Posted on April 10, 2019
History has shown that investing is a proven strategy to build long-term wealth for a secure future, through methodical planning and smart decisions. Furthermore, anyone (at any time) can start investing.
Learning how to invest mindfully is the most crucial part of an investor’s wealth-creation journey. An investor who is looking to begin his investment journey and is actively seeking brokers to trade and invest through may not speak the language of finance and stock market jargons. Moreover, when one does not know the language, one tends to feel lost.
This overview is designed to help any beginner investor learn the basics of Indian Equity Market.
What does the term "securities" include?
- Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
- Derivative
- Units or any other instrument issued by any collective investment scheme to the investors in such schemes units or any other such instrument issued to the investors under any mutual fund scheme
- Government securities
The investors in the Indian securities market have a wide choice of financial products to choose from depending upon their risk appetite and return expectations. Broadly, the financial products can be categorised as equity, debt and derivative products. We shall learn more about these securities in detail in the next blog.
What is Equity Share/Stock?
Equity shares represent the form of fractional ownership in a business venture. Equity shareholders collectively own the company. They bear the risk and enjoy the rewards of ownership.
There are different types of stocks based on different classification criteria.
Types of stocks based on ownership
There are three types of stocks based on ownership criteria, which are:
Common Stock - Majority of the company's stock is issued in this form. Common shares represent a claim on the company's profits (dividends). Common stockholders are also eligible to elect members to the board of directors.
Preferred Stock – A stock under this criterion represents some degree of ownership in a company, with a promise that a fixed amount of dividends will be paid every year. These stocks usually do not come with the same amount of voting rights as common stockholders.
Hybrid Stocks - These shares are preferred, as they come with an option to be converted into a fixed number of common stocks at a predetermined time. They may or may not have voting rights depending upon the company.
Some companies issue preferred stocks that come with a “call” or “put” option embedded in them. They are called Embedded-Derivative Options Containing Stocks.
Types of stocks based on market capitalisation
Market capitalisation or market cap means the total market value of a company's outstanding shares, calculated by multiplying the company's outstanding shares with the current market price per share.
Broadly, there are three types of stock category on this basis: Small Cap, Mid Cap and Large Cap.
| Market Capitalisation |
Classification |
| Top 100 stocks by Market Cap |
Large Cap |
| Next 150 stocks by Market Cap (101-250) |
Mid Cap |
| Rest of the stocks (below 250 by market cap) |
Small Cap |
Types of stocks based on price fluctuations
Blue Chip Stocks – These are the stocks of companies that are extremely well established and have stable earnings. These companies run their operations smoothly, give consistent results, and offer good dividends to their shareholders.
Beta Stocks – Risk, called “beta”, is measured by stock analysts, using the volatility in the stock prices. The higher the beta, the greater the volatility in the stock. The volatility of low-beta stocks is low, and they are thus considered relatively safe to invest.
Conclusion
After learning different types of stocks based on different criteria, you have enough knowledge to be able to choose your first set of stocks.
In case you are looking to get started with stock market trading and investing, we can assist you in taking your next step forward. Share your basic details and we will get in touch with you soon! Click Here.