The stock market has been under the nose of many investors. There has spontaneously been a surge of interest in investing in bonds and stocks. But if you are a new investor, maybe only updating with sensex charts is just not enough. Let’s dive into the understanding of types of stocks.
Stocks are divided into types on the basis of various criteria like ownership, market capitalization, dividend payouts, and more. Let’s dive into a major of them so that next time when you read nifty & sensex, you will understand much more than just the number.
Types of stocks (based on ownership)
- Common stocks: Common stocks reflect the ownership of equity in a company. With these stocks and you as the shareholder have the right to claim a share in the profits made by the company.
- Preferred stocks: When we look into dividends, preferred shareholders are benefited from higher and guaranteed dividends payout. There are dividends for common stockholders but they aren’t guaranteed. Moreover, during bankruptcy, preferred stocks are given priority.
- Hybrid stocks: Also known as “convertible preferred shares”, hybrid stocks are a combination of both preferred and common stocks. The ratio varies but preferred stocks are more dominant in this pair.
Types of stocks (based on risks)
- Blue-chip stocks: These are the kinds of stocks that are coming from well-regulated companies. The liabilities they are holding are minimum, hence they come under low risks. These companies provide stable returns and earnings and also pay periodic dividends to the shareholders.
- High Beta Stocks: Beta in stocks is a unit of measuring risk. This unit can be both negative and positive. So when we say it’s a positive high beta stock, it will mean that the stock is running parallel with the current market and when it is negative, the stock has deviated opposite to the market.
Types of stocks ( based on market capitalization)
- Large-cap stocks: These stocks are popularly known as blue-chip stocks. Companies that rank from 1st to 100th in the stock exchange on the basis of market capitalization, fall under the category of large-cap stocks. For example Infosys, HDFC Bank, and Reliance industries.
- Mid-cap stocks: The stocks that range between 101th to 251st stock in the stock exchange fall under the category of mid-cap stocks. These stocks are slightly riskier than the Large-cap stocks and hence are suitable only for adventurous investors.
- Small-cap stocks: Stocks ranked from 251st in terms of market capitalization are called mid-cap stocks. These companies are highly unstable or volatile and hence are only suitable for aggressive investors who have deep knowledge of market analysis.
All of these should help you kickstart your stock understanding but here is a kind of stock that would interest you. When you purchase a stock at a certain price and it doubles in the long run. This is the idea of a multi bagger stock.
There are certain ways to identify multi bagger stocks, but for now, all of this should help you start your equity journey optimally.