Stock Market Shares Explained
The stock market is often called the heartbeat of the economy. Every day, millions of investors buy and sell shares hoping to grow their wealth. But for a beginner, terms like shares, equity shares, bonus shares, unlisted shares may sound confusing.
If you have ever wondered what is a share, how shares work, and what types of shares exist, then this guide will give you a complete, beginner-friendly explanation.
In this blog, we will cover:
What is a Share?
In the simplest words, a share represents ownership in a company. When you buy a share, you are buying a small piece of that company.
For example:
If a company is divided into 10 lakh shares, and you buy 1,000 shares, you own a fraction of the company (0.1%). This ownership gives you certain rights, such as receiving dividends (part of company profit) and voting rights in company decisions.
In short:
- Share = Ownership
- Shareholder = Part owner of the company
What are Shares in the Stock Market?
The stock market is a platform where shares of companies are bought and sold. Investors can purchase shares of listed companies and trade them through stock exchanges like NSE (National Stock Exchange) or BSE (Bombay Stock Exchange) in India.
So, shares in the stock market are simply the units of ownership that are available for trading.
For example:
- You can buy Reliance Industries shares on NSE.
- You can sell Infosys shares on BSE.
This buying and selling activity determines the share price based on demand and supply.
Stocks vs Shares – Is There a Difference?
Many people use the terms stocks and shares interchangeably, but there is a slight difference:
- Stocks: A general term used to represent ownership in one or more companies. Example: “I invest in stocks.”
- Shares: A more specific term representing the ownership units of a particular company. Example: “I own 50 shares of Infosys.”
In short:
- Stocks = General
- Shares = Specific
Types of Shares in the Stock Market
Companies can issue different types of shares. The most common ones are:
1. Equity Shares
Equity shares are the most popular type of shares. They represent ownership in the company and give shareholders the right to vote in company matters.
Key points about equity shares:
- Represent true ownership
- Shareholders receive dividends if declared
- Shareholders benefit from price appreciation
- Carry voting rights
Example: If you buy Tata Motors equity shares, you become a part-owner of Tata Motors and can benefit when the company performs well.
2. Preference Shares
Preference shares are different from equity shares. Preference shareholders get priority in receiving dividends and repayment in case of company liquidation.
Key features of preference shares:
- Fixed dividend payout
- No voting rights (in most cases)
- Safer than equity shares but lower return potential
3. Bonus Shares
Sometimes, companies reward their existing shareholders by giving them bonus shares free of cost.
For example:
If a company declares a 1:1 bonus issue, and you own 100 shares, you will receive an additional 100 shares for free.
Why do companies issue bonus shares?
- To reward shareholders
- To increase liquidity in the stock market
- To make shares more affordable (as the price adjusts after bonus issue)
4. Rights Shares
A rights issue allows existing shareholders to buy additional shares at a discounted price before they are offered to the public.
Example:
A company may offer 1 rights share for every 5 shares you already hold at a discounted rate.
This helps the company raise fresh capital and gives loyal shareholders an advantage.
5. Unlisted Shares
Not all companies are listed on the stock exchange. Unlisted shares are shares of private companies or companies yet to go public.
Examples of companies that were unlisted before IPO:
- Zomato (before 2021 IPO)
- Paytm (before 2021 IPO)
Investing in unlisted shares can be risky but also rewarding if the company grows and eventually lists at a higher valuation.
IPO and Listing of Shares
When a company decides to raise money from the public for the first time, it issues an IPO (Initial Public Offering).
Process:
- The company offers its shares to the public at a fixed price or through a book-building process.
- Investors apply for IPO shares.
- If allotted, shares are credited to investors’ Demat accounts.
- The company gets listed on stock exchanges, and shares can then be freely traded.
Dividends – Earning from Shares
When a company makes a profit, it may distribute part of it to shareholders as dividends.
Types of dividends:
- Cash Dividend: Paid directly to shareholders’ bank accounts
- Stock Dividend: Additional shares given instead of cash
Not all companies pay dividends. Growth companies often reinvest profits into business expansion.
Risks and Rewards of Investing in Shares
Like every investment, shares have risks and rewards.
Rewards:
- High return potential
- Ownership in top companies
- Dividend income
- Liquidity (easy to buy and sell)
Risks:
- Market volatility (share prices fluctuate daily)
- Business risk (company performance may decline)
- Regulatory risk (changes in government policies)
FAQs About Shares
1. How do I buy shares in India?
You need a Demat account and trading account with a stockbroker (like Zerodha, Groww, ICICI Direct).
2. Can I lose money in shares?
Yes. If share prices fall below your purchase price, you may face losses.
3. Are shares and mutual funds the same?
No. Shares = Direct ownership in a company. Mutual Funds = Indirect ownership via pooled money managed by professionals.
4. Which is better – equity shares or preference shares?
- Equity shares = higher risk, higher reward
- Preference shares = lower risk, stable income
5. Can I invest in unlisted shares?
Yes, but it is riskier since these shares are not traded on exchanges. You must go through private dealers or platforms that specialize in unlisted shares.
Conclusion
The stock market shares are one of the most powerful tools for wealth creation. By understanding the basics – what is a share, what are equity shares, what are bonus shares, what are unlisted shares – you can make smarter investment decisions.
Remember:
- Equity shares give ownership and higher growth potential.
- Preference shares provide fixed income.
- Bonus shares and rights issues reward existing shareholders.
- Unlisted shares are riskier but can deliver huge rewards if the company succeeds.
The key is to stay informed, invest wisely, and think long-term.