Stocks and Financial Instruments
Stocks and Financial Instruments
Let’s understand different types of Financial Instruments in this tutorial.
What is a Share?
A share represents a unit of ownership in a company. When you buy shares of a company, you become a partial owner and may receive dividends and voting rights depending on the type of shares you hold.
- Shareholders may receive dividends (a portion of company profits)
- Ownership rights include voting in major company decisions
- Potential for capital appreciation (increase in share price)
Dividend Shares
Dividend stocks are shares of companies that regularly distribute a portion of their profits to shareholders as dividends. These stocks are ideal for investors looking for passive income along with potential capital appreciation.
- Blue-chip stocks: Stocks of well-established companies with a history of stable dividends.
- Utility stocks: Companies providing essential services such as electricity and water, known for consistent dividends.
- REITs (Real Estate Investment Trusts): Companies investing in real estate that generate rental income and distribute dividends to shareholders.
What is a Debenture?
A debenture is a type of debt instrument issued by companies to raise capital. Unlike shares, debenture holders do not get ownership rights but receive fixed interest payments over a period.
- Lower risk compared to shares
- Priority over shareholders in repayment during liquidation
- Interest payments are mandatory regardless of company profits
What is a Mutual Fund?
A mutual fund is a pool of money collected from multiple investors to invest in stocks, bonds, commodities or other financial assets. It is managed by professional fund managers who aim to maximize returns while managing risks.
- Diversification reduces investment risk
- Available in equity, debt, and hybrid categories
- Returns depend on underlying asset performance
Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) allows investors to invest a fixed amount regularly in mutual funds. It helps in averaging the cost of investment and reduces market risk through disciplined investing.
- Invest small amounts periodically (e.g., ₹1000/month)
- Benefit from rupee cost averaging
- Flexible start/stop options
