×
/

Types of Shares in Market

Types of Shares in Market

Choosing the right stocks to earn money in the share market is an important part of a share market career. Among the numerous stocks listed on exchanges, it becomes somewhat difficult to figure out. But if one understands the various types of shares in the market and the associated objectives they meet, then the choice issue can be resolved quickly.

On a broader spectrum, the types of shares in the market can be divided into two categories:

  • Equity Shares
  • Preference Shares

One by one, we will explain what these types signify and how they are further classified.

Types of shares in stock market

Equity Shares

The most common type of shares in the Market is Equity shares or Equities. Equity shares are of a company that gets listed on the exchanges or simply the share market.

Equity shares also signify fractional ownership in a companies overall assets. And it is in Equity shares that investors actively trade with their preferred choice of segments such as Intraday, Delivery, positional, swing, scalping etc.

Holding equity shares also entitles an individual to certain rights within the framework or functional decisions of the company. And the equity shareholders have the right to receive dividends, which are simply a part of the profit that the company earns over a certain time frame. These dividends are given by the company as a reward to increase their trust in the company and also to ensure their further investments in the company.

The profits in equity shares trading are subjective to the risk and depend upon several factors, the volatile market behaviour being one of them. However, it still is the most popular type of share in the market to invest in.

Equity Share Types

Equity shares have its types of shares, which can be broadly classified based on three parameters:

  • Definition Based
  • Market Capitalization
  • Returns

Definition Based Equity Shares:

On the criteria of “Definition” we have four types of shares in the stock market:

  1. Rights Shares:

These types of shares are proposed in advance to the shareholders by the company. And by “in-advance” the point is that these shares are made available for buying to “special” shareholders before making them available for general investors of the market.

  1. Bonus Shares:

As the name suggests, Bonus shares are those extra shares, that are offered to shareholders as a bonus. Effectively, these are free of charge.

  1. Authorised Shares:

Authorised Share is a condition that a company must adhere to while issuing shares. For example, if a company is authorised to issue stocks of capital under 10 crores, then they cannot issue a stock that crosses that mark.

These conditions are predefined on the document known as the Memorandum of Association(MoA).

Market Capitalization Based Equity Shares:

On basis of Market Capitalization or Market Cap, which is the complete worth of the outstanding stocks of a company; Equity shares can be divided into three categories:

  1. Large-Cap:

The companies that have a market capitalisation of more than or equal to 20,000 crores then such a companies stocks are categories as Large Cap stocks. Some examples are Infosys, Coal India, Asian Paints etc.

  1. Mid-Cap:

The companies that have a market capitalisation above 5000 crores but lower than 20,000 crores are deemed as Mid Cap stocks. Examples are Reliance Comm, Adani, Castrol India.

  1. Small-Cap:

Lastly, companies that have a market capitalisation of fewer than 5000 crores, then a companies stocks are marked as Small Cap stocks. Examples are 21st Century Management Services, Hindustan Zinc etc.

Returns Based Equity Shares:

Returns or simple ROI is another criterion on which Equity Shares can be classified. Here we have three types of shares in market:

  1. Dividend Shares:

When a company instead of paying dividends in form of assets or funds, choose to give our shares, then such shares are known as Dividend Shares.

  1. Value Shares:

Value stocks or shares are those that are at a lower price than they should be, and by “should be” the point is that their projected intrinsic value is higher than the present value of stocks.

If such stocks with lower prices than intrinsic value also possess good fundamentals, then these will be called Value Stocks and such investments will be termed as Value Investing.

  1. Growth Shares:

On contrary, the growth shares are such stocks that have outperformed the market expectations and likely keep growing and hence are a good choice to make profits. Some Large caps stocks are good examples of growth shares

Preference Shares

As the name suggests, Preference Shares have a preferential quotient associated. So, instead of simply representing the magnitude of ownership, as in the case of equity shares, the preference shares suggest who will, preferentially, receive the dividends of their shares when a company is in stages of winding up.

This concept defines the distinction between an ordinary shareholder and a preference shareholder. Let’s understand this through a simple example.

David has Equity stocks in a company, while Adam holds only Preference Stocks. After a few years, the company faces heavy losses and is on the verge of closing down.

At this point, all the shareholders are anxious to receive their ownership shares back as soon as possible. But only shareholders like David will receive their dividends back at the earliest, while shareholders like Adam will have to wait till the preferential list of shareholders has received their complete sum.

Preference Shares Types

Preference Shares, too, can be classified into four categories. Let’s understand what each of these categories reflects.

  • Cumulative and Non-Cumulative:

Cumulative Preference shares signify that the shareholders will receive the outstanding payment of Dividends the next year in a case that a company is not able to pay for a given financial year. Likewise, the Non-cumulative preference shareholders cannot claim dividends in the next financial year.

  • Convertible and Non-Convertible:

Convertible shares can simply be converted to equity shares, though, conditions applied. And conversely, the non-convertible preference shares can’t be converted into equities.

  • Redeemable and Irredeemable:

If the company or shareholders add a provision/condition of repurchasing or buying back shares after an agreed time period, then such shares are known as Redeemable Preference shares. Consequently, those shares with no such condition attached will automatically become Irredeemable Preference shares.

  • Participating and Non-Participating:

Participating Preference shareholders have the benefits of claiming on the profits of a company in addition to the payment of the simple dividends. And the ones who do not hold such shares and hence do not receive profits, are called Non-participating preference shareholders.

Conclusion

It may be the case that in this list of types of shares in market, some other classifications can be added or subtracted, but the point remains that all these types shouldn’t confuse a trader but enhance and simplify the understanding of the overall market.

These types of shares in market can be well understood once you start trading. So open your Choice Demat account today and start investing in your choice of shares.

Don't forget to share this article