Suppose you plan to embark on a captivating journey of stock market investment, navigating through this exciting realm of financial opportunities – in that case, it is vital to be well acquainted with the types of stocks that populate this dynamic landscape. Whether blue-chip stocks inspire investors or growth stocks offer promising returns, each possesses a unique allure. Equipping yourself with appropriate knowledge before you step ahead to trade stocks in the ever-evolving, volatile market is essential.
Consider stocks as the building blocks of your investment portfolio. Whether you are looking forward to common stocks of individual organizations or navigating through the ETFs (exchange-traded funds) and mutual funds, being able to classify their nature of investing and the potential advantages they offer will be a game changer for you. At the same time, you invest in the stock market. Let’s further delve into the following classification of stocks:
- Common stocks: Public traded companies issue different types of stocks, upon which the common stocks are the most basic type and are issued in overwhelming amounts. Investors may receive regular dividends through these stocks, but payouts are not always guaranteed, and if the price appreciates, then the sky is the limit for the profit margins. On the downside, common stock investors will be the last to receive their refunds if the company goes bankrupt.
- Preferred stocks: Slightly higher in value; these stocks combine the advantages of common stock with the bonds in a single security, which means along with the benefit of regular dividends, these investors also leverage on price appreciation when they buy stocks of such companies. Although shareholders can convert their preferred stocks to common ones if they wish, the biggest drawback is that they never get voting rights in the organization, unlike common stocks.
- Class-wise categorization of stocks: some grand companies with a huge turnover tend to categorize their stocks into multiple classes alphabetically, such as class A, B, etc. The reason behind doing so is that they want to place major control only in the hands of some key investors who buy shares. It works in such a format that, let’s say, class A stocks will be issued to company founders, executives, board members, etc. Another type, for example, class B, will be listed for the public; organizations like Alphabet Inc are following the same method for issuing multiple stocks.
- Large, mid & small-cap companies: market capitalization can be defined as the market value of all the outstanding shares of a company; based on this, the company is classified as a large, mid & small-cap company. In India, SEBI laid the guidelines for this classification, according to which
- Companies included in the top hundred listings on the stock exchange are considered large-cap companies, and their market capitalization is more than 20,000 crores; they are the ones ruling the charts of NIFTY and SENSEX.
- Mid-cap companies are the ones who were large-cap in the past sometimes, and they fall in the ranking from 101 to 250 on the stock exchange. Their market capitalization ranges from 5,000 to 20,000 crores.
- Small-cap companies start from the ranking of 251st position, and they generally don’t have a long track record, as these companies are mostly small-scale start-ups in the developmental stage. Their market capitalization comes to around 5,000 crores, or less than that.
Although consulting certified advisors for selecting the type of stocks is ideal, they provide financial solutions and advice based on the investment goal. Time horizon and risk appetite. The same purpose can also be achieved through a seamless trading app that eliminates the hassle of the trading process and lets you navigate through the intuitive interface smoothly.
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