WHAT ARE DIFFERENT TYPES OF STOCKS?

In this article we discuss different types of stocks that an investor can own.

Stocks on the basis of ownership rights

Types of Stocks on the basis of market capitalization:

tocks on the basis of dividend payments:

If you are new to stock market, you may want to refresh with a few of the following articles before proceeding

How to Invest in the Share Market?

Basics of Share market- Complete Guide

Key terms in Stock Market that you should know

Warren Buffett’s Investment Tips for Beginners

Types of Stocks on the basis of ownership Rights

Basic parameter for classifying stocks. Investors can own two distinct kinds of stocks. Each provides different ownership rights and growth potential.

Common stocks

Common stock is, well, common. When you own common stocks, you own a share in the company’s profits as well as the right to vote.  When investor talk about stocks they are most likely referring to this type of stocks. The majority of stock issued is in this form on stock exchange. Common stock has given higher returns than most other investments. In addition to higher returns, common stock also carries risks.

Preferred Stock

Preferred stocks promise investors that they will pay a set quantity each year as dividends.  Dividends are paid to preferred shareholders before common shareholders, including in the case of bankruptcy or liquidation. Preferred stock represents ownership in a company but usually doesn’t come with voting rights. As we understand preferred stock as falling somewhere in between bonds and common stock.

Preferred & common stocks detail comparison

Types of Stocks on the basis of market capitalization

Market capitalization is generally referred to as short-term market cap. Market capitalization is a company’s overall value. It’s measured by the stock price times the number of shares issued.

Market Capitalization= Stock price (CMP)* No. of share issued

For example, a company xyz that has 2 million shares that are selling for Rs 100 each would have a market capitalization of Rs 200 million.

Market Capitalization also refers to the total value of a stock exchange. For example, the market cap of the NSE would equal the market cap of all the companies traded on the NSE combined.

Small cap

As the name suggests, these are stocks with the smallest values in the market companies have a market cap of less than $1 billion. They are smaller companies, many of which recently went through their initial public offering. For an investor who wants to produce important long-term profits, these stocks are the best choice. This is because in the future, tiny businesses have the ability to grow quickly. Investors can profit by purchasing the inventory if it is accessible cheaply in the original phase of the company. They are riskier because they are more likely to default during a downturn.

Mid cap

Stocks of medium-sized companies that have a market capitalization in the range between $1 billion to $5 billion are mid-cap stocks. Companies are less risky than small cap stock, but may not have the same potential for growth as small cap. Some study showed they actually outperformed both small cap and large cap stocks over the last 20 years.

Large cap

Stocks of the largest companies in the market such as TCS, Reliance, and HDFC bank are classified as large-cap stocks or blue-chip stocks. The market cap for large cap companies is $5 billion or more. This companies have the least risk because they typically have the financial resources. Since they are market leaders, they also have less growth potential than small and midcap stocks. Therefore, the return may not be as high as small or mid cap stocks. On the other hand, they are more likely to reward stockholders with dividends.

Stocks on the basis of dividend payments

Income stocks: These are stocks that gives a higher dividend in relation to their share price. They are also called dividend-yield. So, a higher dividend means larger income. This is why these stocks are also called income stocks.

Growth stocks not all stocks pay high dividends. This is because businesses prefer to reinvest their income for business activities. Usually this enables the business grow at a quicker pace. Such stocks are often referred to as growth stocks as a consequence.

Leave a Comment

Your email address will not be published. Required fields are marked *

Open chat
1
Need Help?
Hello
Can we help you?