If you’ve just started exploring the world of investing, you’ve probably heard the term shares over and over again. But what exactly are shares, and why are they important? Don’t worry—we’ll break it down in the simplest way possible so you can start your investment journey with confidence.
What Are Shares?
A share represents a unit of ownership in a company. When you buy shares of a company, you become a part-owner of that business. This ownership gives you rights—like receiving a portion of the company’s profits (dividends) and sometimes even voting power in important company decisions.
Think of shares as slices of a big pizza. The company is the pizza, and each share is a slice. The more slices you own, the bigger your portion of the company.
Types of Shares
There are two main types of shares:
- Equity Shares (Common Shares)
- The most common type.
- Give you ownership, voting rights, and dividend benefits.
- Preference Shares
- Priority in receiving dividends.
- No voting rights in most cases.
- Less risky than equity shares but limited in growth potential.
How Do Shares Work?
- Companies Issue Shares
- Businesses raise money by selling shares to the public through an Initial Public Offering (IPO).
- Investors Buy Shares
- You can purchase shares on stock exchanges like BSE, NSE, NYSE, or NASDAQ.
- Share Prices Change
- The price of a share moves up or down based on demand, company performance, and overall market trends.
- You Earn Returns
- Capital Gains: Selling your shares at a higher price than you bought.
- Dividends: A portion of profits paid by the company to shareholders.
Why Do People Invest in Shares?
- Wealth Creation: Shares have historically offered higher returns than savings accounts or fixed deposits.
- Ownership: You become part-owner of a business.
- Liquidity: Shares can be bought or sold quickly in the stock market.
- Dividends: Extra income apart from stock price growth.
Risks of Owning Shares
Like every investment, shares come with risks:
- Price Volatility: Share prices can rise or fall quickly.
- Market Risks: Economic slowdowns or global events affect stock markets.
- Company Risks: Poor performance can reduce share value.
Example: Shares Made Easy
Imagine a company is worth ₹1,00,000 and issues 1,000 shares.
- Each share = ₹100.
- If you buy 10 shares, you own 1% of the company.
- If the company grows and the total value becomes ₹2,00,000, each share is now worth ₹200.
- Selling your 10 shares gives you ₹2,000—doubling your money.
Tips for Beginners
- Start small and gradually increase your investments.
- Diversify your portfolio—don’t put all money in one company.
- Learn the basics of stock market terms like IPO, dividend, and market cap.
- Think long-term—patience is key to wealth creation.
Final Thoughts
Shares are the building blocks of the stock market. By owning shares, you’re not just buying a piece of paper—you’re buying a piece of a business. With the right knowledge and strategy, investing in shares can help you grow wealth and achieve financial independence.