Saturday, November 4, 2023

What are the different types of shares in India?

What are the different types of shares in India

The Indian stock market and financial trading landscape have transformed significantly over the last two decades. Be it in terms of the financial securities that are traded, the size of the market or stock listing. It has all grown and expanded quite a bit and is continuing to attract more investors. If we were to look at just the equity segment and understand the types of shares available to investors, you would be amazed. For every listed company, owning shares is like owning a fragment of the company, and it comes with its own benefits. But, not every share or equity is worth the same, hence we have a range of different types of shares.

Let’s delve into the dynamics of trading and decipher these different kinds of shares and equity that you’d come across in the Indian market.

Equity Shares

The most commonly released and traded shares in the stock market are equity shares. These are also called Common shares which give investors some ownership and rights in the company. Moreover, because they are traded, their value may appreciate or drop as per market situations. 

Preference Shares

Contrary to the common shares, preference shares do not give investors any voting rights in company operations or decisions. However, they offer more security and can earn better returns depending on how they are structured. In most cases, if the company pays out a dividend, preferential shareholders would be paid before the equity investors, thus stable dividend income. 

Convertible and non-convertible shares

As the name suggests, convertible shares are a special class of outstanding shares issued by a company. With these shares, the holders have the option to change/exchange them for an equivalent of equity shares after a predefined duration. This means that if the investors have a positive outlook towards equity share price, they may choose to convert their shares. Non-convertible on the other hand are great for risk-averse investors.   

Redemptive and Non-redemptive shares

These are another special class of shares issued by a company, with a special clause for investors. While the company issues and releases shares in IPOs and FPOs to raise capital, dilutes the ownership of its stakeholders. With redemptive shares, the company can buy back issued shares from public investors. This offers the company an opportunity to exit the market and the investors a chance to redeem their gains, along with a redemption premium. Non-redemption shares however do not have such a clause, but investors can boost their returns via public trading. 

Bonus shares

Though they aren’t very common, bonus shares are a company's way to reward its stakeholders for their loyalty and support. These are issued to existing shareholders free of charge as a gesture of goodwill. Contrary to common payout means like dividends, some companies use this method to distribute profits to key investors.

When investing in any market or any company, it is important to understand their equity distribution and ownership among investors. Depending on the kind of shares you are investing it can have a great impact on your overall portfolio and asset mix. So, evaluating the benefits and outcomes for each can work in your favour.

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