EQUITY SHARES
MANDAR
PRADHAN
KENNETH
ARNOLD
ADITYA
SHARMA
Shares
•Share or stock is a document issued by a
company, which entitles its holder to be one of
the owners of the company.
•A share is issued by a company or can be
purchased from the stock market.
Example: If the capital of a company
is 10000 and is divided into 1000
units of Rs10 each, each unit of
Rs.10 shall be called a share of the
company.
Kinds of shares
Equity Shares
•Equity shares are those shares which are
ordinary in the course of company’s business.
•These are also called as ordinary shares.
•These share holders do not enjoy preference
regarding payment of dividend and
repayment of capital.
•Equity shareholders are paid dividend out of
the profits made by a company.
Features of Equity Shares:
Owned capital: Equity share capital is owned capital because it is
the money of the shareholders who are actually the owners of the
company.
Fixed value or nominal value: Every share has fixed value or a
nominal value. For example, the price of a share is Rs. 10/- which
indicates a fixed value or a nominal value. (note: in case of IPO’s).
Distinctive number: Every share is given a distinct number just like
a roll number for the purpose of identification.
Attached rights: A share gives its owner the right to receive
dividend, the right to vote, the right to attend meetings, the right to
inspect the books of accounts.
Features of Equity Shares:
Return on shares: Every shareholder is entitled to a return on shares
which is known as dividend. Dividend depends on the profits made by
a company. Higher the profits, higher will be the dividend and vice
versa.
Transfer of shares: Equity shares are easily transferable, that is if a
person buys shares of a particular company and he does not want
them, he can sell them to any one, thereby transferring the shares in
the name of that person.
Benefit of right issue: The company has to offer the new shares first
to the equity shareholders in the proportion to their existing share
holding. In case they do not take up the shares offered to them, the
same can be issue to others. Thus, equity shareholders get the
benefits of the right issue.
Features of Equity Shares:
Benefit of Bonus shares: These shares are issued free of cost in
proportion to the number of existing equity share holding.
Irredeemable: Equity shares are always irredeemable. This means
equity capital is not returnable during the life time of a company.
Capital appreciation: High rate of dividend is paid with high rate of
profit, the shareholders capital is appreciated through an
appreciation in the market value of shares.(i.e. higher the rate of
dividend, higher the market value of the shares.)
Advantages of investment in Equity Shares:
More Income(dividend): Equity shareholders are the residual
claimant of the profits after meeting all the fixed commitments. .
Ownership & Right to participate in the Control and Management:
Equity shareholders are the owners of the company & hence have rights to
elect competent persons as directors to control and manage the affairs of
the company.
Capital profits: An appreciation in the net worth of the company's
assets will increase the market value of equity shares. It brings capital
appreciation in their investments.
Advantages of investment in Equity Shares:
Portfolio: Investing in the shares of various companies in the stock
market can help to prevent concentration of funds in similar
investments.
Easily cashable: Shares can be cashed any time by just selling the shares
on the stock market. Just selling the shares the person owns in online
trade can credit money in the investor's bank account.
An Attraction of Persons having Limited Income: Equity shares
are mostly of lower denomination and persons of limited recourses
can purchase these shares.
Other Advantages: It appeals most to the speculators. Their prices
in security market are more fluctuating.
Disadvantages of investing in Equity Shares:
Uncertain and Irregular Income: The dividend on equity shares is
subject to availability of profits and intention of the Board of
Directors
Capital loss During Depression Period: During recession or depression
periods, the profits of the company come down and consequently the rate
of dividend also comes down.
Loss on Liquidation: In case, the company goes into liquidation,
equity shareholders are the worst suffers. They are paid in the last
only if any surplus is available after every other claim including the
claim of preference shareholders is settled.
Disadvantages of investing in Equity Shares:
Knowledge is necessary: knowledge of the equity market is needed
for the investor, hence an novice investor has threats when directly
exposed to the equity market.
Constant watch: Investor may have his own job or business,so keeping a
constant eye on his investments in market may not be possible all the
time.
No preferential rights: Equity shares have less preferences as
compared to preference shares,
for eg: dividend paid next to preference shares. & while liquidation
they have the last claim over assets of the company.
How Stocks Traded
• Traded on exchanges
• Transition from physical to virtual.
• Primary market and the secondary market.
• Traded through a stock broker
• Full service brokers or discount brokers.
• Delivery based or non-delivery based transactions.
Stock exchange
Shares traded through screen-based trading facilities.
The online trading system of BSE is known as
BOLT(BSE’s on-line trading system).
While that of NSE is known as NEAT(National Exchange
For Automated Trading).
Both BOLT and NEAT use satellite communication for
trading, using V-SAT.
In India, investors may trade in equity shares using cash
account (or cash market) or margin trading.
Means of financing.
Financing a company through the sale of stock in a
company is known as equity financing. Alternatively, debt
financing (for example issuing bonds) can be done to
avoid giving up shares of ownership of the company.
Unofficial financing known as trade financing usually
provides the major part of a company's working capital
(day-to-day operational needs).
Stock price fluctuations
The price of a stock fluctuates fundamentally due to the theory
of supply and demand. Like all commodities in the market, the
price of a stock is sensitive to demand. However, there are many
factors that influence the demand for a particular stock. The
field of fundamental analysis and technical analysis attempt
to understand market conditions that lead to price changes, or
even predict future price levels. A recent study shows that
customer satisfaction, as measured by the American Customer
Satisfaction Index (ACSI), is significantly correlated to the
market value of a stock. Stock price may be influenced by
analyst's business forecast for the company and outlooks for the
company's general market segment.
Share price determination
A equity's price is strictly a result of supply and demand.
When prospective buyers outnumber sellers, the price
rises. Eventually, sellers attracted to the high selling price
enter the market and/or buyers leave, achieving
equilibrium between buyers and sellers. When sellers
outnumber buyers, the price falls.
Market forces affects the price of shares which includes
political, economic, environmental scenario of the
particular country.
How equity is one of the best investment
option for an investor.
•High risk, but high profits too, better than any other
financial avenues.
•Convenient for short term as well as long term
investors.
•Highly liquid, hence an investor can encash as & when
required.
•Many successful brokers available for guiding the
investors money safely & profitably.
•Even if fluctuations in market occur, in long term
aspect high returns are expected.
•Investor can spread his risk easily by diversifying his
portfolio, hence he can capitalize on his returns safely.
