Share Market Tips.
What is the share market? Know about the transactions in this marketplace.
What is the share market?
We often come across terms like shares, stock market and phrases like ‘the stock market is up and ‘investment in stocks’. But how many of us know what these really mean?
Sure, you’re likely to be bombarded with these terms if you turn on a business channel, but many continue to have either little or no certain knowledge about them.
Or even worst, sometimes it’s fake and misleading information. Our educational institutes don’t teach us about investment and financial planning. But this is what really matters once you’re out there in the dog-eat-dog world.
But fear not, here are some old school basics about shares we’re happy to share (pun unintended).
A company’s capital is divided into shares in order to sustain, grow, expand or raise funds. Each share forms a unit of ownership of a company and is offered for sale to people who look to invest in order to raise capital for the company.
Now, why would anyone buy shares of a company? Well, the obvious reason is: to receive capital gains in the future. This means that people buy shares with the expectation that the value of the business and so its shares would rise.
Capital gains can either be achieved through capital investment or through dividends.
Types of Shares and its Ambiguities
Shares can be classified into Equity and Preference shares. These differ in terms of power given to shareholders:
- Equity shares give the shareholders the power to share the profit in the company as well as a vote in the Annual General Meetings’ of the company. Such a holder has to share the profits of the company or inversely bear any losses incurred by the company.
- Preference shares only give a fixed amount – dividends, from the earnings of the company and usually give no voting power to holders.
There are several ambiguities to the terms shares, stocks and equities and what they do. There isn’t much difference between these terms other than the context in which it is used. When someone says “stocks” it is to denote the ownership certificate of any company in general and if they say “share” it denotes the same to a particular company. Equity, on the other hand, refers to the stock/shares held in a company in its various forms like private equity and so on.