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What are shares and how do they work?

Curious about Shares

What are shares and how do they work?

Shares, also known as stocks or equities, represent ownership in a company. When you buy shares of a company, you become a partial owner or shareholder in that company. The number of shares you own determines your ownership stake in the company.

How shares work:

1. Company Ownership: When you purchase shares of a company, you are buying a piece of ownership in that company. The more shares you own, the larger your ownership stake.

2. Voting Rights: As a shareholder, you may have the right to vote on certain company decisions at annual general meetings. The number of votes you have is generally proportional to the number of shares you hold.

3. Dividends: Some companies distribute a portion of their profits to shareholders in the form of dividends. Dividends are typically paid on a pershare basis and can provide a source of income to investors.

4. Capital Appreciation: Share prices can fluctuate based on various factors, including the company's performance, market conditions, and investor sentiment. If the share price increases, you can sell your shares at a higher price and realize capital gains.

5. Liquidity: Shares are traded on stock exchanges, providing liquidity to investors. You can buy and sell shares at market prices during trading hours.

6. Risk and Return: Investing in shares involves risks. The value of shares can go up or down, and there is no guarantee of returns. However, historically, shares have provided higher returns over the long term compared to many other investment options.

7. Types of Shares: There are different types of shares, such as common shares and preferred shares. Common shares offer voting rights and a share in company profits through dividends. Preferred shares may have priority in receiving dividends and liquidation proceeds but usually do not have voting rights.

8. Stock Exchanges: Shares are traded on stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. Investors place buy and sell orders through brokers, and trades are executed electronically.

9. Market Forces: Share prices are influenced by market forces like demand and supply, economic conditions, company performance, industry trends, and geopolitical events.

10. LongTerm Investment: Investing in shares is generally considered a longterm investment strategy. Over time, wellperforming companies may grow in value, potentially increasing the value of your investment.

It's important to note that investing in shares involves market risks, and share prices can be volatile. Individual companies may perform differently, so diversifying your portfolio with a mix of shares and other asset classes can help reduce risk. As with any investment, it's essential to do your research, understand your risk tolerance, and seek professional advice if needed.

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