Showing posts with label What is?. Show all posts
Showing posts with label What is?. Show all posts

Tuesday, May 30, 2017

What is the Meaning of Small Cap Stock?

Small Tree and Small Cap Tag

Small-Cap stocks means those stocks with a small market capitalisation. Market capitalisation means the market value of all shares ((outstanding) of a company. 

There is no single, precise definition of small cap. It varies from country to country as well as between various brokerages within the same country.

For example, as per Investopedia a company that has a market cap of US$ 300 million to 2.00 billion (approximately Rs.1800 – 12000 Crores).  However, the Economic Times, the popular financial newspaper in India, defines small cap as a company having market cap of less than Rs.2000 crores.

Let us examine how the Bombay Stock Exchange (BSE) deals with the subject. BSE Small Cap Index comprises of small cap companies listed on the BSE. The small cap companies constituting the index and occupying the top five ranking and weight are as follows with market cap of quite different sizes:

Table showing top five BSE Small Cap Stocks

In conclusion small cap stocks means those stocks with small market capitalization or market cap. There is no precise definition for what actually constitutes small, though.

Wednesday, May 10, 2017

What is the Difference Between Bond and Share?

Two pieces of cakes depicting share and bond

Share is a piece of ownership of a business. Bond is a piece of the loan of a business. Both are small pieces of a bigger cake, only the cakes are different.


Share is the single unit of a large sum (share capital) invested by owners in the company. There are two types of shares, equity shares or common stock and preference shares or preferred stock. Equity or common shares being the most popular and widely owned we will concern ourselves with equity shares in this discussion.

As an investment, shares of excellent companies will yield excellent benefits of dividends and capital appreciation, over long periods of time and will generate enduring wealth.

Share certificate

As an investment, share alone can offer a shield against inflation.


Bond is a type of loan that is broken down into small pieces and issued to general public. Usually these are listed on popular stock exchanges are freely tradable in the open market. As in the case of any loan, following terms of agreement are pre-specified:
  1. Face value of the bond
  2. The rate of interest or coupon rate
  3. Frequency of payment of interest – quarterly or half yearly or annually
  4. Date of redemption or repayment or maturity

Bond Certificate

As an investment bonds yield a regular income. They are suitable for individuals and institutions who have a large corpus upfront and need a regular income for sustenance. They are not good for regular, middle class wage earners who have to build a corpus. Bonds do not offer any protection against inflation.

Differences between Share and a Bond:

Nature of Relationship
Return on Investment
Mandatory Nature of income
Discretionary. Payable only upon declaration by directors.
Compulsory. No discretion in the hands of Directors.
Priority in Receipt of Income
Dividend can be paid only after interest is paid.
Interest is top most priority.
Capital Appreciation
Not Always Available
Voting Rights
Not Available
Priority in repayment during liquidation
Last, after all the obligations are met
After government and secured dues but before payment of capital.
Scope of Participation Surplus Assets after all obligations are met
Not Available
Maximum Risk
Normal Risk
Maximum Rewards
Limited Rewards
Liquidity of Investment
Liquid only when listed on stock exchange.

To conclude, share is a piece of ownership of a business and bond is a piece of loan raised by the business. As an investment both serve different purposes. Shares offer inflation protection.