Shares

Shares are the marketable instruments issued by the companies in order to raise the required capital. Shares are issued by each and every company which goes public. These are very popular investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm.

A company when it decides to raise capital from public prepares a memorandum, capital required which is written down in this is called as authorized capital and then prospectus is prepared which is verified by SEBI. SEBI permits the company to raise the capital and as a result company offers it to the public this is known as Issued Capital. Part of the capital issued which is subscribed by public is Subscribed Capital. If the number of subscriptions is more than the number of shares then it is called as over-subscription and if the number of subscriptions is less then it is called as under subscription. The amount paid by the investor is Paid up Capital.

Types of Equity shares

The Equity share is a common name, some of the types of equity shares are

• Blue Chip Shares
• Income Shares
• Growth shares
• Cyclical Shares
• Defensive shares
• Speculative shares

Blue Chip Shares

These are the shares of some of the companies which have been doing extremely well in the past few years. These are usually well established companies. The blue chips companies are part of Sensex and Nifty. The companies which come under this are market leaders and have the potential to dictate terms.

Companies like Reliance, SBI, ICICI, HDFC, ONGC, NTPC, Infosys, TCS, Wipro, HLL, ITC, Tata Steel, DLF etc.., are few of the blue chip companies.

The above companies market capital will be more and these scripts will have impact in line with Sensex and Nifty movement.

Income Shares

These are the shares of the companies which have stable operations. The companies have a high dividend payout ratio and when the dividends paid are high it implies that the profits saved for company is less and hence less opportunities of growth.

Few Companies listed above will give excellent dividend yield more than 8% when the investment is made at lower level few year back.

Growth shares

These are the shares of companies which have secured their positions in a particular industry. These shares have less dividend payout ratio and hence high growth potential.

Cyclical Shares

There is a definite business cycle that keeps on operating and these are the shares of that company whose performance varies with the stages of the cycle. It means to say that the prices of the shares are affected by the variations in the economy. For example Sugar sector, Fertilizer sector. These sectors will move seasonally.

Defensive shares

These are the shares of the company whose performance does not change with the changes in the economy.

Speculative shares

These are the shares which are traded in the company which have a lot of speculations.

These share are high risk in nature and also will give very good return in short term when momentum is present. Also these scripts will fall sharply. Investors should watch these scripts very carefully.

Shares cannot be put into one category strictly because the characteristics of the shares are overlapping in the sense that the blue-chip shares which are in great demand in the market fall under blue-chip shares and speculative shares.

Further Classification

One more classification of shares is given by one of the most successful and respected investor all around the world Peter Lynch. According to him the shares can be classified into 6 types

• Slow Growers
• Fast Growers
• Stalwarts
• Cyclicals
• Turn-around
• Asset plays

Slow Growers

These are large companies which have the growth rate equal to the industry growth rate or their growth is equal or slightly faster than the GDP (Gross Domestic Product).

Fast Growers

These are shares of newly started successful companies which have a very good growth rate (the rate is usually 10 to 25 percent) per year.

Stalwarts

These are shares of very large companies which have stable growth. The dividend payout ratio is high. These companies are growing but not rapidly as in the case of fast growers.

Cyclicals

These are the shares of the company which is going through the business cycle or there is variation due to economic factors.

Turn-around

These are the shares of the companies which have started performing very well. These companies were fairing badly in the past and all of a sudden there is a turn-around in their performance.

Asset plays

These are the shares of the companies who are not given any recognition though they have a large asset base.

Advantages

• Equity shares give greater returns if the company makes profits. It is in comparison to debenture holders or preference share holders.

• There is a tremendous amount of capital appreciation if the shares are of a good performing company.

• The equity shares are easily transferable.

• The equity shares are traded at the stock exchanges so they can be bought and sold easily. These can be easily liquidated.

• The equity share holders have got the right to vote in the annual general meeting.

Disadvantages

• No doubt equity shares have attractive and better returns but in case the firm has not performed well or is going for diversification or is investing in some venture then the profits carried forward will be more and the dividends paid will be less.

• In worst cases if the company goes bankrupt then it is dissolved. The assets are sold and the money obtained is distributed amongst the stake holders then only if something is left out after it is distributed to debenture holders and preference share holders it is given to equity share holders.

No doubt equity shares have both advantages and disadvantages but the fact is that equity shares are the most sought financial instruments for both investment or for speculation.