Equity Market

EQUITY MARKET

An Equity Market is a market in which the shares of companies are issued and we can trade, over the markets. If we buy shares or stocks, we will become part of the owner of a company. Firstly people think they are investing in stocks, it's wrong. We are investing in a company and we should analyze the company whether it is fundamentally strong. So the Equity market is we can buy and sell shares or stocks.

BENEFITS AND CONDITIONS OF THE EQUITY MARKET

1. There is no limit to buying and selling in the equity market.
2. No expiry date for buying and selling.
3. We must buy stock with total cash transactions.
4. It is our Asset. If we buy a stock it becomes our asset.
5. Equity market investments offer more returns during inflation as compared to other forms of assets. This makes it possible for the investors to keep up with the lifestyle without cutting down on any expenses even when the prices of goods are gradually increasing.
6. Despite greater risks, investors can generate huge profits from the returns. The returns earned from the equity market are more as compared to a savings account or a fixed deposit.
7. Trading in the options market can minimize the risks and amplify profits.
8. Investors can generate steady income in the form of dividends. Dividends are paid to shareholders from the profits earned by the company.
9. Investors with good knowledge and enough research can earn huge profits in the longer run.
10. Additional benefits

• Dividends
• Bonus

WHAT IS A DIVIDEND?

A dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks, or any other form. A company’s dividend is decided by its board of directors and it requires the shareholders’ approval. However, a company doesn't need to pay dividends. A dividend is usually a part of the profit that the company shares with its shareholders.

Example:

If we buy 1000 shares in ITC company. Each share of 10 dividends means we will get 10000 in 3 months and 40000 dividends per year. it"s just an example.

WHAT IS A BONUS?

Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are the company's accumulated earnings that are not given out in the form of dividends but are converted into free shares.

Example:

If we bought 1000 shares means they will give us some bonus shares

IMPORTANT NOTES IN THE EQUITY MARKET

• The seller comes first in the Market
• NSE has 1600 companies and they are big companies
• BSE has 5500 companies and they are small companies
• NSE is a massive buying and selling volume
• BSE is low volume for buying and selling
• Market Timing: 9:15 AM to 3:15 PM
• In case we are selling the stocks means we should close the trade within a day which means 3:15 PM

Types of Equity Market

• Primary market

When a company wants to make its shares available to the public for trading the company must launch its IPO. When the company launches its IPO, it offers a fraction of its equity to public investors. Once the IPO is closed the company is listed on the primary exchanges of India mainly NSE and BSE.

• Secondary market

After the listing of the IPO shares on the exchanges, these shares are traded on the secondary market. The secondary market allows investors who failed to procure shares during the IPO. Even the initial investors can exit their investments in the secondary market. Investors in India commonly trade in the stock market with the help of brokers. The brokerage firms act as intermediaries between the stock exchanges and the investors.

What is meant by equity shares?

Companies launch their equity shares to generate a source of capital. These shares are made available to public investors and are non-redeemable. When investors buy these shares, they get the right to vote, share profits, and claim the assets of a company. As an equity shareholder, the investor also receives dividends from the company.

Hope this makes the equity shares meaning clear let us discuss the different types of equity shares.

Types of Equity Shares Available

• Ordinary shares

These shares are issued with a motive to generate capital that can meet long-term expenses. Shareholders get the right to participate in management segments and other company operations. Investors with the majority of such shares gain substantial voting rights.

• Preference equity shares

Preference equity shares are generally issued to an investor as a guarantee of the payment of cumulative dividends before returns are distributed among ordinary shareholders. Shareholders with preference equity shares have limited voting rights. If the shareholders have participating capacity they can gain from the stipulated amount of profits, as well as bonus returns. But if the shares are classified as non-participating equity shares, they can’t avail of such benefits.

• Bonus shares

These types of shares are issued to the investors in the form of additional stakes when the company generates profit. However, bonus shares do not increase the total market capitalization value of a company.

• Rights shares

These shares are offered by a company to certain investors at a discounted price which in turn will grow the stake in the respective business. An organization offers shares to rights for a specific time until required finances are generated to suffice the expenditures of the company.

Features of Equity Shares

• Permanent in nature

These shares issued by the company are permanent in nature and non-redeemable. You cannot return these shares until the company decides to close its business.

• Transferable and dividend payout

Equity shares are transferable i.e. you can transfer the ownership of these securities from you to another investor or vice versa. Many companies offer dividend payout to their shareholders. This dividend amount depends on the profit made by the company and the availability of funds within the company. So, whenever a company fails to make a profit it may decide to hold on to dividend pay-out.

• Potentially high returns

Equity shares are volatile and possess high-risk factors however the returns offered are huge. So, if you have a greater risk appetite you can create a huge corpus with high returns from equity shares.

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