What It Is:
Stocks represent ownership in a company. When you buy shares, you own a portion of that company.
Key Terms:
- Share/Stock: A unit of ownership in a company
- Market Capitalization (Market Cap): Current market price of each share × number of shares
- Bull Market: A period when stock prices are rising
- Bear Market: A period when stock prices are falling
- IPO (Initial Public Offering): When a company offers shares to the public for the first time
- P/E Ratio: Shows how much investors are paying for each rupee of earnings. Low P/E – Co is undervalued; High P/E – Co is overvalued
- Volume: Number of shares traded in a particular period
Key Features:
- Dividends: Some companies share profits with shareholders
- Market-driven prices: Values fluctuate based on performance and trends
- Liquidity: Stocks are highly liquid instruments
Benefits:
- High returns over the long term compared to traditional investments
- Compounding helps your money grow faster when profits are reinvested
- Diversification allows spreading risk across sectors or industries
Limitations:
- Market risk: Prices can drop, especially during downturns
- Volatility: Short-term swings can cause anxiety and uncertainty
- No guaranteed returns: Profits are based on company performance, not assured
Types:
- Large Cap: Well-established, stable companies with steady growth
- Mid Cap: Growing companies with higher risk and potential
- Small Cap: New or small companies offering higher rewards but greater uncertainty
Best For:
Experienced & Long-term investors & investors willing to take risks
Historical Fact:
The Bombay Stock Exchange (BSE), established in 1875, is Asia’s oldest stock exchange! It started under a banyan tree where traders would meet and exchange shares—long before digital trading existed!
Comparison: Equity vs MF (SIP)
Stock Types - Categories & Suitability
Market Insight:
Historically, blue-chip stocks tend to outperform small-caps during recessions, while small-caps often lead during economic recoveries due to faster growth potential.
