Basics of Stock Market - Beginner

What are shares and types of shares?

It is necessary to have an understanding of shares and their types in order to be able to understand the role of shares within a company. Shares can be used to raise capital by distributing it among investors.

Meaning and types of shares:

A share, also known as a unit or ownership, is an equal amount of capital of a company. Each shareholder has equal rights to profit and loss of the company. Equity shares and preference shares are the two types of shares.

Different types of shares

The Companies Act 2013 section 43 states that the shares of a company can be of one of two types.

  • Preference Share Capital

    Preferential shares have preferential nature. Priority shares that are held by shareholders will be paid first, after the creditors have settled their debts. Preferential shareholders don't have voting rights. Different types of preferential shares can be classified based on their structure, maturity terms, and nature of the dividend payment. These are some examples below.

    1. Cumulative Preference shares:

      • In subsequent years, arrears will be collected
      • You will not lose anything if you make a poor profit.
      • Guaranteed fixed dividend rate
    2. Non-cumulative Preference shares:

      • They will not make any money if they have insufficient profits.
      • Guaranteed fixed rate dividend
    3. Participating Preference shares

      • Share the excess profit
      • Guaranteed fixed rate dividend
    4. Non-participating Preference shares:

      • The surplus profit is not shared.
      • Guaranteed fixed rate dividend
    5. Convertible Preference shares

      • You can convert it into Equity shares after a specified period.
    6. Non-convertible Preference shares:

      • It can't be converted into Equity shares.
    7. Redeemable preference shares:

      • A company can repay shares after a set period of time, or sooner.
    8. You cannot redeem your preference shares

      • Only when the shares are repaid, can they be redeemed.
      • It doesn't have the redemption arrangement. The arrangement for redemptionis not carried by it.
  • Equity Share Capital

    Also known as ordinary shares, equity shares are also called ordinary shares. One of the most popular types of shares is equity shares. These shares are equal in price and confer various rights such as voting rights, dividends and so on. To the shareholders. These shares can be traded on stock exchanges and are issued at face value.

What is the purpose of shares being issued by companies?

The following benefits can be derived from the issuance of shares on the share market:

  • New finance
  • The company's market valuation
  • An investor can trade shares using this mechanism

Why should you invest in shares?

An investor who invests in the stock market has the potential for it to grow, rather than being saved in a savings account. You can make money with shares in two ways: Capital gains and income.

How do I buy shares?

A Demat account is required to purchase shares. It holds securities and shares in electronic form. You will require these documents to open an account.

  • PAN card
  • E-Aadhaar
  • Cancelled cheque

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