Overview
Shares and mutual funds– Share is the smallest unit of the capital of a company. In other words, A unit of ownership, that represents an equal proportion of a company’s capital, we call it as shares.
A share is the interest of a shareholder in a definite portion of the capital. It expresses a proprietary relationship between the company and the shareholder. A shareholder is the proportionate owner of the company.
A share is the smallest unit of the total share capital of the company.
The share regards as unit of account that can represent several monetary instruments such as stocks, mutual funds, etc.
Share market is the aggregation of buyers and sellers of stock shares or stock.
Any stock exchange is for trading the stocks.
There are two stock exchanges in India-
1. National stock exchange
2. Bombay stock exchange
Note- If a person owns the shares of a company’s stock is a shareholder.
Here we study two types of shares-
Ordinary shares or common stock
Shares and mutual funds-These types of shares entitle the shareholder to share in the earnings of the company as and when they occur and to cast a vote at the company’s annual general metting’s and other official mettings.
Note- if the share is ordinary in the course of company’s business then we call it as equity share.
Preference shares or preferred stock-
These types of shares entitle the shareholder to a fixed periodic income or interest but generally do not give him or her voting rights.
These types of shares are cumulative, non-cumulative, convertible etc.
Types of shares
Shares and mutual funds-Mainly the shares are of two types i) Preference shares and ii) Equity shares or common shares or ordinary shares.
i) Preference shares: These shares have a priority over the equity shares. From the profits made by a company, a dividend at a fixed rate is paid to them first, before distributing any profit amount to the equity shareholders. Also, if and when the company is closed down then while returning of the capital, these shareholders get a preference.
Again, preference shares are mainly of two types:
Cumulative Preference shares: In case of loss or inadequate profit, the preference shareholders are not paid their fixed rate of dividend, then the dividend is accumulated in the subsequent years to these shareholders & is paid preferentially whenever possible.
Non-cumulative Preference shares: As in the case of cumulative preference shares, here the unpaid dividends do not accumulate.
Share Market
Shareholders can buy or sell shares like commodities. Selling or buying a share for a price higher than its face value is legal. The share prices can subject to the market forces of demand and supply and thus the prices at which shares are traded can be above or below the face value.
The place at which the shares are bought and sold is called a share market or stock Exchange and the price at which a share is traded is called its Market Price (MP) or the Market value.
Mutual funds
“Mutual Fund is a pool of money that we collect from investors and invest in stocks.”
In other words- An investment programme, funded by shareholder’s, that trades in diversified holding and professionally managed is called as mutual funds.
A mutual fund is basically at less risk as compared to shares.
all the investors share all the profits or losses in the same proportion as the amount of contribution made by them.
Mutual fund investments are subject to market risk.
There are many mutual funds but all mutual funds are of two types- open ended funds and closed ended funds.
Open-ended Fund
There is no limit to the number of units purchased and sold in open ended fund
It has no fixed maturity period.
A number that we call it a Net Asset Value, is use to find the value of a share in open-end fund at any time.
Investor can buy and sells his units at Net Asset Value (NAV) which declares on a daily basis.
Closed-ended Fund
In closed-ended fund will issue a fixed number of shares are issued to the public. The price of share in a closed-ended fund is determined by market-demand.
These types of funds are not redeemable.
This fund also known as “Closed-end investment” or “closed-end mutual fund.”
Example: How many shares of market price of Rs.130 each, can a person purchase for Rs.50150 with brokerage being 0.5%?
Sol.
Here
Market price for one share = Rs. 130
Total amount invested = Rs.50,150
And brokerage = 0.5
Brokerage per share = 0.5% of market price
Purchased price for one share = Market price + Brokerage
= 130+0.65 = 130.65
