What’s a stock?
A stock represents a stake in a company. When you own even one stock, you are a part owner in the company with a claim on every asset and every penny in earnings of the company. However, this does not mean that you have an actual say in the operations of the company. Your say in the company can increase if you own a substantial stake in the shares of the company - let’s say 10%. It is this claim on assets and earnings that gives value to the stock which otherwise is just a piece of paper.
Ways to make money from stocks:
The first way is when a stock you own appreciates in value. If you hold a stock and its value increases, you have made unrealized gains. By selling the stock on that higher price you can lock in your gains.
The second way is when stock pays dividends - a pay out that companies make to their shareholders out of their profits depending on their dividend policies.
Some companies pay dividends in every quarter, some a bullet pay out at the end of each year and some do not pay dividends at all.
Usually companies that are well established and have huge reserves pay a regular and substantial dividend where as companies that are young or in an expansion phase would rather reinvest the amount back in the business to create value for shareholders.
How to buy stocks?
The most common way is through a broker. In Pakistan stock brokers provide a platform for trading stocks and other securities. This is different than giving investment advice. For investment advice relating to buying and selling of securities, analyses reports regarding securities and other professional services you can always contact advisers such as GAAINS Pvt Ltd.
Taxes on Stocks:
In Pakistan, like many other countries, both ways of earning from stocks are taxed. When you gain through capital appreciation Capital Gains Tax arises and is automatically adjusted by your broker. When you gain through dividends withholding tax arises and an amount net of this tax is sent to you by the investee company through dividend warrant (cheque). For rates and other details regarding taxes on capital market please feel free to contact us.
In line with its vision, GAAINS spares no effort to reach out to all the segments of the society with its advisory services. Our focus is not restricted to high net worth individuals and large sized institutions, rather at GAAINS we believe that investment advice is most essential to people and institutions from all walks of life and social strata.
Pakistan Stock Exchange-Brief History
Pakistan Stock Exchange Limited (PSX) (formerly: Karachi Stock Exchange (Guarantee) Limited (KSE)) was established on September 18, 1947. It was incorporated on March 10, 1949. Only five companies were initially listed with a total paid-up capital of 37 million rupees. The first index introduced in KSE was based on fifty companies and was called KSE 50 index. Trading used to be carried out on open out-cry system. Computerized trading system called Karachi Automated Trading System (KATS) was introduced in 2002 with a capacity of 1.0 million trades per day and the ability to provide connectivity to an unlimited number of users.
KSE 100 Index:
The KSE-100 Index was introduced in November 1991 with base value of 1,000 points. The Index comprises of 100 companies selected based on sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Exchange. 35 companies are selected i.e. one company from each sector based on the largest market capitalization and the remaining 65 companies are selected on the basis of largest market capitalization in descending order. This is a total return index i.e. dividend, bonus and rights are adjusted. It is revised after every six months for inclusion or exclusion of companies based on above mentioned criteria.
• KSE 30 Index:
In June 2005, another benchmark index named KSE-30 was introduced with a base value of 10,000 index points to provide investors with a sense of how large companies' scrips of the Pakistan’s equity market are performing over a time-period. Thus, the KSE-30 Index is designed in such a way that it becomes comparable over a period of time similar to other indicators that track various sectors of country’s economic activity such as the gross national product, consumer price index etc. KSE-30 Index is calculated using the free-float capitalization methodology.
• KMI 30 Index:
Introduced in September 2008, the objective of KSE-Meezan Index (KMI) is to serve as a gauge for measuring the performance of Shariah compliant equity investments. Besides tracking performance of Shariah compliant equities, its construction will increase investor trust and enhance their participation. KSE-Meezan Index is also calculated using the “Free-Float Capitalization”.
• ALL SHARES ISLAMIC Index:
The index was introduced on November 18th, 2015 as a joint effort by the management of Pakistan Stock Exchange (PSX) and Meezan Islamic Bank Limited. The principal objective of the All Shares Islamic Index is to gauge the performance of the Shariah compliant segment of the equity market. Accordingly, it is important that all those shares which meet the Shariah screening criteria should be included in the All Shares Islamic Index to ensure completeness of the index and adherence to the core objective of the proposed All Shares Islamic Index.
The companies included in this index are selected based on six-factor selection criteria. The first criterion is that the core business of the company must be permissible in Islamic Shariah and on ethical grounds. Other five factors determine the financial compliance of the companies. After selection, these companies pass through another six-stage filter to exclude defaulter, non-operational companies along with all Mutual Fund companies.
Base value for this index has been set at 15,000 points. Review and Re-composition will be carried out bi-annually.
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