Stocks, often referred to as shares or even as equity stocks, represent the shareholder’s ownership in the company. When you buy a stock of a company that is listed in the stock market, you become a partial owner in that company. You can buy stocks in the share market during the trading hours, which start at the share market opening time of 9:15 AM and end at the share market closing time of 3:30 PM.

Depending on the amount you have invested in the company’s shares, you enjoy a certain degree of claim over the company’s assets and earnings.

Typically, stocks can be one of two types: equity shares and preference shares.

  • Equity shares:
    Equity shares simply represent that part of a company’s equity that most people invest or trade in. You too can invest in the equity shares of a company through the primary markets (via IPOs) or through the secondary markets. When you own some equity shares in a company, you gain the right to vote at the shareholder’s meeting and to receive dividends. But the dividend on equity shares is only paid out after all other liabilities have been settled.
  • Preference shares:
    Owning preference shares in a company means that your claim over the company’s income has a higher priority. In other words, you will be paid dividends before equity shareholders receive them. However, you will not have any voting rights at the shareholders’ meeting.

Most companies do not issue preference shares. So, when you think of investing in the stock market, you will most likely be investing in the equity shares of the listed company whose shares you purchase. And for as long as you hold the equity shares of that company, you will be eligible to receive any dividends that the company may declare.

Stocks allow you to invest directly in a company that is listed in the stock market. This is why such investments are also referred to as direct equity. Needless to say, the risk and the volatility associated with direct equity investments are significantly high.

Mutual funds, on the other hand, invest in securities and assets across different companies or sectors, thereby reducing your risk exposure and the volatility involved. These investment vehicles use a collective pool of money from a large number of investors to purchase a predetermined range of assets such as equity, bonds, money market instruments or even gold.

Depending on the kind of assets they invest in, mutual funds can be of different types such as equity funds, debt funds, balanced funds and more. If you are unsure about investing in stocks directly, you can invest in stocks via equity mutual funds too, since these investment vehicles have portfolios consisting of stocks of different listed companies.

Equity mutual funds can be classified according to the market capitalisation of the companies they invest in. Thus, they can be categorised as large-cap funds, mid-cap funds, small-cap funds or multi-cap funds

There are also sectoral and thematic funds that invest in equity stocks of companies in specific sectors or companies that fit certain themes like ethical investing.

You can invest a lump-sum amount in a mutual fund, or you could choose to start a Systematic Investment Plan (SIP). In an SIP, you can invest small sums, as low as ₹500, periodically over the long term. This eliminates the need to time the market and helps you invest in stocks consistently and in a disciplined manner.

Pricing

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20
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*Zero AMC is applicable for users onboarded from August 2021 onwards.

Frequently Asked Questions (FAQs)

What are the 4 types of stocks?

Stocks in the share market can be classified into different groups based on various criteria of classification. Here are four ways in which stocks can be classified.

 

  • Based on the priority and voting rights
    Stocks in this category can be equity shares or preference shares.
  • Based on market capitalization
    Stocks in this category can be large-cap, mid-cap or small-cap stocks.
  • Based on the investment approach
    Stocks in this category can be growth or dividend stocks.
  • Based on their relationship to the economy
    Stocks in this category can be defensive or cyclical.

Is it safe to invest in the stock market?

The stock market is primarily considered a high risk investment option. This is because it is challenging, at the very least, to predict the price movement of stocks precisely. So,
investments in the stock market are considered to be riskier than most other investment
options.

 

However, despite the relatively higher levels of risk involved, it can be safe to invest in the stock market if your investment decisions are backed by adequate research and due diligence. This is especially true if you invest consistently in the stock market over the long term, since that would allow you to tide over the effects of short-term price changes.

How can I learn about the stock market?

There are plenty of free online stock market courses on the internet today. You can even enroll in many of them free of charge and learn about the workings of the share market.
Alternatively, you can also watch a few videos each day on free platforms such as YouTube to gain more knowledge about the stock market.

 

Once you’ve gained enough theoretical knowledge, you can even try your hand at practicing stock trading using virtual trading applications. This way, you can gain some much-needed practical knowledge on how trading actually works before you seriously begin stock trading.

What is the difference between stocks and shares?

Investors generally tend to use the words stocks and shares interchangeably. While this is not wrong per se, there is a small difference between the meanings of these two words. Shares essentially represent a portion of ownership in a company. For instance, when you hold 1 share out of 100 shares of a company, you essentially enjoy 1/100th of the company’s ownership.

 

The term ‘stocks,’ on the other hand, is used to refer to a collection of shares in one or more companies. For instance, if you hold 100 shares of a company, you hold the stock of the company. As you can see, the difference between the two words is quite minor. However, for all intents and purposes, the terms stocks and shares are used in place of each other today.

How do stocks make you money?

Stocks primarily make you money through capital appreciation. This is simply a rise in the market value of an investment or an asset. So, if the share price of a company rises after you’ve bought it, that’s an example of capital appreciation. You can earn the benefit of capital appreciation by selling your stocks for a price that is higher than your purchase price.For instance, let’s say that you purchase 1 share of a company for ₹100. And after a certain period, the share price rises to ₹150. This is a clear-cut example of capital appreciation. You can cash in on the gains of ₹ 50 by selling your holdings.

 

That said, capital appreciation is far from the only way in which you can gain financial benefits from the stock market. Stocks of certain companies also give you the advantage of dividend payments. Dividends are simply a share of the company’s profits that are distributed to the shareholders. These dividends are in addition to any capital appreciation that the stock may bring in over the long term.

Do I lose money if stocks go down?

You don’t always lose money if the price of the stock you invested in goes down. Although the stock may show up in red or in the negative on your online trading app, it is just an unrealized loss. You will only lose money if you sell your holdings when they are in red, for a share price that’s lower than your purchase price. This is because the loss is only realized upon sale.

 

So, you may choose to not sell the stock even if you find its share price going down. Instead, holding on to it even when its price is going down may be a good idea, since there may be a chance of the stock bouncing back up. This way, you can avoid suffering a loss even when stock prices go down.

Who gets the money when I buy a stock?

Say you’ve decided to invest in a particular stock after extensive research and due diligence. Now, when you purchase the said stock from a stock exchange such as the BSE or the NSE, the amount of money that you pay for the stock will be sent to the trading account of the seller of the stock. This seller may be another individual or an entity, and not the company itself.

 

However, if you purchase a stock during an IPO, rather than from the BSE or the NSE, the amount that you pay for the stock will go towards the promoters of the company or the company making the issue.

Do I need a demat account to buy stocks?

Yes, you do. A demat account is an electronic account that allows you to store shares and other securities that you purchase from stock exchanges like NSE or the BSE in India. According to the regulations of the Securities Exchange Board of India (SEBI), a demat account is mandatory if you wish to buy or sell shares in the stock market. So, you need to have a demat account if you’re interested in buying stocks.

How to become a stock market partner with Upstox?

You can check out the Upstox web & mobile platforms for free and open an account only when you’re ready to place a trade. There’s no fee to use the trading software.

 

  1. Sign up with your details name, email, phone number, city, and state.
  2. Enter your PAN details
  3. Complete registration payment
  4. Verify your email
  5. Submit essential documents
  6. Upload an IPV Video
  7. eSign
  8. Start earning for every user you successfully refer and enjoy a share of the brokerage from each trade your referred user places.
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