What is Share and Equity Share?

Actual Question:

What is the difference between “Equity” and “share” in a share market?

Answer:

Dear Friend!

A very nice question. Thank you.

A share is a unit of the share capital of a company. Practically a company can have two types of share capital, namely:

• Equity Share Capital
• Preference Share Capital

 Preference share have a priority on payment of dividends and repayment of principal over equity share capital. Even though this looks like an attractive feature, the dividends are pre-specified and limited. Again at the time of liquidation they are entitled to get only the face value of the share and are not entitled to participate in the surplus available after discharging all obligations.

Equity shares on the other hand are more risky and therefore are attached with potentially greater rewards.

If a company has both equity and preference share capital, then there will be two kinds of shares - equity and preference.

So, a share is more a generic term or a mother term, equity and preference shares being its children.

In the world of stocks the word equity is used to represent equity shares.

What are generally traded on the stock exchanges are mostly equity shares only.

Thank you,

With Best Regards

Anand

What is the Better Investment Instrument Between Stock and Bond?

There is not a shred of doubt that only shares can give excellent results and create real wealth over a long period of time.

Bonds and Debentures just fixed income securities that offer no scope of capital appreciation, at least in India as of now. In advanced financial markets bond markets are highly mature allowing scope for a bit of capital appreciation and enhancing interest yield. Therefore they are merely like fixed deposits in banks with higher risks.

Investing in stocks directly however requires investing knowledge and there are two options before the investor:

Option 1: Making Investments Directly in Shares

Devote a couple of hours every day and learn and practice value investing. The best and only book I will recommend is “The Intelligent Investor” by Benjamin Graham.

You may also visit this blog “Wealth Vidya” and a few other value investing sites.

Caution:

Please beware of a number of books and websites that encourage people to engage in day-trading, margin-trading and trading in futures and options, commodities and currencies. All these are not investing activities but purely speculative acts that have the potential to destroy the capital and even lives of people.

Option 2: Investments in Index Mutual Funds:

Those who cannot afford to learn investing have this easy and wonderful option of investing in Index Funds and Exchange Traded Funds (ETFs).

Long term Investing:

Whether you choose option one or two, please always remember that the secret behind investment success is the law of “Miracle of Compounding”, which requires you to keep investing and be invested for 20 to 50 years.

Conclusion:

There is not an iota of doubt that only shares or stocks are the investment vehicles that can yield investment success and real wealth creation.

Is it Wise to Invest in Stocks Whilst Still Learning?

It is not at all advisable to begin investing in stocks while still learning the tricks of investing. Investing in stocks is a serious business and inadvertent errors could destroy capital and make an investor averse to stocks.

However one can invest in mutual funds and exchange traded funds without hesitation whatsoever, as they are solely meant for people who are not proficient yet in investing independently and directly in shares. One can also subscribe to a systematic investment plan or SIP at any time.

If a person is from a finance background, understands financial statements, and has some prior experience with stock markets, may venture with small amounts after thoroughly understanding the principles described in the article, ‘What are the Factors to be Considered Before Investing in Shares of a Company?’.

But do not ever indulge in day trading or margin trading.

In conclusion, it is inadvisable to start investing in shares and share markets directly without having a firm grip over the subject.

Stock Definition

Stock Definition

‘Companies’ and ‘Shares’ with limited liability were devised during the colonial period to mitigate high risk and uncertainty involved in the seafaring ventures. Shares enabled raising huge sums required to fund expeditions from many small investors and limited liability protected the investors from creditors accessing their personal properties in case of a failed venture. Thus a share is ownership of a company into a tiny unit or block.

With the advent of stock exchanges the shares got listed on the exchanges bringing a great amount of liquidity to shares.

Stock is a term used to describe shares in general while the word share is used in the context of a particular company. For example you own shares of NMDC Ltd. or SJVN Ltd. You also own stocks of a great number of Indian companies.

It is not uncommon, at least in India that the two terms stocks and shares are used interchangeably.

A Share of 'The Empire Jute Company Limited"

Dividend-Definition

Dividend is the reward or return a company gives to the shareholders for the money they had invested in its share capital. It is somewhat similar to the interest a borrower pays to the lender for the money lent, though in reality there is a vast difference between both.

As generally there are two broad categories of share capital, namely equity and preference, the dividend payable on these two categories is also classified into equity and preference dividend.