Financial literacy and more
All about equity investments
A company is allowed to issue only a specific number of shares.
This is fixed and has to be mentioned in the basic documents of the company.
This puts a limit to the number of shares that a company can issue.
It limits the capital raising ability of a company to the figure specified.
If required the authorised share capital can be raised by a company.
A follow on public offer is known as a FPO is a further issue of shares by a company to its investors.
This is an issue for shares when the existing shares are already listed on the stock exchanges.
The price for such an issue thus has to be linked to the traded price in the market,
This can be used by companies to raise more capital for its needs.
It can also be used by existing investors to exit their holdings.
An initial pubic offer is also known as an IPO is the first issue of shares by a company.
Whenever a company makes its first public offer of shares to various investors then the process is called an IPO.
The term clearly suggests that the investors are getting a chance to buy the shares for the first time.
The shares can be offered either at face value or at a premium.
Investors would need to familiarlise themselves with the company, its activities and its financial condition before deciding on subscribing for the shares,
Whenever a company issues shares to various investors there is a certain price that is paid by the investor.
The price that is paid depends on the value of the company at that point of time,
The investor might have to pay a figure that is higher than the face value of the share.
For example a company might issue shares at Rs 35 when the face value if Rs 10.
In this case the extra amount above the face value which is Rs 25 is the premium that is present on the share.
Every share has a basic value which is known as its face value.
This face value can be considered as the original value of the share in the company.
The company need not issue shares at face value because these can be given to investors at a premium too.
The face value can be different figures like Rs 10 or Rs 5 or Rs 2.
The dividend on the shares is calculated as a percentage of the face value of the share.
There is another type of share which is issued by companies that are called preference shares.
These shares have a fixed amount of dividend that is paid out each year.
The rate of dividend is usually mentioned in front of the shares.
These shares do not give the same ownership rights as equity shares.
The amount on these shares are paid before the equity shareholders are paid in case of closing down of the company.
Equity shares are the shares that provide ownership for an investor in a company.
There is equity capital that a company is authorised to issue and for this shares are given to investors.
These are equity shares which are the shares that are listed on a stock exchange.
These pay dividends only if the company makes a profit.
The holders of the equity shares will receive some amounts at the very end if there is something left for them at the time of the closing down of the company.
A company that does not have its shares listed on a stock exchange is an unlisted company.
An investor can buy shares for such a company from other shareholders or through a new issue.
There is no visible price which gives an idea about the value of the investment.
There is also a lower amount of liquidity in such shares as a buyer or seller needs to be found to transact.
Many investors buy shares in unlisted companies wanting to profit from it when these companies get listed on a stock exchange at some later date.
A public limited company whose shares are traded on a stock exchange is called a listed company,
The process of having the shares traded is known as listing on a stock exchange.
The benefit for an investor is that they can transact through their brokers on the stock exchange.
This gives a better liquidity to the investor for their money.
The price of the shares are also visible at various places when a company is listed.
An equity investment is one where the investor becomes the owner of the company.
The investor is able to share in the profits of the company through dividends.
At the same time if the shares are listed then the investor can also earn capital appreciation.
As an owner the risk is also high because the loss for the investor can lead to erosion of capital.
This thus becomes a high risk and high return investment.