by buying the stocks. The main ways to earn profits from stocks are capital gains and dividends. Capital gains are based on investor demand, while dividends are based on company profits.
Understand brokerage fees
Brokerage fees are fees or commissions charged by brokers to execute trades or provide professional services on behalf of clients. Some of these fees are used for buying, selling, consulting, trading, and distribution of stocks on the stock market.
Understand the different accounts
You should also understand the different accounts such as cash account, margin account, and contra account. Unless you are very experienced and confident in your trading skills, it is always best to use a cash account. It is best not to consider a margin account because it allows you to borrow money to buy stocks. Your broker will charge you interest or more for the right to borrow this money and use your securities as collateral.
Using leverage to buy your shares is precarious due to conditions and events known as margin calls. For your information, a margin call is a broker’s request to an investor to deposit additional funds or securities to reduce the margin account to a minimum maintenance margin (based on its own specific formula).
Buying through Lots
If you are investing in shares in Malaysia, a minimum of one contract is required equating to one lot,, and one lot is equal to 100 lots. For example, suppose you decide to buy 1 share of Nestlé Malaysia, whose share price is RM70. So you will need to pay RM7,000 for this minimum transaction. That’s why some people call Nestlé an “expensive stock.”
Important dates to know
Some important dates to note are announcement dates, ex-dividend dates, entitlement dates, and payment dates. You also need to stay informed about the Malaysian economy. Keep a close eye on the health of the Malaysian economy, government policy changes, central bank interest rate decisions, investor confidence levels, exchange rates, and the performance of Malaysian and overseas stock markets. All of these can affect and determine a good time to invest.
Capital Gains or Dividend taxes
A capital gain is a profit you will earn when an investment is sold at a price higher than the original purchase price. Dividend income is paid to shareholders from company profits. Because dividends tend to represent low returns, your tax liability is relatively small compared to capital gains. This means that dividends are a long-term tax option. As with capital gains, taxes often depend on whether your investment is short-term or long-term.
Like any investment platform, the stock market has its advantages and disadvantages. It could be one investment class in your investment portfolio. Please ensure you have enough information before buying your first investment in Malaysian stocks. You can read more about this topic by checking out our other articles!