What are Shares?

Shares represent units of ownership in a company. When you buy shares, you become a shareholder and participate in the company's financial performance through the rights attached to those shares.

• A share represents partial company ownership.
• Equity and preference shares have differences.
• Dividends depend on company declarations and profits.
• Share prices can rise or fall.
• Liquidity differs across listed company shares.
• Returns include dividends and capital appreciation.
• Market risks can cause investment losses.

For example, buying 100 shares at ₹120 per share requires ₹12,000 before applicable transaction charges. Your final return depends on the selling price, dividends, taxes, and other costs.

Shares are individual units representing ownership in a company. When you purchase shares, you become a shareholder and receive the rights attached to that class of shares.

Suppose a company has 10,00,000 outstanding shares. If you own 1,000 shares, your holding represents 0.10% of those outstanding shares.

Owning shares does not mean that you directly own the company's office, machinery, cash, or other individual assets. Those assets belong to the company as a separate legal entity.

Shares primarily work through 2 markets:

1. Primary market: A company issues new shares to investors to raise equity capital.
2. Secondary market: Investors buy and sell already-issued shares among themselves through the stock market.

The company receives money when it issues new shares in the primary market. It does not ordinarily receive money when one investor sells existing shares to another investor.

Understanding what are shares therefore involves both ownership and transferability. You hold an ownership interest, while the market allows that interest to change hands.

The 2 broad types of company share capital in India are equity shares and preference shares. Different shares carry different financial and voting rights.

Equity shares

Equity shares are commonly associated with company ownership and voting rights. You can read more about the types of shares and the rights attached to different equity structures.

Equity shareholders participate in the remaining value of the company after higher-priority claims are met. Their returns are not fixed.

Preference shares

Preference shares carry preferential rights over equity shares for specified matters, primarily dividend payments and repayment of capital.

The exact rights depend on the terms under which the shares were issued.

Terms such as growth shares and value shares describe investment characteristics rather than separate statutory share-capital categories. Similarly, Class A and Class B shares refer to company-specific classifications whose rights depend on the issuer.

For example, say ABC Ltd. issued stock and you purchased 100 units. If each unit represents 0.1% ownership, you hold 10% of the company. The company issued stock, and you bought shares of it.

Another way to think of it is that when you invest in a company, you're not buying the stock itself. "Stock" is a general term for the financial instruments a company issues, while shares are the specific uaShare prices change as market participants reassess a company's financial position, prospects, risks, and valuation.

Major factors include:

• Revenue and profit: Changes in business performance influence investor expectations.
• Profit margins: Rising or falling margins affect expectations about future profitability.
• Debt: Higher debt can increase financial risk and interest costs.
• Industry conditions: Changes in demand, competition, or regulation can affect companies in the same sector.
• Interest rates: Changes in rates influence financing costs and investment valuations.
• Inflation: Higher costs can affect company margins and consumer demand.
• Corporate actions: Buybacks, rights issues, mergers, demergers, and stock splits can affect market perception.
• Investor demand: Buying and selling pressure affects traded prices.

Trading volume can also indicate how actively a share is being bought and sold.

A profitable company does not automatically produce a rising share price. Investors may already have included strong future expectations in the existing price.

For example, a company can report higher profit while its share price falls because the market expected even stronger results.nits you actually own

Shares can provide ownership participation and potential returns, but investors also face the possibility of losing capital.

Potential benefits

• Capital appreciation: A rise in the market price can increase the value of your holding.

  
  

• Dividend income: Companies can distribute part of their profits to shareholders.

  
  

• Voting rights: Eligible shareholders can participate in specified corporate decisions.

  
  

• Diversification: Holding shares across different companies and sectors can reduce dependence on a single business.

  
  
• Market liquidity: Actively traded listed shares can normally be bought or sold during market hours when counterparties are available.

Main risks

• Market risk: Broader market movements can reduce share prices.

  
  

• Company-specific risk: Weak earnings, high debt, governance problems, competition, or operational issues can affect a company's value.

  
  

• Liquidity risk: Shares with low trading activity can be difficult to sell at the price you want.

  
  

• Valuation risk: A financially strong company can still produce poor investment returns if its shares are purchased at an excessive valuation.

  
  

• Dividend risk: Companies can reduce or stop dividend payments.

  
  

• Capital-loss risk: A share price can fall significantly, and an individual company investment can lose most or all of its value.

  
  

Consider Ravi, a 32-year-old employee in Pune earning ₹60,000 per month. He buys 100 shares at ₹120 per share.

Purchase value = 100 shares × ₹120 = ₹12,000

If he later sells the shares at ₹135:

Gross gain = (₹135 − ₹120) × 100 shares = ₹1,500

If he instead sells at ₹105:

Gross loss = (₹105 − ₹120) × 100 shares = ₹1,500

The example excludes brokerage, taxes, and other transaction charges.

This trade-off is central to understanding what are shares as investments: the potential for higher value comes with the risk that the market price can move in the opposite direction.

Companies issue shares mainly to raise equity capital for business requirements without creating the same repayment obligation associated with borrowing.

The capital raised can be used for:

• business expansion;
• new projects;
• acquisitions;
• working capital;
• capital expenditure; and
• debt repayment.

Issuing shares can also help a company access public capital markets when it completes the required listing process.

However, issuing additional shares can dilute an existing shareholder's percentage ownership. If the total number of shares increases and you do not acquire additional shares, your proportionate holding can decline.

For example, if you own 1,000 shares out of 1,00,000 shares, you hold 1%. If the total number later increases to 2,00,000 shares and your holding remains 1,000 shares, your ownership percentage becomes 0.50%.

Shares in India are governed by company law, securities regulations, stock-exchange requirements, and depository rules.

The Ministry of Corporate Affairs administers the Companies Act, 2013, which governs matters including share capital and shareholder rights.

The Securities and Exchange Board of India (SEBI) regulates the securities market. For listed companies, the SEBI Listing Obligations and Disclosure Requirements Regulations govern important disclosure and compliance requirements. The regulations were last amended on 14 July 2026.

SEBI also regulates insider trading through the SEBI Prohibition of Insider Trading Regulations, 2015. SEBI's regulations database lists these regulations as last amended on 12 March 2025.

To participate in trading of listed securities, an investor generally uses:

1. A demat account: Holds securities electronically.
2. A trading account: Allows buy and sell orders to be placed through a SEBI-registered stock broker.
3. A bank account: Facilitates payment and receipt of funds.

SEBI's investor material distinguishes these 3 accounts and states that the trading account is maintained with a SEBI-registered stock broker, while the demat account is maintained with a registered depository participant.

After completing the applicable Know Your Customer (KYC) requirements, you can place an order to buy shares. Common order types include market orders, limit orders, and stop-loss orders.

Transaction costs can include brokerage and statutory or regulatory charges. For delivery-based equity transactions, Securities Transaction Tax (STT) remains 0.10% on qualifying purchases and 0.10% on qualifying sales from 1 April 2026.

Sources:

• Ministry of Corporate Affairs (MCA), Companies Act, 2013, 2013
• Securities and Exchange Board of India (SEBI), Listing Obligations and Disclosure Requirements Regulations, 2015, last amended 14 July 2026 
• National Stock Exchange of India (NSE), Securities Transaction Tax rates under Finance Act 2026, effective 1 April 2026. 

Last updated: 22 October 2026.

In everyday investing, shares and stocks are often used to mean the same thing, but there is a small difference in usage. A share usually refers to a specific unit of ownership in a company, while stock is a broader term used for ownership in one or more companies. SEBI explains that buying shares makes an investor a part-owner of the company. 

Sources:

1. Securities and Exchange Board of India (SEBI) Investor
2. National Stock Exchange of India (NSE)
3. National Institute of Securities Markets (NISM)

Shares represent ownership in a company and can provide returns through dividends and capital appreciation. They also carry market, liquidity, valuation, and company-specific risks. Understanding the different types of shares, shareholder rights, price drivers, and trading process can help you evaluate equity investments more carefully. Always consider your financial goals, investment horizon, liquidity needs, and ability to absorb losses before investing.