INVESTING WISELY:

Basic Investing Guidelines

Level 4, West Block, World Trade Centre, Echelon Square, Colombo 1, Sri Lanka. Tel: 94-11-2356456(Hunting) Fax: 94-11-2445279 E-mail: info@cse.lk Web: www.cse.lk

The Colombo Stock Exchange (CSE) is the organization responsible for the operation of the stock market in Sri Lanka. 27 Stock Broker firms are registered with the CSE to trade in equity and debt securities through the Colombo Stock Market. You can significantly boost your chances of investment success by becoming aware of the return on your investment, how to trade successfully by making the appropriate choices and taking steps to avoid typical errors made. When you begin investing, you must always be comfortable with your investment decisions. Identifying your personal comfort zone helps in controlling the risks associated with investing in the stock market. Why? Helps avoid emotions from taking control of trading decisions. High returns also means high risk. Those who are too complacent may ignore risk. Helps you avoid borderline trades that usually turn out poorly. Helps you recognize when risk has increased. Encourages you to take profits when very little profit potential remains. Minimizes the possibility that you'll be forced to make difficult decisions under pressure. Being comfortable with your investment decisions means that high pressure situations should occur rarely. Being in a "comfort zone" means, owning a portfolio that contains only suitable, wellresearched and understandable investments. Moreover, you should always keep personal notes of all your transactions. When investing in the Stock Market, an investor should Plan: Formulate a personal investment plan or policy. Identifying the Purpose of Investment: Is the purpose to retire with a rich portfolio? Or make a profit in a short time for other monetary requirements. Set goals and objectives: Would you be investing for a longer period in a company or in companies that are bound to grow rapidly in a short time period. What are you trying to accomplish? Identify risks relevant to you and your portfolio: Higher the Risk, higher the return. Hence, a highly profitable investment could sometimes backfire and therefore the profit made on the investment might be negative. Set appropriate benchmarks to measure the success of your portfolio: It can be through the profits of companies you have invested in, comparison with companies in different sectors.

Asset allocation: What percentage of your total portfolio will you allocate to the Stock Market? Never put all your money in one mode of investment. Diversification: Allocating to different asset classes is the initial layer of diversification. Dont place all your eggs in one basket. Diversification does not eliminate risk, however. It is merely a tool that can reduce the risk you face with your investments. Impact of Inflation: Higher the inflation, higher the impact on the share prices and the amount you can invest in the market due to the drop in the availability of your surplus money.

Your personal investment plan will help you adhere to a sound long-term policy even when market conditions are unsettling. Have a good plan and stick to it. Trading With Confidence Both long-term and short term investors should consider asking the following questions: Is this a good entry point? Is this an appropriate time to invest in that security? Is the security fairly priced? How much profit do I expect to earn? How much capital is at risk? What's the probability of earning a profit? Risks associated with the Stock Market: what you as an investor must consider. Risk: Capital Loss This takes place as a consequence of a Drop in Share Price. Therefore, if the share price drops below the initial price of purchase, there is a loss of capital on your investment. Advise: Regularly following current market prices, corporate actions and also keep an eye on the company financials. Risk: Opportunity Loss This is as a consequence of foregoing a higher Income from an Alternative Investment Advise: Each investment alternative will have different cycles, and risks and returns. By diversifying and holding different investments such as Treasury Bills and Bonds, Land, Stocks etc., you can reduce the risk of lost income if one investment does not give as high return as another.

Risk: Missed-Profits Loss This is as a consequence of not selling at the right time. Investors sometimes become greedy and hold on to stock hoping it will increase further in price. However, the share price might plummet. Therefore, there is a risk of missed profit. Advise: A broker should be able to advise you about selling your shares at a reasonable price. However, you as an investor should know whether you are willing to wait for the prices to increase and be ready to accept defeat if the share prices drop before you sell. It is your capital and your decision to make. Have an upper and lower percentage limit for the price of your share to fluctuate within and stick to the plan. Base your decision on this and then also seek advice from professionals as to whether they back your decision.

Diversification of Assets 1. Create a Diversified portfolio by investing different assets such as Treasury Bills and Bonds, Shares, Fixed Deposits, and Real Estate etc. 2. In the stock market investors have the opportunity to invest in different companies from different sectors. Companies quoted on the CSE have been categorized into 20 business sectors. 3. More unrelated the securities in the portfolio, lower the impact any one stock will have on the entire Portfolio 4. Diversification will reduce Company/Sector/Industry Specific Risk For example: Say Mr. A holds securities in Companies A & B Company A under performs whereas Company B performs exceeding expectations Returns from Company B may be sufficient to offset negative returns of Company A

Buying Shares at the CSE If you want to invest in 1000 shares of XYZ Company, you need to: 1. Inform your broker of the name of the company, price and amount of shares you want to purchase. 2. The broker will try and match your order. 3. Once the order is processed, he will inform you of the shares you were able to purchase at the price you required. Once the Buying process is complete, you will: 4. Receive a bought note by post. Note: - Please save all such paperwork. - This is very important incase your order was not executed properly. - This said document will inform you if your broker has bought shares to your account without your knowledge.

Selling Shares at the CSE If you want to divest 500 shares of XYZ Company, you need to: 1. Inform your broker about your divestment name of company, of shares to be sold, price and amount 2. The broker will try to match your order 3. If your order is not matched, he will inform you and negotiate a suitable price, when the order is matched, the order is processed. If the broker sells your shares, you will: 4. Receive a sold note of the transaction. Note: - This document is important. - This document confirms the transactions that have taken place with your approval. Bought/Sold notes shall be dispatched by the Broker to the clients, before commencement of the next trading session. Bought/Sold notes inform you of all the transactions that have taken place in your account on a said date. Important Note! Ensure you have given the CDS your correct correspondence address and please be mindful that you receive all Bought/Sold Notes and the CDS statement. If you have not received the said documents within 5 working days, please inform your broker and make a note of your complaint.

How to read your CDS Statement The CDS Statement gives a summarized version of all the transactions that have taken place in your CDS account and shows you the remaining share balance. A monthly and/or quarterly statement is issued to all active account holders (account holders who have carried out at least one transaction during a particular month) at the end of the particular month/calendar quarter. An annual statement is issued to inactive account holders (account holders who have not carried out transaction during the year, having balances in their accounts) as at 31st December.

Ensure that you Check all bought/sold notes to ensure that your broker has carried out your instructions to buy/sell shares. If any unauthorized purchases/sales have been made in your CDS account, you should immediately complain to the CEO/Compliance Officer of your Broker Firm in writing. If the Firm fails to respond to your complaint within 7 days of the complaint, you are advised to inform the CSE immediately. Any errors/omissions or other queries regarding your CDS statement, should be brought to the immediate notice of the CEO/Compliance Officer of your Broker Firm. Given below are the steps that you could take when you require to complain about certain transactions in your personal portfolio: If your broker has purchased/sold shares you have not approved, then please ensure to lodge a complaint with the Compliance Officer of the said Broker Firm. Your bought/sold notes will be evidence as to the fact that you have not approved such transactions but your account has processed such transactions. Moreover, lodge a complaint with the compliance officer at the CSE, ensuring all paper work is provided. Important point! Please ensure such complaints are sent to the Compliance officers of both companies sooner rather than later. You, as an investor, are responsible for your CDS account transactions. If a transaction has occurred without your permission, please inform the required authorities immediately. That ensures you have received your bought/sold notes and you have gone through such notes and have seen dis-similarities when you compare it to the notes you manage at home with regards to your transactions at the Stock Market.