Think of shares like tickets to a blockbuster movie. When you buy a ticket, you’re not just a viewer, you’re part of what makes the movie a hit. Similarly, in the stock market, owning a share means you own a piece of a company. It’s like having a slice of pizza or holding a ticket to a popular movie – you’re in on the action!
Now, imagine millions of people holding tickets to different movies. Together, you all influence which ones become blockbusters. Similarly, when a company thrives, the value of your share can increase. So, owning shares means you’re part of the success story.
With quick access to the internet and online brokerage services, you can invest in any share in just a few minutes! Read further to understand the shares in detail, their types, features, benefits of owning shares, how to buy/sell, and more.
You will Learn About:
What are shares?
Shares are per unit capital of a company. When a company needs funds for growth or expansion, it can offer shares to investors.
These shares represent part-ownership in a company. Whenever you buy shares of a company, you become a shareholder of the company. Here, you are entitled to dividends and other benefits.
Shares – Key Points!
- Shares denote part ownership in a company.
- Equity shares and preference shares are the two main types of shares that companies issue.
- Both equity and preference shares are further subdivided into different types.
- Companies issue shares to raise funds for their growth and development.
Features of shares
Some of the salient features of shares are as follows –
- The value of shares is determined based on the demand and supply in the market. It constantly fluctuates.
- Few shares may allot you voting rights.
- Shares are perpetual in nature, i.e., they do not have a specific maturity date.
Types of shares
Broadly, shares can be divided into two main categories: equity and preference. Let’s read each type in detail.
- Equity shares
Equity shares are the most common types of shares that are offered by companies. Also called ordinary shares, equity shares form the bulk of the share capital of a company.
Features of equity shares
Common features of equity shares are as follows –
- Equity shares are issued at face value, but they trade at market value.
- A company issues equity shares in the primary market through an IPO (Initial Public Offering). After the shares are subscribed and the company is listed, the shares trade in the secondary market, which is the stock market.
- Equity shares carry a high level of investment risk.
- Dividend income is a possibility if the company earns profits in a financial year and distributes the same among its shareholders.
Types of equity shares
Equity shares are subdivided into various types based on broad parameters. Let’s understand each of them.
Classification based on share capital
Depending on the share capital that they represent, equity shares can be divided into the following types:
| Types of equity shares | Meaning |
| Authorised share capital | The maximum capital a company can raise by issuing equity shares is called authorised share capital. |
| Issued share capital | Issued share capital is the capital raised by issuing a specific number of equity shares to the public for investment. |
| Subscribed share capital | Subscribed share capital is the part of the capital for which the company has received subscriptions from investors. It is a part of the issued share capital. |
| Paid-up share capital | The portion of the capital for which the investors have invested the amount is called the paid-up share capital. This is a part of the subscribed share capital. |
Classification based on returns
Depending on the type of returns, equity shares can be sub-divided into the following types:
| Types of equity shares | Meaning |
| Dividend shares | Shares that give regular dividends are called dividend shares. |
| Growth shares | If the company reinvests the profits and does not declare dividends, it can use the same for growth. This growth leads to an increase in the market value of shares. Such shares are called growth shares. |
| Value shares | Value shares are those that trade on the market at a discount in comparison to their intrinsic value. |
Other types of equity shares
| Types of equity shares | Meaning |
| Bonus shares | Shares issued to existing shareholders without a cost are called bonus shares. |
| Rights shares | Existing shareholders get the privilege to subscribe to the additional issue of shares through a rights issue. You can buy such shares at a preferential rate within a specified period. |
| Sweat equity | Sweat equity shares are issued to company employees to compensate them for their hard work and efforts. |
| ESOPs | Equity Stock Ownership Plans (ESOPs) are equity shares issued by companies as a part of employee compensation. ESOPs allow employees to buy the company’s shares at reduced rates, hold them through the vesting period and then sell them at a higher rate for earning returns. |
| Voting shares | Shares that earn shareholders the right to vote are called voting shares. |
| Non-voting shares | Shares that do not have voting rights are called non-voting shares. |
Preference shares
Preference shares are also part of the share capital of a company. However, holders of such shares get preference in dividend payments and also at the time of liquidation, hence the name.
Features of preference shares
Some of the salient features of preference shares are as follows –
- Preference shares are not commonly available on the stock exchange for trading
- In some cases, preference shares may promise fixed dividends
- Preference shares generally don’t allow voting rights
- At the time of liquidation, preference shareholders are given first preference
Types of preference shares
Here is a look at some of the different types of preference shares issued by companies –
| Types of preference shares | Meaning |
| Cumulative and non-cumulative preference shares | If there is no dividend declaration in a year, the dividend payment is carried forward to the next year in cumulative preference shares. Non-cumulative shares, however, do not carry forward dividends. |
| Participating and non-participating preference shares | Participating shares are entitled to surplus profits over and above the dividend declared. Non-participating shares do not receive any surplus profit. |
| Convertible and non-convertible preference shares | Shares that can be converted to equity shares (after specified conditions are met) are called convertible preference shares. Non-convertible shares cannot be converted to equity shares. |
| Redeemable and irredeemable preference shares | Redeemable shares have a fixed tenure, after which the company buys back such shares at a predefined price. Non-redeemable shares continue in perpetuity. |
Other types of shares
- Treasury shares: These shares are also known as reacquired shares. Treasury shares are the ones that the company wants to hold with itself in its treasury, hence the name. The company can sell back these shares in case it needs to raise capital. Since the shares are within the company, they have no voting rights, and no dividends are paid for them.
- Class A, Class B, and Class C shares: These shares are different classes of stock in a company, each with its own set of rights and privileges. For instance, Class A shares usually have the most voting rights, but they are more expensive than Class B and Class C and may not be available to the general public. Class B shares are bought and sold to the public exchange. Whereas Class C shares are given to employees as part of their compensation packages.
The specific details of Class A, Class B, and Class C shares can vary from company to company.
Why does a company issue shares?
Companies issue shares primarily to raise capital for their operations, growth, and expansion. Companies can also issue equity shares for the following reasons –
- To raise capital for various operations
- To get listed in the share market
- To gain visibility
- To expand their market reach
How to buy and sell shares in India?
Buying and selling shares in India involves a few steps. Let’s look at them.
Buying shares
- Open a Demat and trading account: You will need to open a Demat (short for Dematerialized) account and a Trading account with a registered stockbroker. This can be done either online or by visiting the broker’s office.
- KYC verification: Complete the Know Your Customer (KYC) process by providing your identity and address proof, as well as your PAN card. This step is mandatory by law.
- Add funds to your account: In order to purchase shares, you need to transfer funds into your trading account.
- Research and select stocks: There are over 5,000 companies listed on the Indian stock exchanges. Selecting the best company according to your budget, risk appetite and other essential factors can be a tedious task. Hence, Tickertape provides an easy solution: A comprehensive stock screener. Read this article to learn how to use it effectively.
- Place an order and track: Log in to your trading account, select the stock you want to buy, and place an order. You can choose between a market order (buys at the current market price) or a limit order (buys only at a specific price). Alternatively, you can connect your broker account to Tickertape and complete your research, build your watchlist, and invest in the shares directly. Check now!
Selling shares
- Decide to sell: Based on the market conditions and your investment goals, decide the right time to sell the shares.
- Log in to your trading account: Access your trading account using your credentials.
- Place a sell order: Place an order to sell the stock. Again, you can choose between a market order or a limit order.
- Monitor your order and evaluate your investments: Keep an eye on the order status. Once your sell order is matched with a buyer, the shares will be debited from your Demat account. Evaluate your new portfolio and rebalance the funds with your preferred investment class.
Key Differences – Stock vs Shares
The following are some of the essential points of difference between stock and share:
Ownership
Shares owned by investors in multiple companies are collectively known as owning stocks. If the same practice of holding shares is in one company, the investor is the owner of shares.
Denomination
Investors looking to own stocks have the privilege of choosing from a pool of stocks having different values. On the other hand, investors who own shares in only a specific company have the option to own multiple shares. But the shares held by them would be of the same or equal value.
Paid-up value
In terms of nature, stocks are fully paid up. Shares could, however, be either partly or wholly paid up.
Nominal value
It refers to voting rights stockholders share when the stock is issued. It varies from the market value, depending on the demand for and supply of the shares.
Conclusion
Shares denote ownership in a company. The most common types of shares are equity and preference, which are further subdivided into many types based on various parameters such as returns, share capital, etc. Remember, equity investments are highly risky. Consult your advisor before investing in shares.
FAQs
- What are shares and stock?
Both the terms, shares and stock, are used interchangeably to refer to the equity ownership in a company. Technically, shares are units of stocks. Both represent ownership in a company. By investing, you get to participate in the profits that companies earn.
- What are the types of shares?
Equity and preference shares are the two main types of shares. Further, both equity and preference shares are classified into different types based on various parameters like share capital, returns, etc.
- Which share is best to buy?
Each type of share has its merits and demerits. It is wise to assess your investment strategy, financial goals, and risk appetite before investing in any stock.
