Nowadays, zero investment strategy is quite popular in Nepal. Zero investment strategies typically involve forming a long portfolio in one set of securities and a short portfolio in another. This kind of strategies is famous with the student and household people.
Let’s take one example to illustrate this strategy. Recently, Mahila Laghubitta Bittiya Sanstha Limited (MLBSL) issued IPO with a face value of Rs100. It was listed on Nepal Stock Exchange at around Rs400 and after 22 days of listing it reached Rs 5200. It means that the person who invests Rs1000 got Rs 52000 within a month.
Here we can see that:
Profit = Sales- investment
So, a zero investment strategy is investing only profit. Here, we can see that the person can withdraw Rs 1000 and can invest the remaining profit amount in other stock for the long term so they make money from that.
Let’s illustrate more about this. Commercial banks are the safest landing for all the investors in Nepal. So, if the person invests that profit amount to any commercial bank especially the bank with good fundamental statics, they might get a good return in the future. For example: If he/she buys 100 shares of NMB at the current market price which is Rs 420 for 3 years and you can see that the dividend distribution of NMB Bank Ltd. Is quite good in the last five years. So, we can assume that they will provide at least 15% of the bonus share in the coming years as well. Hence, we can calculate the bonus share for the coming 3 years:
1st year, 15% of 100 + 100 = 115 shares
2nd year, 15% of 115 + 115 = 132 shares
3rd year, 15% of 132 + 132 = 152 shares
So, after three years you can make the 152*420 = Rs 63840
Hence, within three years of time one person can make over 63000 from zero investment in secondary market.
Furthermore, this the real-time to make an entry with zero investment policy in Nepal because every month there are a couple of IPO in the primary market. The primary market is the safest place to enter the market with minimal investment and maximum profit. In Nepal, all most every company has a face value of Rs 100, so you can buy the share with Rs 1000 and can make a good profit and could enter into the secondary market.