Types of Shares in Stock Market (Equity, Preference, Bonus, Rights)
Understanding the different types of shares in the stock market is essential for every investor. Whether you are a beginner or a trader, knowing the difference between Equity Shares, Preference Shares, Bonus Shares, and Rights Shares helps you make smarter investment decisions. This complete guide explains each share type in simple language with examples, tables, advantages, and FAQs.
Quick Overview Table
| Type of Share | Meaning | Key Feature | Suitable For |
|---|---|---|---|
| Equity Shares | Ownership in a company | Voting rights | Long-term investors |
| Preference Shares | Fixed income + priority | Fixed dividends | Low-risk investors |
| Bonus Shares | Free shares to investors | Issued from reserves | Existing shareholders |
| Rights Shares | Discounted new shares | Exclusive offer | Existing shareholders |
Important Links
| Resource | Link |
|---|---|
| Official Website | FinBankingTech.com |
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Eligibility Criteria
| Criteria | Details |
|---|---|
| Minimum Age | 18 years |
| Demat Account | Mandatory |
| PAN Card | Required |
| Bank Account | Linked for transactions |
| KYC | Must be completed |
What Are Shares in Stock Market?
Shares represent ownership in a company. When you buy a share, you become a shareholder and gain the right to earn profits through dividends or capital appreciation. Companies issue different types of shares to meet various financial needs.
Equity Shares – True Ownership
Equity shares are the most commonly traded shares in the stock market. These shares offer voting rights and dividend earnings based on profits.
Features of Equity Shares
- Full ownership
- Voting rights
- Higher returns potential
- Risk due to price fluctuations
Advantages
- Long-term capital growth
- Dividend income
- Better liquidity
Preference Shares – Fixed Income & Priority
Preference shares provide fixed dividends and priority in payment over equity shareholders. They are ideal for low-risk investors.
Types of Preference Shares
- Cumulative Preference Shares
- Non-Cumulative Preference Shares
- Convertible Preference Shares
- Non-Convertible Preference Shares
Bonus Shares – Free Shares for Investors
Bonus shares are issued free of cost to existing shareholders, usually in ratios such as 1:1 or 2:1. They increase the number of shares but do not change the total investment value.
Rights Shares – Discounted Shares for Existing Investors
Rights shares allow existing shareholders to buy additional shares at a discounted price to prevent dilution of ownership.
Difference Between Equity, Preference, Bonus & Rights Shares
| Feature | Equity Shares | Preference Shares | Bonus Shares | Rights Shares |
|---|---|---|---|---|
| Ownership | Strong | Limited | Existing holders | Existing holders |
| Voting Rights | Yes | No | Yes | Yes |
| Dividend | Variable | Fixed | No cost | Discounted purchase |
| Risk | High | Low | Low | Medium |
Key Takeaways (Summary)
| Key Point | Description |
|---|---|
| Equity Shares | Ownership with voting rights |
| Preference Shares | Fixed dividends + priority |
| Bonus Shares | Free shares issued |
| Rights Shares | Discounted additional shares |
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Frequently Asked Questions (FAQs)
1. What are the main types of shares?
Equity, Preference, Bonus, and Rights Shares.
2. Which share type offers voting rights?
Equity shares offer full voting rights.
3. Are bonus shares free?
Yes, they are issued at no cost to investors.
4. Do preference shareholders get fixed income?
Yes, they receive a predetermined fixed dividend.
5. Can rights shares be traded?
Yes, rights entitlements are often tradable.
6. Do bonus shares increase company value?
No, they only increase the number of shares.
7. Are preference shares safe?
They are safer than equity shares due to fixed returns.
8. Do equity shares guarantee returns?
No, returns depend on market performance.
9. Can bonus shares be sold?
Yes, after they are credited to your Demat account.
10. What is a rights issue?
An offer to existing shareholders at a discounted price.
11. Are dividends taxable?
Yes, dividends are taxable as per income tax rules.
12. What is the benefit of rights shares?
Investors can increase holdings at a lower price.
13. Which is better for beginners?
Equity shares are suitable for learning and growth.
14. What is a bonus ratio?
The proportion of bonus shares issued (e.g., 1:1).
15. Can preference shares be converted?
Only if they are convertible preference shares.
16. Who can buy rights shares?
Only existing shareholders.
17. Why do companies issue bonus shares?
To reward shareholders and improve liquidity.
18. Are preference shares traded?
Some are traded on stock exchanges.
19. Who receives dividends first?
Preference shareholders receive dividends before equity holders.
20. Are rights shares cheap?
Yes, they are offered at a discounted rate.
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