Purchase of shares

Investing in shares of companies is one of the formal methods of investment. These trading activities take place at a stock exchange. Investors can buy shares from an initial public offer made by companies and from the secondary market, which is the stock exchange.

The secondary market operations in Sri Lanka are handled by the Colombo Stock Exchange and shares of all the listed companies are traded here. The companies which are registered in the Colombo Stock Exchange are also called the listed companies. The Colombo Stock Exchange manages all the trading activities of the stock exchange and the Securities and Exchange Commission of Sri Lanka regulates all the activities of the Colombo Stock Exchange.
A company can issue two types of shares.

• Ordinary shares
• Preference shares

As an investment method, ordinary shares have a cashable easily market and therefore ordinary shares are more attractive than other types of shares. Ordinary shareholders are treated as the owners of the company and the capital is called the owners’ equity due to the features attached to the ordinary shares.
Ordinary shares
Ordinary share holders of a company are entitled to the following benefits.

• Dividend payments:

Dividends are paid out of the net profit of the company at the discretion of the management. Dividends are not paid out at the periods of not earning net profits but will be paid at a higher percentage when the company earns higher profits. 

• Ownership and management:

Limited companies are managed by the board of directors. The company directors are appointed from the shareholders of the company. Therefore, the shareholders have the opportunity to participate in decision making process of the company.

• Voting rights:

Ordinary shareholders are able to attend the different types of meetings of the company and they enjoy the voting rights at such meetings based on their number of shares holding.

Investment Portfolios
Instead of investing only in one type of asset category, investors can invest in number of assets as a basket of investments. This is called a portfolio of investment. It gives the investor an opportunity to diversify his investments. A portfolio may comprise deposits in banks and other financial institutions, shares and other types of investments. Investing in a portfolio will reduce the various risks inherent to different types of
instruments and ensures stable level of income over the period of time.
Unit Trusts
Unit trusts are trusts build up by the funds received from its unit holders. Unit holders will purchase units from the trust. Since unit prices are comparatively affordable than other types of investments, even small scale investors can invest in unit trusts. The unit trusts are managed by expert professionals in the various investment fields. Therefore, high returns can be expected at comparatively low risks.