Share is the term used in the context of financial markets, it refers to ownership in the company in the form of units. The capital of the company is divided into shares and each unit has some value and person holding these units is called shareholder. Given below are the various features of shares –
- Shares are of two types one is equity share which represents permanent source of finance for the company as funds invested into equity stock remains with the company for long period of time, these shares carry voting rights and they are entitled to dividends if company is in profit. Another type of share is preference share, this type of stockholders receives fixed dividends and they do not have any voting rights.
- Limited liability is another important feature of share because in case of shares the liability of shareholder is limited only to the extent of shares held by him or her and hence in case of bankruptcy of a company creditors of the company have no right to recover money from shareholders and shareholders loss is limited only to the extent of shares held by them.
- Erratic nature of returns is another important feature of shares because it may possible that investor does not get good returns for many years or may suffer heavy loss on shares purchased by him or her and another situation is where investors double their money in short period of time. Hence, one can safely that shares never give constant or stable returns.
- Dividend and capital appreciation are the sources of income in case of shares because they do not pay any interest on an investment. While dividend are payable when company is in profits and capital appreciation is dependent on many other factors like government policy, interest rates in market, general mood of investors, liquidity in the market apart from company’s financial performance.
- Shares are risky and not everyone’s cup of tea because of presence of speculators and operators in market and therefore this type of investments is suited only for those people who are willing to take risk in return of handsome reward and have enough patience to hold shares for long period of time. In short it is not suitable for people who do not have constant other sources of income so that they are not fully dependent on shares for their livelihood and also for those people who come for making quick gains without understanding the risks in stock market.