What Are The Four Types Of Stocks in share Market?

Stocks are a lot of shares of a company. A share represents the shareholder’s part of ownership in the company. The working system of different types of shares is based on their demand (buying)-supply (selling) graph and the assumptions for the company’s growth. The higher number of buyers leads to a rise in their stock price. More sell trades for a company’s stock decline its share price.

There are different types of stocks. You can open demat account along with a trading account online to trade these stocks. Let us explain these stocks and how these stocks are categorized. Here are the four primary classes of stocks.

1. Stocks based on ownership

There are primarily two types of stocks under this category – common stock and preferred stock.

Common stocks offer voting rights to the shareholders to participate in corporate decisions of the management. Most companies have common stocks.
Preferred stocks offer the priority benefit of receiving dividends. The preferred stockholders receive a certain dividend payment before other shareholders, including common stockholders. There may or may not be voting rights for preferred stock shareholders.

You can convert preferred stocks into common shares for capital appreciation if the company allows them. After a certain period, the company can recall preferred stocks. These are called hybrid shares.

2. Stocks based on market capitalization

Market capitalization is the total shareholding of a company.

Large-Cap Stocks: These are known as Blue-chip stocks of well-established enterprises companies with large cash reserves. These stocks benefit investors with higher dividends. These companies’ market cap is over Rs.4,000 crores.

Mid Cap Stocks: These are the shares of the companies with a market cap of Rs. 250 – 4,000 Crores. These have a good track record of steady growth and the potential for further growth compared to large-cap companies. They offer stability to a seasoned player’s portfolio.

Small-Cap Stocks: These are the stocks of companies with a market cap of less than Rs.250. These companies possess a high potential for future growth. Long term investors looking for high growth in share value and who are not very particular about the present dividend cycles can consider these stocks.

Position on stock exchanges:

Large Cap: 1st – 100th company on stock exchanges
Mid Cap: 101 st – 250th company
Small-Cap: All companies beyond 250th

3. Stocks based on dividend payments

Income stocks: These are also called dividend-yield stocks. These stocks distribute a higher dividend concerning their share price. These stable companies distribute consistent dividends but do not have high-growth potential. The stock price may not increase much. These are low-risk stocks.

Growth stocks: These companies grow faster, and the value of the shares also rises significantly. These are relatively riskier than income stocks. Investors can earn higher returns by selling them in the secondary market. Long term investing can be fruitful with these stocks.

4. Stocks based on fundamentals

Each stock has an intrinsic value. It is the true worth of the share. Investors can consider a company’s profits and earnings-per-share earnings ratio to estimate the intrinsic value per share. Investing in these stocks is known as value investing.

Overvalued Shares: The price of these shares exceeds the intrinsic value.
Undervalued Shares: The price of these shares is less than the intrinsic value.

Further stocks can be classified based on risk factor and price trends also.

Equity investing is the way to gain inflation-beating returns and be fruitful with the proper fundamentals knowledge and experience. This classification will help investors to opt for the right type of stock as per their set financial goals. Two options for investors are active and passive investment approaches based on your risk appetite. Worth mentioning that indirect and long-term investments are less risky than direct stock investments and short-term trading. Open your demat account with a discount broker and save on investing costs.