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Frequently Asked Questions


Q: What is a share?
 
A: A share (also known as stock) is essentially a portion of a company. The shareholders are the owners of a company. In theory, the owners make money when the company makes money, and lose money when the company loses money. As a shareholder, you have the right to participate in annual general meetings, receive reports and information, dividends, further issues of shares (rights and bonus).

Q: What is the difference between ordinary and preference shares?

A: Preference shares have preference over ordinary shares with respect to dividend payments and in the event of liquidation i.e. payments are made to preference share holders before any payments are made to holders of ordinary shares. Preference shares usually carry a fixed dividend amount, are usually redeemable at the option of the issuing company and generally have no voting rights. They may also have an option for conversion to ordinary shares.

Q: What is a derivative?

A: A derivative is a financial instrument (or an agreement between two parties) that has a value, based on (derived from) the expected future price movements of the asset to which it is linked, called the underlying asset, such as a stock, a commodity, a currency or a bond. There are many kinds of derivatives, with the most common being swaps, futures, and options.

Q: What is a bond?

A: A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance government expenditure.

Q: What is a stock exchange or stock market?

A: An organized and regulated financial market where securities (bonds, shares, derivatives) are bought and sold at prices governed by the forces of demand and supply. In theory, stock exchanges basically serve as
(1) primary markets where corporations, governments, and other incorporated bodies can raise capital; and
(2) secondary markets where investors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system.
The Stock Exchange of Mauritius was launched in 1989. The first stock exchange was opened in Amsterdam in 1602; the three largest exchanges in the world are the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange.

Q: Why invest on the stock market?

A: Despite the risks and volatility of the stock market, there are considerable advantages in investing money in stocks: Historically, the returns on investments in the stock market have been higher than those on investments held in other markets and assets. Other advantages are: ease of access (entry / exit), no need of high initial investment, low transactions and holding costs, the possibility of investing in diverse sectors and companies (thus, spreading the risks), receiving dividends while you profit from capital gains, transparency and the right to information as a shareholder.

 
Q: When I buy shares, who sells to me?

A: You buy from an existing shareholder, through his broker (investment dealer). Similarly, when you sell shares, you sell to somebody who is willing to buy shares to either become a shareholder or increase his shareholding.

Q: Can I buy shares directly from an existing shareholder?

A: No. The transaction goes through the stock market via the services of a broker (investment dealer), for example MCB Stockbrokers Ltd

Q: Why share prices go up and down?

A: Basically, the stock exchange is a market place like any other. Many factors can simultaneously affect prices both positively and negatively over different periods of time. The forces of supply and demand determine the price of shares. The more people want to get hold of a particular share, the higher its price will go. If people no longer want a share and few people are willing to buy it, people may have to offer it at a very low price in order to sell it. Factors that affect each of the following can also affect the price of shares:
1. Supply of and demand for the shares.
2. The inherent value of the shares, the company’s expected growth and expected dividends.
3. General economic environment (both local and in the company’s and country’s main markets).
4. Investor confidence

Q: What are joint accounts?

A: If two or more individuals want to share the same account, the account is called a joint account. In general, a joint account is opened by individuals with a close family or business relationship; parents/children, married or unmarried couples, business co-owners, etc. Joint accounts should be limited to people in whom you have complete trust. Participants in a joint account can restrict access and transactions by requiring two or more signatures.
One aspect of a joint account is the right of survivorship. If two or more persons open a joint account and one dies, we shall upon being informed, with appropriate supporting documents, suspend the account unless and until the surviving holder/ s and the heirs of the deceased holder reach an agreement on the operation of the joint account.

Q: Can a minor operate his account by himself?

A: No. His parent/s or legal guardian have to represent him.

Q: Can Foreigners invest in Mauritius?

A:  Yes. Foreign Investors buying or selling securities on the Stock Exchange of Mauritius do not need any prior approval from authorities in Mauritius. In addition, there are no taxes for foreign investors on dividends and capital gains and no exchange control. In addition to usual client take-on documents and formalities, foreign individuals also need a bank account with MCB Ltd for settlement of transactions and dividends. Foreign institutions should first fill-in and send us the Client Screening Form (see Resources section); we shall then revert with a list of forms and documents that are required on a case to case basis.

Q: When I pay you for shares that I bought, where does that money go?

A: Although you pay MCB Stockbrokers Ltd, the money, net of fees and commission, finally ends-up with the seller or sellers of the shares, after going through the clearing and settlement system. Similarly, when you sell shares the money we pay you is collected through the clearing and settlement system and comes in fact from the buyer or buyers of the shares you sold.

Q: When I buy shares, when can I sell them?

A: Although the shares are credited to your account after three business days (commonly called T+3), it is technically possible to sell them immediately after buying. However, it is our internal policy not to allow the sale of securities until and unless the purchase of these securities is already settled.

Q: How do I know how the companies in which I own shares are performing?

A: As a shareholder, you have the right to information. Companies listed on the stock exchange are required to report their performance quarterly. This is usually done through press communiqués and is also available on this website, where you can also see daily trading prices, company announcements regarding dividends and other entitlements and important events. In addition, an annual report is also sent to all shareholders to their registered address. An annual report is a report on a company's activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company's activities, financial performance and management’s comments on past performance and its views on future prospects. Most countries require companies to prepare and disclose annual reports. Listed companies are required to report more frequently.

Q: When prices of shares that I own go up, when and how do I receive my gains?

A: It is important to distinguish between unrealized (paper) gains and realized gains. So long as you do not sell your shares your gains shall remain unrealized (paper) gains. Remember that prices can go up on small volumes and situations where paper gains disappear before you actually sell your shares are not uncommon. So, if you have a price target at which to sell and you have hit that target, it might be wise to consider selling.

Q: What taxes do I have to pay and when?

A:  Dividends you receive are tax free. Capital gains realized on stock exchange transactions are also tax free.

Q: Who pays dividends and when?

A: Dividends are paid by listed companies through their corporate / share registries and, for all companies, depend on a combination of many factors, namely (amongst others): stability of earnings, age of the corporation, liquidity (availability of cash), needs for reinvestment of funds in the business,   the company’s dividend policy and history, and the company’s level of confidence in its future performance. Dividends are usually paid once or twice yearly.
Remember: brokers (investment dealers) do not pay dividends to their investing clients.

Q: What is the meaning of ‘cum-dividend’ and ‘ex-dividend’?

A: Purchase of a share cum-dividend means that the buyer is entitled to the next dividend payment. Trading cum-dividend means trading such that buyers, rather than sellers, qualify to receive the next dividend payment

Ex dividend date is the date, a few days before the record date, following which shares are traded on the basis that the seller retains the right to receive the dividend. Buying on or after that date means that the buyer is not entitled to the next dividend payment.

Q: What is a rights issue?

A: It is an invitation to existing shareholders to purchase additional shares in the company at a discount, whereby the number of shares offered to each shareholder is a fixed proportion of their shareholding at a given date. The shareholder is given an option to accept and subscribe or to renounce (transfer / sell) his interest in the rights. It is a means for the company to raise new funds for further development or to finance a new acquisition for cash or simply to re-structure its capital or debts.
A share trading cum-rights means that the buyer, rather than the seller, is entitled to the forthcoming rights issue. A share trading ex-rights means that the seller remains entitled to the forthcoming rights issue.

Q: What is a bonus issue?

A: It is a distribution in which additional shares are issued at no cost to shareholders registered as at a date in proportion to their existing holdings, as a result of a re-arrangement of a company's capital structure. No new funds are raised for the company. It is also known as a capitalization issue, whereby accumulated reserves are capitalized. A bonus issue has the effect of making the company's shares more marketable because of the increased number available and the lower market price.
A share trading cum-bonus means that the buyer, rather than the seller, is entitled to the forthcoming bonus issue. A share trading ex-bonus means that the seller remains entitled to the forthcoming bonus issue.

Q: What is a dividend in specie?

A: A dividend in specie is not paid in cash, it is paid in kind. It is usually paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation. Dividends in specie are relatively rare and most frequently are shares of other companies owned by the issuer. Such distribution is made when cash is not readily available, or allocating the physical asset is the better alternative, for example during mergers and acquisitions.

Q: Can I use (pledge) my shares to secure loans with financial institutions?

A: Yes, as long as the lending institution finds your shares acceptable. The formalities are quite simple.

Q: How can I invest on foreign markets?

A: Simple. All you have to do is sign a dealing agreement with us and a custody agreement with MCB Custody, submit usual account opening documents, tell us what you want to buy and expect our deal confirmation. Our fees and MCB Custody fees, taken together, are really competitive, especially when you trade important amounts, and considering the exciting opportunities that it brings to your investment portfolio. Capital gains realized on these investments are not taxable. Dividends paid can be subject to tax deduction at source in the respective country, but can be re-invested instead of being remitted to Mauritius, in which case it becomes taxable income here. 

Q: What are the functions of a share registry?

A: A share registry's main function is to provide services on behalf of the companies to the shareholders so that companies can concentrate on their core businesses. Some of the services offered by the registry include: share register maintenance, receiving, validating and processing of share transfers, printing and issuing new share certificates, dividend distribution by all modes including mainly direct deposit and cheque, registration of new shareholders, handling general enquiries, organising shareholder meetings and general assemblies, handling IPOs (Initial Public Offers), rights issues, bonus issues and share splits.

Q: What are the functions of a custodian bank?

A: Sometimes referred to simply as a custodian, the basic responsibility of the custodian bank is to receive and keep safe the assets of the investor. Custodian banks act as third party watchdogs responsible for protecting investors' assets. They have a number of responsibilities, including sending dividends, settling transactions, and providing portfolio valuations and other general communications to shareholders.  Custodians also calculate the NAV of mutual funds on a regular basis.  The NAV is the value per share of the fund and it determines the price of the fund.  Without the custodian bank, the investor would be relying on the fund manager's team to not only manage their money, but also report the results.  So, without custodian banks there would be a conflict of interest and more risk.

Q: What are the functions of the Financial Services Commission (FSC)?

A: The Financial Services Commission (FSC) was established as the regulator for the non-bank financial services sector under the Financial Services Development Act 2001. It licenses, regulates and supervises non-bank financial institutions in Mauritius, which includes institutions involved in Insurance and Pensions, Capital Market operations, Leasing and Credit Finance as well as Global Business activities.
The FSC is also committed to the sustained development of Mauritius as a sound, stable and competitive international financial services centre. Consequently, the FSC promotes the development, fairness, efficiency and transparency of non-bank financial institutions and capital markets in Mauritius whilst ensuring the protection of investors.
 
Q: What happens to my shares or account when I die?

A: The moment we are informed of your death, with supporting documents (death certificate), we shall ‘suspend’ your account. Then your heirs will have to contact us with an affidavit or notarial deed + their respective identity documents so that we make the necessary amendment to your account name. Thereafter, your heirs will have three options: leave the shares in your account, sell the shares or transfer the shares to their individual accounts. The third option however requires the approval of the companies in which shares are owned plus what it commonly called an “acte de partage” (notarial deed). For now, we wish you a happy long life!


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