When you invest in the stock market, the most common thing you buy is a share.
Understanding what shares actually represent is crucial before putting money into the market.
This page explains:
- What shares are
- Why companies issue shares
- How shareholders make money
- Why share prices change
All explained in simple, Indian context.
What Is a Share?
A share represents partial ownership in a company.
When a company divides its ownership into small units, each unit is called a share.
If you own shares of a company:
- You own a small part of that company
- You become a shareholder
Why Do Companies Issue Shares?
Companies issue shares to raise capital for growth.
They may need money to:
- Expand operations
- Build factories
- Develop new products
- Enter new markets
- Reduce debt
Instead of taking loans, companies can raise money by selling ownership to the public through shares.
Simple Example: Understanding Share Ownership
Imagine a company called XYZ Ltd.
- Total value of company: ₹100 crore
- It issues 10 crore shares
- Price per share: ₹10
You buy 1,000 shares:
- Investment = ₹10,000
- You now own a small part of XYZ Ltd
If the company grows and performs well, the value of your shares may increase.
What Rights Do Shareholders Have?
As a shareholder, you may have the right to:
- Receive dividends (if declared)
- Benefit from share price appreciation
- Vote on major company decisions (in some cases)
- Access company disclosures and reports
However, owning shares does not mean:
- You manage the company
- You make daily business decisions
How Do Shareholders Make Money?
There are two main ways shareholders can earn returns:
1️⃣ Capital Appreciation
If the share price increases after you buy it:
- You can sell it at a higher price
- The difference is your profit
Example:
- Buy at ₹100
- Sell at ₹150
- Profit = ₹50 per share
2️⃣ Dividends
Some companies share profits with shareholders in the form of dividends.
- Dividends are not guaranteed
- Growth companies may not pay dividends
- Mature companies may pay regularly
Both methods depend on the company’s performance.
Why Do Share Prices Change?
Share prices change because of demand and supply.
Prices may rise when:
- Company profits increase
- Future growth looks strong
- Investors feel confident
- More buyers enter the market
Prices may fall when:
- Earnings decline
- Business outlook worsens
- Economic uncertainty increases
- More sellers exit the stock
Prices reflect expectations about the future, not just current results.
Are All Shares the Same?
No.
Shares can differ based on:
- Company size (large, mid, small)
- Business sector
- Growth potential
- Risk level
Some shares are:
- More stable
- Slower growing
Others are:
- Faster growing
- More volatile
Understanding this helps manage risk.
Face Value vs Market Price (Beginner Confusion)
- Face Value: Accounting value set by the company
- Market Price: Price at which the share trades in the market
👉 Face value has little importance for investors.
👉 Market price reflects real demand and expectations.
Long-Term View: What Really Matters
In the long run, share prices are influenced by:
- Company earnings growth
- Business quality
- Management decisions
- Industry trends
- Overall economic environment
Short-term price movements can be noisy, but fundamentals matter over time.
Common Beginner Misunderstandings
❌ Buying shares means guaranteed profit
❌ Low-priced shares are cheap
❌ Share prices move only on news
✅ Reality:
- Returns depend on business performance
- Price alone doesn’t indicate value
- Expectations and emotions also move prices
Key Takeaways
- Shares represent ownership in a company
- Companies issue shares to raise money
- Shareholders benefit from growth and dividends
- Prices change due to demand, supply, and expectations
- Understanding shares is essential before investing
What Should You Read Next?
Now that you understand what shares are, the next step is to understand how people use shares differently.