What is an Equity Share – Returns on Investments – Dividend – Bond – Debenture – Bonus Share

Q. What is an Equity Share?

A. An equity share represents the form of ownership. The holder of such a share is a member of the company and has voting rights.

Q. What returns can I expect from my investments in equity shares? What are the risks?

A. Equity shares are “High-Risk High-Return Investments.” The major distinction of Equity investment from all other investment avenues is that while the return from many avenues such as Bank Deposits, Small Saving schemes, Debentures, Bonds etc are fixed and certain, the earnings from equity investments are highly uncertain and varied. A good scrip picked up at the right time could fetch fairly good returns else the return may be meager or it may even turn negative, i.e. the invested fund itself may be eroded. In short, if the investment in fixed income category instruments is secured and risk-free to a large extent, investment in equities and related fields could be termed as risky.

Q. What is Dividend?

A. Dividend is the part of profit distributed by the company among its investors. It is usually declared as a percentage of the paid-up value or face value of the share.

Q. What is a Bonus Share?

A. A Share issued by companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

Q. What is a Bond?

A. A Bond is a promissory note issued by a company or government to its lenders. A Bond is evidence of debt on which the issuing company usually promises to pay the bondholder a specified amount of interest at intervals over a specified length of time, and to repay the original loan on the expiration date. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date.

Q. What is a Debenture?

A. It is a Bond issued by a company bearing a fixed rate of interest usually payable half-yearly on specific dates and principal amount repayable on a particular date on redemption of the debentures. Debentures are normally secured/charged against the asset of the company in favor of debenture holder.

Q. What is a Stock Exchange?

A. A Stock Exchange is a place where the buyer and seller meet to trade in shares in an organized manner. There are at present 25 recognized stock exchanges in the country that are governed by the Securities Contact (Regulation) Act, 1956.

Q. What shares can I buy?

A. You can buy the shares that are listed on any of the recognized Stock Exchanges.

Q. Whom should I contact for my Stock Market related transactions?

A. To be able to buy or sell shares in the stock markets a client would need to be registered with a stock broker like Broker Securities Ltd who holds membership in stock exchanges and who is registered with SEBI.

Q. Am I required to sign any agreement with the broker or sub-broker?

A. Yes, you have to sign the “Member-Client agreement” for the purpose of engaging a broker to execute trades on your behalf from time to time and furnish details relating to yourself to enable the member to maintain Client Registration Form.