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Equity Different Types OF Stocks
Different Types Of Stocks Back
 
Stocks can be categorized in a number of ways.
 
Stock Defined by Type
There are two main types of stocks: Common stock and Preferred stock.
 
Common Stock
When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.
 
Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.
 
Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).
 
Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.
 
Stock Defined By Group
The scrips traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system. The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrips are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations.
 
Stock Categories by Market CAP
If all the outstanding stock of a company is multiplied by the market price of each stock (Outstanding Shares * Market Price) you will get the Market Value of the company, also called as Market Cap. A large size company usually carries a low risk-return ratio than a small size company. Following are the three categories that market uses to categorize publicly traded companies:
 
Large Cap: A company with the market capitalization of 1000 cr or above. Large Cap companies are generally considered low risk low return because generally their earnings as well as assets grow slow and steady. They are also usually overvalued because of there stability.
 
Medium Cap: A company with the market capitalization of 100–1000 cr. Medium Cap companies are generally considered medium risk and medium return because they are in their growth stage facing heavy competition in addition to other market forces like supply, demand, economy, interest rate etc.
 
Small Cap: A company with the market capitalization of 100 cr or less. Small companies are considered high risk-high return due to the upside potential they carry and downside risks that comes with it. Also, their stock is traded less often that medium and large cap creating a liquidity issue
 

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