What is Stock?
Stocks are equity instruments, and owning stock endows an individual partial ownership in the issuing company. Stocks can be bought and sold on exchange markets like the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange).
Different Types of Stocks
Companies offer various ownership options through different types of stock, mainly common stock and preferred stock. Some companies even have multiple "classes" within these categories, each granting specific rights related to voting, dividend payments, and claims on company assets in case of bankruptcy.
Common Stock: Owning common stock typically grants voting rights at the company's annual shareholder meeting. Each share of common stock usually provides one vote on company matters. However, in the event of bankruptcy, common stockholders are last in line to recoup their investment, behind debt holders, creditors, and preferred stockholders.
Common stockholders may receive dividends, but these payments are not guaranteed. Companies decide whether to distribute dividends based on their financial needs.
Priorities and Predictability: Preferred stock generally does not come with voting rights, but it offers priority in dividend payments over common stockholders. Additionally, in the event of bankruptcy, preferred stockholders have a more increased claim on the company's assets before common stockholders. Preferred stock provides more predictable dividend payments and greater security in case of financial distress.
Factors to Consider Before Investing in Stocks
Investing in stocks lets you become a partial owner of a company, with ownership stake increasing as you acquire more shares.
However, stock investing carries risks, the most significant being market risk, which means the value of your stocks can fluctuate.
To get started, you need to complete a Know Your Customer (KYC) process and open a Demat account with a registered broker. This account holds your stock certificates electronically.