Understanding the financial instruments available for investment is the first step to effective wealth management. In this guide, we explore two such instruments – shares and equity shares. Not only will this help answer the questions of “what is shares” and “what is equity share,” but it will also equip you with the knowledge to make informed investment decisions.
Section 1: What is Shares?
A share is a fraction of ownership in a company. When you purchase shares, you essentially acquire a portion of the company, and the size of your ownership depends on the number of shares you own. Shares are bought and sold on stock exchanges, and their prices can fluctuate due to various factors, including the company’s financial performance, prevailing economic conditions, and overall investor sentiment.
Section 2: The Anatomy of an Equity Share
Moving from the basic question of “what is shares” to a more specific one – “what is equity share.” An equity share, sometimes referred to as ordinary share, is a type of share that confers certain rights to its holder. These include:
- The right to vote on significant company matters
- The right to a share of the company’s profits (if declared) in the form of dividends
- The right to a proportionate share of the company’s residual assets in case of liquidation
Despite being riskier than certain other investments like government bonds – as the value of equity shares can both increase and decrease – they have the potential for high returns.
Section 3: Navigating the Share Investment Process
Investing in shares requires a strategy. Shares can be directly purchased from a company or through a stockbroker by opening a brokerage account. Once the account is active, you can start investing by placing orders with your broker. There are three primary types of orders:
- Market Order: An order to buy or sell shares at the current market price.
- Limit Order: An order to buy or sell shares at a specified price or better.
- Stop Order: An order to buy or sell shares once the market price reaches a specified price.
Section 4: The Upsides and Downsides of Share Investment
Investing in shares offers multiple advantages, such as the potential for high returns, participating in the growth of a company, and diversification of your investment portfolio. However, these benefits come with risks such as the possibility of losing money due to fluctuations in share prices, volatility of the stock market, and the illiquidity of shares, which can make it challenging to sell them quickly.
Section 5: Picking the Right Shares for Investment
Choosing the right shares for investment requires considering factors like:
- The company’s financial performance: Opt for companies that are financially stable and have a track record of generating profits.
- Growth prospects: Companies with growing businesses and promising future growth should be favored.
- Management team: Companies with a strong management team that has a proven success record could be a good choice.
- Valuation: Look for companies trading at a fair price.
Conclusion: Shares and Equity Shares as Investment Tools
Investing in shares, including equity shares, can be a viable strategy for wealth growth over time. However, understanding “what is shares” and “what is equity share” and acknowledging the accompanying risks is crucial. Consulting with a financial advisor for personalized advice is recommended for those considering this investment avenue. With the right knowledge and approach, investing in shares can be a rewarding journey.
