What advantages do investors derive from investment in shares?

CPA-Financial-Management-Section-3 Revision kit

Advantages of Investing in Shares

1. Income in form of dividends
When you have shares of a company you become a part-owner of that company and therefore you will be entitled to get a share of the profit of the company which come in form of dividends. Furthermore, dividends attract a very low withholding tax of 5% only.

2. Profits from capital appreciation
Share prices change with time, and therefore when prices of given shares appreciate, shareholders could take advantage of this increase and set their shares at a profit. Capital gains are not taxed in Kenya.

3. Share certificate can be used as a collateral
A share certificate represents a certain amount of assets of the company is which a shareholder has invested. Therefore this certificate is a valuable property which is acceptable to many banks and financial institutions as security, or collateral against which an investor can get a loan.

4. Shares are easily transferable
The process of acquiring or selling shares is fairly simple, inexpensive and swift and therefore an investor can liquidate shares at any moment to suit his convenience.

5. Availability of Investment Advice
Although the stock market may appear complex and remote to many people, positive advise and guidance could be provided the people, stockbrokers and other investment advisors. Therefore, an investor can still benefit from trading in shares even though he may not be having the technical expertise relevant to the stock market.

6. Participating in company decisions
By buying shares and therefore becoming a part-owner in an enterprise, a shareholder gets the right to participate in making decisions about how the company is managed. Shareholders elect the directors at the Company‚Äüs
Annual General Meetings, wherethe voting power is determined the number of shares an investor holds since the general rule is that one share is equal to one vote.

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