How to Buy Exchange Traded Funds (ETFs) on the Nairobi Securities Exchange (NSE)
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Investing in Exchange Traded Funds (ETFs) on the Nairobi Securities Exchange (NSE) offers investors an affordable way to access diversified assets such as stocks, bonds, or commodities.
The NSE, established in 1954 and headquartered in Nairobi, lists ETFs like the ABSA NewGold ETF, which tracks gold prices in Kenyan shillings. ETFs on the NSE are traded like shares and are exempt from capital gains tax in Kenya.
Understanding ETFs and Their Benefits
ETFs are pooled investment vehicles designed to mirror the performance of an index, commodity, or group of assets. Common benefits of investing in ETFs on the NSE include diversification, lower management costs compared to mutual funds, and tax advantages.
However, prices of ETFs fluctuate with market movements, and returns are tied to the performance of the underlying assets.
Investors can review available ETF listings and their performance details on the NSE Website (www.nse.co.ke).
Step 1: Choose a Licensed Broker
Buying ETFs on the NSE requires a licensed broker since individuals cannot trade directly on the exchange. Stockbrokers on the NSE, such as AIB-AXYS Africa, SBG Securities, and Kingdom Securities Limited, are licensed by the Capital Markets Authority (CMA). When selecting a broker, investors should consider:
- Trading commissions and transaction levies.
- Availability of online or mobile trading platforms.
- Customer support and market research tools.
A complete list of licensed brokers on the NSE is accessible via the NSE Website.
Step 2: Open a CDS Account
A Central Depository System (CDS) account, operated by the Central Depository and Settlement Corporation (CDSC), is mandatory for holding ETFs electronically. Investors can open a CDS account through their broker by submitting identification documents, proof of address, and bank details.
The CDS account number is issued within days of application.
Step 3: Fund the Trading Account
After account setup, investors should fund their trading accounts using bank transfers, mobile money options like M-PESA, or other payment methods provided by the broker. Purchasing ETFs on the NSE requires trading in multiples of 100 units. Minimum deposit requirements vary by broker.
Step 4: Research Available ETFs
Before purchasing ETFs on the NSE, investors should research the available options. Currently, the ABSA NewGold ETF is a popular choice, tracking gold prices. Key factors to review include the ETF’s factsheet, underlying asset performance, historical returns, and associated fees.
Market data is available through the NSE Website, broker platforms, or financial news portals.
Step 5: Place a Buy Order
To buy ETFs, investors place orders via the broker’s platform or through direct contact. They must specify:
- The ETF to purchase, such as the ABSA NewGold ETF.
- The number of units, adhering to the NSE’s trading minimums.
- The order type, either a market order or limit order.
NSE trading hours run from 9:00 AM to 3:00 PM EAT, Monday to Friday. Investors receive confirmation once the order is processed.
Step 6: Settlement and Confirmation
The NSE operates on a T+3 settlement cycle, meaning trades are settled within three business days. Purchased ETFs are credited to the investor’s CDS account. Brokers provide trade confirmations detailing the transaction for record-keeping.
Step 7: Monitor Your Investment
Investors can monitor their ETF holdings through the broker’s platform, the NSE App, or the CDSC Investor Portal. Strategies such as regular investments, portfolio rebalancing, and staying updated on market conditions can help optimize returns.
Additionally, the NSE hosts weekly investor education sessions every Wednesday to help investors understand market dynamics.
Additional Tips for Investors
- Start small to understand ETF trading on the NSE.
- Take advantage of tax benefits, as ETFs are exempt from capital gains tax.
- Use technology for real-time tracking and trading.
- Understand that ETF prices vary and returns are not guaranteed.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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