In simple terms, shares are defined as a unit of a company's capital. Learn in detail about what is share & various types.
In the Indian stock market, there are several categories of stocks that trade regularly. These can be categorized based on various characteristics.
1) category based on stock classes
2) category based on market capitalization
3) category based on ownership
4) category based on dividend payment
5) category based on fundamentals
6) category based on Risk
7) category based on price trends
1. Classification based on stock classes
This is one of the major factors utilized to categorize stocks and is based on the voting rights of the shareholders. Some stocks do not deliver the shareholders the strength to vote at the annual conferences of the company where the decisions regarding the management of the corporation and such issues take place.
Unlike these stocks, some different stocks enable shareholders to contribute to the decision-making in the business matters, by casting their votes. An additional aspect of a stock shareholder has is the alternative to cast numerous votes in matters about several facets of the business.
2. Classification based on market capitalization
Stocks can be categorized based on the market capitalization of the corporation, which is the cumulative shareholding of a business. This is computed by calculating the current price of the company stock with the cumulative volume of shares notable in the market. Documented below are the categories of stocks based on market capitalization.
i. Large-Cap Stocks
These are oftentimes stocks of Blue-chip corporations which are established industries with large reserves of money at their disposal. It is fascinating to note that the bigger size of the large-cap corporations does not imply that they thrive more promptly. Small stock, corporations tend to surpass them over a longer time frame. But large-cap stocks do arrive with the advantage of enabling the investors to acquire higher revenues in comparison to the minor and mid-cap companies stocks, assuring that the capital is maintained over the long term period.
ii. Mid Cap Stocks
These are the stocks of medium-sized corporations that have a market capitalization of INR 250 Crore to about INR 4000 crore. These corporations have a well recognize market value which brings along the advantage of reasonable growth, as well as the resilience that is usually supported by being a developed player in the market. Mid-cap corporations have a promising track record of steady expansion and are very identical to blue-chip stocks barring their size. In the long term, these stocks do and thrive nicely.
iii. Small-Cap Stocks
As is symbolic of the name, small-cap stocks have the least value in the market as compared to their companions. These are small-sized corporations that have a market capitalization of up to INR 250 crores and have the potential to evolve at a promising rate in the coming prospect. Investors who are ready to perpetrate to a long term and are not very concerned about the existing incomes, and are ready to stand their ground during price volatility, can make considerable profits in the coming prospect.
As an investor, you can purchase these stocks when they are accessible at a reasonable rate during the preliminary phase of the corporation. There is no surety about how the corporation will operate in the market since they are moderately new. Because these small-cap corporations are highly volatile and their expansion influences the significance and earnings of the corporation to a massive extent.
3. Classification based on ownership
Based on ownership, the ownership of stocks that investors can acquire delivers them distinct rights and expansion potential.
i. Preferred & popular stocks
Preferred stocks deliver investors a limited portion of earnings every year, unlike common, stocks. The rate of preferred stocks is not as touchy as a common stock but it is common stock that receives the advantage of preference when the corporation has excess money to disseminate. At the time of business liquidation, it is the company’s creditors, cardholders, debenture holders who get preference over the preferred shareholders. Common stockholders have voting privileges, a right that shareholders do not celebrate.
ii. Hybrid Stocks
Some corporations deliver preferred shares with the possibility of adapting them to common shares, with terms and conditions, at a specific point in time. These are recognized as hybrid stocks or convertible preferred shares and may or may not have authorized rights such as voting.
iii. Stocks with embedded derivative choices
Stocks that appear with the embedded derivative alternative means that they 'putable’ and are not as normally accessible. A ‘callable’ stock has the choice of being purchased back by the corporation for a specific rate at a specific point in time. Furthermore, a ‘putable’ stock delivers its holder to sell it to the corporation at a specific rate and time.
4. Classification based on dividend payment
i. Growth Stocks
These stocks do not reimburse huge dividends as the corporation likes to reinvest the revenue to facilitate it to thrive rapidly, thus, the name growth stocks. The significance of the shares of the corporation surges considerably with fast expansion which, in turn, enables investors to profit through increased returns. It is nicely suited for those investors who strive for long-term development potential and not an additional source of revenue. Growth stocks carry an increased risk than their peers.
ii. Income Stocks
In comparison to growth stocks, income stocks hand out a bigger revenue about the rate of the share. Greater revenues translate into company income, thus, the name Income Stocks. Income stocks are expressive of a strong and reliable corporation that can pay for constant dividends but these are also corporations that do not guarantee very high potential. This means that the stock rate of such corporations may not surge much. IT is a reasonable investment for those investors who strive for an additional source of income through moderately low-risk stocks.
The dividend income in income stocks is not taxed and therefore is considerable for investors of low-risk profile who need long-term investment. You may need to utilize the dividend-yielding capacity of such companies to discover stocks that deliver huge dividends. The dividend yield is an estimate of your earning as investors (earning per share) from your investment, utilizing the total dividends received. This figure can be concluded by dividing the dividend by the share price that was announced by the company. It is then jotted down in the form of a percentage. For example, if the stock price is INR 100 and it delivers a dividend of INR 5 per share, its yield will be 5 percent.
5. Classification based on fundamentals
Investors who speculate that a share price always runs parallel to the innate value of the company’s share, Also, the value investing investors, correlate the share prices with factors like per-share earnings, revenues, etc to attain an intrinsic value per share.
i. Overvalued Shares
These are shared with rates that surpass the intrinsic value and are contemplated as overvalued.
ii. Undervalued Shares
These categories of shares are prominent amongst the value investors as they understand that the price of the share would surge in the coming prospect.
6. Classification based on Risk Taking Appetite
The risk category of stocks differs relying on the share price variations. Stocks with greater risk always reward the investor with increased returns, while low-risk stocks give poor returns.
i. Beta Stocks
The beta or the measure of risk is concluded by computing the price volatility of the stock. Beta can be positive or negative which indicates whether it shifts in sync with the market or against it. The greater the beta, the greater is the risk quotient of the stock. If the beta value is further than 1 it means that the stock is extra volatile than the market. Many investors with proficiency in this criterion utilize it to make their investment verdicts.
ii. Blue Chip Stocks
Blue-chip stocks are stocks of those corporations that have little liabilities and stable earnings and which pay consistent dividends. These very enormous and well-recognized corporations that have a lengthy record of practical financial performance are a reasonable bet for Investors who strive for prudent avenues of investment.
7. Classification based on price movements
This classification is based on the action of stock prices in duo with or against the business revenues.
i. Defensive Stocks
These are stocks that are relatively untouched by economic circumstances and are when the market conditions are bad. Food and beverage(FMCG) companies' shares are a popular example.
ii. Cyclical Stocks
Stocks of corporations that are largely influenced by economic conditions and glimpse high price instabilities with market shifts are cyclical stocks categories of stocks that thrive quickly during the boom cycle but the expansion is held up in the sluggish economy. Automobile stocks in this category.
What Is the Meaning Of Share?
In modest words, a share demonstrates a unit of holding of a specific organization. If you are a shareholder of an organization, it indicates that you as an investor, hold a percentage of ownership of the issuing organization. As a shareholder, you share the profits of the company and the burdens office company’s losses also.
Categories Of Shares
Now that you understand share meaning, you must understand that sizably share can be of two types:
1) Equity shares
2) Preference shares
• Equity Shares Definition
These are moreover recognized as common shares, and it includes the majority of the shares being issued by a particular corporation. Equity shares are transferable and traded vigorously by investors in stock markets. As an equity shareholder, you are not just authorized for voting rights that the company issues but moreover have the right to obtain dividends. Still, the dividends - allocated from the revenues of the company - are not fixed.
You must furthermore note that equity shareholders are subject to absolute risk - owing to market volatility and different characteristics influencing stock markets - as per their amount of investment. The categories of shares in this category can be classified based on:
• Classification Of Equity Shares based on Share Capital
Equity financing or share capital is the volume raised by a specific company by issuing shares. A company can boost its share capital by additional Initial Public Offerings (IPOs). Here is a glance at the category of equity shares based on share capital:
1) Authorised Share Capital: Every business, in its Memorandum of Associations, needs to stipulate the utmost amount of capital that can be generated by issuing equity shares. The limitations, still, can be enhanced by paying additional fees and after completion of specific legal procedures.
2) Issued Share Capital: This suggests the specified portion of the company’s capital, which has been given to investors through the issuance of equity shares. For instance, if the nominal value of one stock is Rs 200 and the company issues 20,000 equity shares, the issued share capital will be Rs 40 lakh.
3) Subscribed Share Capital: The amount of the issued capital, which has been consented to by investors is recognized as subscribed share capital.
4) Paid-Up Capital: The amount of money spent by investors for holding the organization’s stocks is understood as paid-up capital. As investors expend the whole amount at once, subscribed and paid-up capital refer to a similar amount.
Conclusion
Thus, there are 2 categories of shares: equity shares and preferential shares. Both have their different sub-categories. After understanding what are shares and their categories, you are all finalized for launching your investment journey in stock markets in 2021. Always keep in mind to do trading with a syndicate and credible financial partner to open your Demat trading account and investing account. Contact us, We at Trend Gurus can deliver you cutting-edge trading platforms along with real-time market updates, tips, and guidance with deep insights of sensex and nifty.
0 comments:
Post a Comment
Thanks for giving your valuable inputs, TRENDGURUS