BENEFITS OF INVESTING IN STOCK MARKET INSTRUMENTS in zambia by investment clubs

24. How safe is my investment in stock exchange instruments?

All companies that have their securities listed or quoted on the stock exchange are required to publish in the national print media, information that can materially affect the value of the price of one’s securities. Failure to publish information that can materially affect a company’s share price in the national press can result in severe penalties for the directors and management of a company.

25. How does one benefit from investing in shares?

There are two principal ways in which a party benefits from investing in shares. The first is through the payment of a dividend, whilst the second is via the price appreciation of the shares that are bought, the share’s capital gain. Taken together, these two factors determine your return on holding shares in a company. If for example you bought a share for K10 and the share price has risen to K12 and you have received dividends worth K 1 from the company that issued the shares, then your total return from holding the share is 30%- the K2 (price appreciation) + K1 (dividend)/K10 (price paid for the share).

26. What is a dividend?

A dividend is usually a cash payment to the shareholders of a company. It is drawn from the cash reserves that a company has at the end of the year. Sometimes dividends can be issued by companies in other forms such as bonus shares.

27. How are dividends divided up among a company’s shareholders?

Dividends are divided up among ordinary shareholders according to how many shares they own in a company. If for example a company pays dividends worth K1,000and an investor owns 10% of a company’s shares, then that investor will receive dividends worth K100-10% of K1,000.

28. How often does a company pay dividends to shareholders?

This is entirely up to the directors of the company and is dependent on how much free cash the company has. Generally though, most companies pay out dividends at least once a year. If a company has been operating favourably, it sometimes pays out dividends twice a year-usually after every six-month period. A dividend that is paid out during the course of a company’s operating year is known as an interim dividend. A dividend that is paid out after the close of a company’s Financial Year is known as a final dividend.

29. Are dividends taxed?

Yes! Withholding Tax (WHT) of 15% is payable on dividend income to Zambia Revenue Authority (ZRA). The amount is usually deducted at source by the paying company. However, to encourage individuals to invest in shares Government waived WHT on dividends payable to individuals by listed companies. If for instance a person received dividends worth K100 what will actually be paid to that person will be K100 (Before this waiver of WHT it would have been K85 because K15 (15% of K100) would have been deducted by the paying company to pay ZRA).

30. What is capital gain/loss?

Capital gain/loss is the price appreciation /depreciation in the value of the shares held by an investor. It is the difference between the price at which an investor bought the shares and what the shares are worth today. If for example the price of a share was K10 when an investor bought it and it is worth K15 today, then the person who bought the shares has enjoyed a capital gain of 50% (K15-K10=K5)/ K10. If however the price of the share has fallen to K5 then the investor that bought the shares at K10 has netted a capital loss of 50% (K5-K10= -K5)/K10

31. Is capital gain taxed?

No! There is absolutely no tax on capital gain in Zambia.

32. What recourse do I have if I feel that my interests as a share investor are not being protected?

You can lodge a complaint with the SEC Zambia. The SEC Zambia is empowered by the Securities Act to ensure that the interests of investors are adequately protected.

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