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You might have seen your father or mother fret about the changing rate of the share market. Share markets are an important part of the business world. While share markets are known for helping people gain ownership of a company and become a part of the profits it earns with minimal effort, it is also known to be risky and volatile. The share market can take turns anytime. As easy as it is to earn profits from it, so it is to lose your money.
Share market investments are subject to market risks and therefore it is important to understand very nicely how the market works and understand the trends of the market before investing in it.
Understanding Sensex and Nifty
The Sensex
Among the financial products offered by the stock exchanges, the indices are some of the most well-renowned products that are listed in the market by the NSE and BSE. The term Sensex refers to the standard index present on the Bombay Stock Exchange [BSE] India. Sensex provides a complete overview of the stock market and the domestic economy as it takes into account 30 of the most popular and relevant tradable stocks listed on the BSE.
Established in 1986, the Sensex is analyzed every 6 months, especially during December and June and is considered to be the oldest stock matrices present in India. Investors utilize the observations recorded in the Sensex to make further decisions.
Nifty 50
Just like the Sensex, the Nifty 50 is a financial index which represents the activities of the 50 most popular and tradable shares on the National Stock Exchange [NSE]. Due to its accuracy, the observations on Nifty have helped several investors to capitalize and maximize on the dividend issued.
What is Meant by Shares?
The word share means “a part of something”. Here as well this meaning justifies the term since, by buying a company’s share, the buyer becomes an investor in the sense that he invests his or her money in the company. Simultaneously, he or she also gains a part of the ownership of the company and takes a part of the profits home.
By buying shares of a company, a person becomes one of the owners of the firm while he hardly has to share the responsibility of its management. Shares are the units of equity ownership in a firm or a company. The owners of the shares of a company are called the “shareholders” of that company. The shareholders’ money is like a financial asset to some companies. The profits, if left, are distributed among these shareholders equally.
However, in the case of shareholders, the term profit is not called so. It is called “dividends”.
What are The Various Types of Shares?
There are various types of shares. Let us discuss some of them below:
Preference Shares
As the name suggests, this type of share gives preference to a particular group of shareholders. The benefits enjoyed by preference shareholders are:
- They are first preferred when the time comes to pay dividends.
- In case a company is winding up, the preference shareholders will be the first ones to get paid.
The preference shares can be classified further. The main types of shares that come under preference shares are:
- Cumulative preference shares- this is a type of preference share whose fixed-rate annual dividend, if not paid in a current year, accrues until it is paid.
- Non-cumulative preference shares- unlike cumulative shareholders, these shareholders are not liable to be paid any outstanding dividends. They only receive dividends if the company earns profits.
- Convertible preference shares- are shares that can be converted to equity shares at a certain point in time.
Equity Shares
Equity shares are also known as ordinary shares. They are the most commonly issued shares by companies. Equity shareholders have voting rights and are liable to receive dividends when the company earns profits albeit their rate of dividends is not fixed. These are the most traded types of shares in the stock market.
Differential Voting Rights Shares
Differential voting rights shareholders do not have voting rights. As compensation for this, they receive more dividends and the prices of such dividends are lower as compared to the equity shareholders.
Having discussed how important equity shares are, let us now discuss the types of equity shares available.
The types of equity shares are:
- Ordinary shares
- Preference shares
- Bonus shares
- Rights shares
- Sweat equity
- Employees stock options
Various types of share markets deal with the trade of the different types of shares. Some of them are listed below.
- Primary share market- a company of the government raises money for the company through the process of IPO in a primary share market. The issue of shares in a primary market can be made through public or private placement. It is considered an issue when the “issue” is made to at least 200 people.
- Secondary share market- the shares which are bought in the primary market can be sold in the secondary market. A secondary market deals with the commodities or shares that have already been traded previously in the primary market.
Conclusion
Now that you are aware of the types of shares, you should have a basic understanding of the working of the share market. Compliment your knowledge with some research and you are free to invest in the market.
