Following is a step by step guide for investing in mutual funds, ETF, and index funds in Pakistan stock exchange for new investors.
You would need following items to open PSX account:
- Attested copies of National Identity Card of the applicant.
- Attested copies of National Identity Card of the Joint Holders and or Nominee(s) (if applicable)
- Attested copies of passports of the applicant, Joint Holders and or Nominee(s) (in case of non-residents)
- Copy of the letter of authorization from the Account Holder(s) of the person authorized to trade in my/our accounts (if other than the account holder).
- A list of Transaction fee, Commission to be charged by the Broker and other CDC charges to be levied.
One thing I don’t like about investing in PSX is a long drawn process of providing above document and then going through cumbersome brokerage firms. You can invest and trade in the stock market through TREC (Trading Rights Entitlement Certificate) holders/ brokerage firms recognised by PSX and licensed by the Securities & Exchange Commission of Pakistan (SECP). Now we can understand that this is requirement in a developing country like Pakistan, but I would I could invest in PSX online from my own linked bank account. Opening a brokerage account at PSX should be made easy. Because after this brokerage account, you will get a client id number and then you will get a CDC sub account. The CDC Sub Account is the account through which you can actually trade in the stock market.
The story doesn’t end here. You are also supposed to open a CDC Investor Account. This account is opened at the CDC, thereby adding to greater safety and individual custody of your shares. You must make sure that you are assigned a Unique Identity Number (UIN). It is this number against which all your brokerage accounts and transactions will be recorded. You will also need to deposit initial funds to purchase shares. Make sure that it is not a cash deposit.
For Pakistani investors, another diversified low risk investment option could be PSX ETFs. An ETF is a tradable fund that has the risk and return characteristics of a portfolio of shares whilst having the diversity inherent in a mutual fund. In recent times, ETFs which track indeces have become quite popular due to their long term nature and low risk profile, the world over. In PSX, you can start with these ETFs, even with a small amount, such as Rs 5000/- to Rs 10,000/. An ETF can be purchased in a lot of 500 units in the regular market or even one unit can be purchased in the odd lot market. You can then do ruppee cost averaging every month into these ETFs for long term to build your wealth.
Pakistan Stock Exchange has launched its first two ETFs on March 24, 2020, namely the UBL Pakistan Enterprise ETF (UBLP-ETF) and the NIT Pakistan Gateway ETF (NITG-ETF). The investment strategy of UBL Pakistan Enterprise ETF is to provide long term capital appreciation and dividend yield to investors. The fund aims to track 9 companies with highest free float market capitalization of KSE 100 Index (excluding Oil & Gas related sectors). The investment strategy of NIT Pakistan Gateway ETF (NITG-ETF) aims to track the underlying NIT Pakistan Gateway Index (NITPGI). The ETF includes the largest stocks forming part of the KSE 100 Index so as to cover atleast 50% of the total market capitalization of the KSE 100 Index at all times.
Well after selecting which shares to buy, you should place your orders through your stock-broker (or through the online application provided by your brokerage firm). After placing the order and execution of the same, you should get a Trade Confirmation against your executed order.
Now one question I often get as which is the best brokerage firm in Pakistan for investing in PSX? Especially overseas Pakistanis ask this question a lot. I would say that do your own due diligence and look at the ones which are for a long time with management of integrity.
Investing in Pakistan is not easy, but when done right, the rewards are very high.