UNDERSTANDING SHARES

—  The Building Blocks of Ownership

In the financial world, shares are more than just numbers—they represent ownership in a company. When individuals buy shares, they’re essentially buying a piece of the business and its future earnings. Companies issue shares to raise capital for expansion, innovation, or daily operations, and investors benefit by sharing in the profits and value growth.

Types of Shares

Shares mainly fall into two categories: Equity Shares and Preference Shares.

1.      Equity Shares (Ordinary Shares)

●    Grant voting rights at company meetings.

●    Shareholders earn dividends based on profits.

●    High risk and reward—returns depend on business performance.

●    Owners bear company losses as well.

2.    Preference Shares

●    Offer fixed dividends regardless of company earnings.

●    No voting rights, but priority over equity shareholders in dividends and liquidation.

 

Subtypes:

●      Cumulative Preference Shares: Missed dividends accumulate and are paid later.

●      Redeemable Shares: Can be repurchased by the company after a specific period.

What Is a Share Price?

A share price is the market value of a single unit of a company’s stock. It fluctuates based on:

●      Company performance

●      Market trends

●      Investor sentiment

How Share Prices Behave

Though some experts claim prices follow a random walk—changing only with new information—real markets show patterns:

●      January Effect: Returns tend to be higher in January.

●      Monday Effect: Stock prices often dip at the start of the week.

Analysts use:

●      Technical Analysis to study past patterns,

●      Fundamental Analysis to examine financials,

●      Behavioral Finance to consider psychological investor behavior.

The Share Market: Where Trading Happens

Primary Market: Companies issue new shares to the public through IPOs.

Secondary Market: Investors trade shares among themselves.

Prices are determined by demand and supply.

India's stock markets are regulated by SEBI (Securities and Exchange Board of India). Major stock exchanges include:

●      BSE (Bombay Stock Exchange)

●      NSE (National Stock Exchange)

Only listed companies can trade their shares, and transactions are conducted through certified brokers.

Understanding shares is key to making smarter investment decisions. Whether you're investing for the first time or brushing up on financial basics, knowing how shares work empowers you to grow with the companies you believe in.