Stocks

Reviewed by Vineeth | Updated on Sep 28, 2020

Introduction

Stocks of a company represent the partial ownership of holders. Issuing equity and debt instruments are the ways in which a company can raise capital for its growth, expansion, and new acquisition. Stocks are equity instruments, and individuals can get partial ownership of the issuing company in exchange for investment. Stocks are bought and sold on the stock exchanges.

Companies or organisations willing to issue stocks must be listed on any of the stock exchanges and requires approval from the national securities watchdog and respective stock exchange.

The listed companies must mandatorily abide by all regulations set by the country’s securities board. Stocks are generally traded in the dematerialised (demat) format. Investing in stocks is an excellent way to accumulate wealth over a long period. However, investors must be aware of the fact that stocks can be risky at times.

Understanding Stocks

'Share' represents a single unit of the ownership of a company being offered in exchange for cash. Stocks are a collection of shares that an investor holds in a particular company. Investors can buy or sell their holdings anytime they want.

However, to make profits, investors should stay invested for as long as possible. When a company makes profits, it may decide to share the same with their investors (stockholders) by paying out dividends. There are various kinds of stocks being issued by a company.

Factors to consider before you invest

  1. By investing in stocks of a company, investors gain partial ownership over the company. The extent of ownership depends on the number of shares held by an individual.
  2. Investing in stocks can be risky at times. Market risk is the most significant risk attached to investing in stocks.
  3. To invest in stocks, individuals have to undergo the Know Your Customer (KYC) process. Also, they need to have a demat account registered with any of the authorised intermediaries without which they cannot trade stocks.