Shares are the fundamental elements of the stock market. Read ahead to get to know the share definition as well as other essential details related to this concept.
What Is A Share?
A share is a unit of equity ownership in a corporation. This means that when an investor purchases a share, they are buying a small part of the company and becoming a shareholder. Note that technically, shares are units of stocks, yet these two terms are often used interchangeably.
What You Need To Know About Shares
The ultimate purpose of shares is to provide a means for a company to raise capital, which it can use to fund its operations, expand its business, invest in new projects, and achieve its growth objectives. For investors, shares offer an opportunity to earn returns and grow their wealth over time.
Shares can be broadly classified into two categories:
- Equity shares, which provide their holders with a share in the company’s earnings or profits and the right to vote in the company’s AGMs. However, the holders of such shares are also required to bear any losses incurred by the company.
- Preference shares, which only offer fixed dividends to their holders and do not provide any voting rights.
Both these share types have their pros and cons, so it’s crucial to weigh them before making an investment decision. Investors who are looking for stable income and are risk-averse may favor preference shares, while those who are willing to take on higher risk for the potential of bigger returns may choose equity shares.
Besides, there are many other share types, each with its own unique features and characteristics. Thus, if you wish to invest in shares, remember to do your research and understand the company you are investing in. Look at its financial statements, management, and competitors to get a sense of its prospects for future growth.
Also, diversifying your portfolio is key. This means that opting for shares from a variety of companies across different industries can help minimize your risk and protect your investments from market fluctuations.
