Mastering Online Share Trading in Nepal: A Step-by-Step Guide to Buying and Selling Shares
Investors Falling into Fines for Not Transferring Shares After Selling: How to Avoid Them
Investors have been facing fines for selling shares without transferring them, resulting in some paying fines exceeding the profit from their share sales. The latest data reveals that investors incurred fines totaling 2 crore 73 lakh 62 thousand 724 rupees over six months. According to CDS and Clearing, from July to December last year, investors paid fines amounting to this sum.
These penalties, referred to as ‘closeout penalties,’ have seen a significant rise, with investors paying a closeout penalty of 93 lakh 47 thousand rupees in January alone. In the previous fiscal year, investors paid a total of Rs 4 crore 17 thousand as closeout penalties. Given the current trend, it is anticipated that the penalty amount will surpass last year’s figures.
With the convenience of trading shares from home through the Trade Management System (TMS), investors must ensure timely transfer of shares after selling them. Transactions are only finalized once the seller transfers the shares through the online system. Upon transfer, the shares are deducted from the seller’s demat account, while the buyer receives them in theirs.
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In the last financial year 2079/80, investors paid a total of Rs 4 crore 17 thousand as closeout penalty. Looking at the growth rate of the current year, it seems that such penalty amount will increase compared to last year.
Failure to transfer sold shares incurs a penalty of 20 percent of the share’s value as a closeout penalty. Of this penalty, 25 percent is allocated to the government, with the remaining 75 percent going to the affected party. For instance, if shares are sold for Rs 1 lakh and not transferred, the seller faces a penalty of Rs 20,000, with 25 percent allocated as government tax and the rest compensated to the buyer. The government levies a 25 percent tax as a windfall.
Purnaprasad Acharya, CEO of CDS & Clearing, emphasizes the importance of investor awareness to avoid closeout penalties. He suggests that investors should familiarize themselves with the share-selling process upon entering the stock market. Brokerage firms should also educate clients about post-sale procedures when opening accounts.
Presently, shares are automatically transferred to buyers’ accounts, while sellers are responsible for initiating transfers. Acharya highlights the importance of calculating the Weighted Average Cost of Capital (WACC) and considering the holding period for determining capital gains tax.
Structural complexities prevent the automatic transfer of shares post-sale. In cases where shares are sold but not transferred, buyers can seek compensation from the broker. The broker deducts penalties from non-compliant sellers and compensates affected buyers.
Krishan Giri, Chairman of Sun Securities, notes that both new and seasoned investors face closeout penalties. New investors, particularly those trading Initial Public Offerings (IPOs), often overlook the transfer process, assuming automatic transfer post-sale.
After selling shares, investors receive notifications prompting transfer initiation. Despite reminders via email and phone calls, some investors fail to transfer shares promptly due to technical issues or incorrect contact information.
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To avoid penalties, investors must ensure timely transfer of shares. Giri advises investors to be mindful of the Electronic Debit Instruction Slip (EDIS) availability, particularly during book close periods. Timely transfer prevents the imposition of the 20 percent penalty.
Here’s how to transfer shares:
- 1. Calculate WACC (Weighted Average Cost of Capital) through Meroshare.
- 2. Declare the holding period.
- 3. Proceed with Electronic Debit Instruction Slip (EDIS) after confirming the share sale.
By following these steps diligently, investors can avoid fines and ensure seamless share transactions. Here is step by step procedure after selling share.
1. Calculate WACC (Weighted Average Cost of Capital) through Meroshare:
- To calculate the WACC using Meroshare, investors must first log in to their Demat account on the platform.
- Navigate to the ‘My Purchase Source’ section and select the shares that have been sold.
- The shares will be listed according to their acquisition dates and methods.
- Tick the boxes next to each share to select them. Then, mark the purchase price of each share.
- If any adjustments to the purchase price are needed (e.g., due to mergers, acquisitions, or bonus shares), provide an explanation in the remark section.
- After confirming the purchase prices, proceed by clicking on the ‘Declare’ button and then ‘Confirm Update.’
- This process completes the declaration of the share prices sold, contributing to the calculation of the Weighted Average Cost of Capital.
2. Declare the Holding Period:
- After completing the WACC calculation, investors need to declare the holding period of the shares sold.
- Log in to Meroshare and navigate to the ‘My Holding’ tab within the ‘My Purchase Source’ section.
- Select the company whose shares have been sold and view the details of shares received in the demat account on various dates.
- The system will display the number of days each share has been held in the demat account.
- Investors can adjust the holding period if necessary and provide remarks if any changes are made.
- After verifying the holding period, proceed to declare it by clicking on the appropriate buttons.
3. Proceed with Electronic Debit Instruction Slip (EDIS) after Confirming the Share Sale:
- Once the WACC calculation and holding period declaration are complete, investors can proceed with the Electronic Debit Instruction Slip (EDIS).
- Access the ‘My EDIS’ menu within Meroshare.
- Under the ‘Transfer Share’ tab, a list of pending EDIS transactions will be displayed.
- Select the shares sold according to the sales bill, either individually or collectively.
- Confirm the selection and proceed to declare the transaction.
- After confirming the declaration, submit the transaction.
- This process completes the EDIS procedure, facilitating the transfer of shares to the buyer’s account after a successful sale confirmation.
In conclusion, navigating the intricacies of share transactions, including calculating the Weighted Average Cost of Capital (WACC), declaring the holding period, and processing the Electronic Debit Instruction Slip (EDIS), is crucial for investors to avoid penalties and ensure seamless transactions.
By diligently following the steps outlined above, investors can mitigate the risk of fines and delays associated with non-compliance. These processes, facilitated through platforms like Meroshare, empower investors to manage their share transactions efficiently and responsibly, contributing to a smoother and more transparent trading environment. With awareness and adherence to these procedures, investors can navigate the complexities of the stock market with confidence and accuracy.
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