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How to Open a Demat and Trading Account (Step-by-Step) — Types of Shares in Stock Market (Equity, Preference, Bonus, Rights)
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Types of Shares in Stock Market (Equity, Preference, Bonus, Rights)
Introduction
The stock market can seem complex, but at the heart of it are different types of shares—each with distinct rights, rewards, and risks. This guide explains the Equity, Preference, Bonus, and Rights shares in clear language, and also walks you through opening a Demat & Trading Account step-by-step so you can start buying shares safely. Whether you are a student, beginner investor or preparing notes for competitive exams, this post is structured to be SEO-friendly, mobile-responsive, and easy to scan.
Quick Overview Table
| Topic | Quick Summary |
|---|---|
| Equity Shares | Ownership & voting rights; potential for high returns and higher risk. |
| Preference Shares | Fixed dividend, priority in payouts, limited/no voting rights. |
| Bonus Shares | Free shares issued from reserves to existing shareholders. |
| Rights Shares | Discounted shares offered to current shareholders to raise capital. |
| Account Required | Demat Account + Trading Account (KYC mandatory) |
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Visual: Share Types at a Glance
Equity — Ownership & voting (majority of retail attention)
Preference — Fixed income-like
Bonus — Free shares to existing holders
Rights — Discounted new shares offered to existing shareholders
Main Guide — Types of Shares in Stock Market (Equity, Preference, Bonus, Rights)
1. What are shares?
Shares are units of ownership in a company. When you own shares, you become a partial owner—entitled to a share of profits (dividends), voting rights (in many equity classes), and the potential upside if the company grows. The phrase Types of Shares in Stock Market (Equity, Preference, Bonus, Rights) is useful for both SEO and clarity: each share type serves a specific investor need.
2. Equity Shares (Common Shares)
Equity shares represent true ownership. They usually come with voting rights and are the primary vehicle for long-term capital appreciation.
- Voting Rights: Yes (generally)
- Dividends: Variable and not guaranteed
- Risk/Reward: High risk, potentially high return
Example: If a firm issues 1,00,000 equity shares and you own 1,000 — you own 1% of the company.
3. Preference Shares
Preference shares act like a hybrid between debt and equity. They give shareholders a fixed dividend and priority payment in liquidation but usually limited voting rights.
- Fixed dividend: Yes (for example 8% p.a.)
- Voting Rights: Limited or none
- Best for: Investors seeking lower volatility than equities
4. Bonus Shares
Bonus shares are free additional shares issued to existing shareholders out of reserves. They increase the number of shares you hold but do not immediately increase your proportional wealth — instead they change the share price and improve liquidity.
Common ratio: 1:1, 2:1, 1:2 etc. If the company declares a 1:1 bonus and you have 100 shares, you’ll receive 100 additional shares.
5. Rights Shares
Rights shares are offered to existing shareholders at a discount so the company can raise fresh capital while giving current owners first access. Rights are usually time-limited; you can exercise them or sell the rights in the market (if tradable).
6. Side-by-side Comparison
| Feature | Equity | Preference | Bonus | Rights |
|---|---|---|---|---|
| Voting Rights | Yes | No/Limited | Yes | Yes |
| Dividend | Variable | Fixed | — (converted from reserves) | Varies |
| Liquidity | High | Medium | After listing | Depends |
| Best For | Growth investors | Income investors | Long-term holders | Existing shareholders |
7. Why Companies Issue Different Share Types?
- Raise capital without increasing debt
- Reward loyal shareholders (bonus)
- Offer priority payments (preference)
- Protect control while raising funds (different voting rights)
How to Open a Demat & Trading Account (Step-by-Step)
Modern brokers allow 100% online account opening. Below is a typical flow you can follow right away.
Step 1: Choose a Broker
Popular brokers: Zerodha, Groww, Upstox, Angel One, ICICI Direct. Compare brokerage, margin, platform features, and customer service.
Step 2: Start Online KYC
- Visit broker website/app → Click “Open Account”
- Enter mobile number and email
- Upload PAN, Aadhaar, photo, and signature
Step 3: eSign with Aadhaar OTP
Complete e-KYC via Aadhaar OTP. Most brokers use e-sign so your account is activated quickly.
Step 4: Link Bank Account (for settlements)
Provide bank details & canceled cheque/IFSC. This is required to transfer funds & receive dividends.
Step 5: Start Trading
Once documents are verified and account is active, transfer funds and you can buy your first share using the trading platform.
Checklist Before You Buy
- Understand share type & rights
- Check company financials (if buying equity)
- Confirm corporate actions (bonus/rights date)
- Start with small trades if you are a beginner
Tax & Other Practical Notes
Short-term capital gains (STCG) and long-term capital gains (LTCG) tax rules differ by jurisdiction and holding period. In India, typically: if equity shares are held for >12 months, LTCG rules apply; STCG applies for ≤12 months — consult a tax advisor or updated govt guidance.
Conclusion
Understanding the Types of Shares in Stock Market (Equity, Preference, Bonus, Rights) helps you align investments to your goals. Equity for growth, preference for steady income, bonus for loyalty benefits, and rights when companies raise funds. Open a Demat & Trading account from a trusted broker, complete KYC, and invest with a plan.
20 Frequently Asked Questions (FAQs)