To take the right steps for becoming a seasoned investor, you must understand that you can invest in a variety of stock market instruments. These include shares, derivatives, mutual funds and bonds. Among these, there are around 18 million investors in the stock/equity market. Stocks or equities account for around 12.9% of the total investments in India.
Wondering what are shares, and how they are different from stocks? When a company wants to raise capital for either expanding its business or for operational requirements, it has two options: either borrowing money or issuing stocks that provide part-ownership of the company to investors. Shares are the smallest denomination of a company’s stocks, indicating a portion of ownership of the company.
In simple words, a share indicates a unit of ownership of the particular company. If you are a shareholder of a company, it implies that you as an investor, hold a percentage of ownership of the issuing company. As a shareholder you stand to benefit in the event of the company’s profits, and also bear the disadvantages of the company’s losses.
Now that you know share definition, you must understand that broadly share can be of two types:
These are also known as ordinary shares, and it comprises the bulk of the shares being issued by a particular company. Equity shares are transferable and traded actively by investors in stock markets. As an equity shareholder, you are not only entitled to voting rights on company issues, but also have the right to receive dividends. However, the dividends - issued from the profits of the company - are not fixed. You must also note that equity shareholders are subject to the maximum risk - owing to market volatility and other factors affecting stock markets - as per their amount of investment. The types of shares in this category can be classified on the basis of:
Equity financing or share capital is the amount raised by a particular company by issuing shares. A company can increase its share capital by additional Initial Public Offerings (IPOs). Here is a look at the classification of equity shares on the basis of share capital:
Here is a look at the equity share classification on the basis of definition:
On the basis of returns, here is a look at the types of shares:
These are among the next types of shares issued by a company. Preferential shareholders receive preference in receiving profits of a company as compared to ordinary shareholders. Also, in the event of liquidation of a particular company, the preferential shareholders are paid off before ordinary shareholders. Here is a look at the different types of shares in this category:
Thus, there are two types of shares: equity shares and preferential shares. Both have their own distinct sub-categories. After knowing what are shares and its types, you are all settled for starting your investment journey in stock markets. Always remember to zero in on a trusted and reliable financial partner to open your Demat account and trading account. Rely on a broking company which can provide you with cutting-edge trading platforms along with real-time market updates.