What Are Different Types Of Stocks?

  •  5 min read
  • 0
  • 29 Nov 2023

Everyone wants to know which shares to buy when their prices rise. Stock markets drive the economic growth of a country. A vibrant stock market is essential for a developing country like India. It strengthens the overall financial market. Investing in stocks is one of the ways to participate in the financial market. However, you should be aware that there are different types of stocks. Let’s learn about them in this blog.

Key Highlights

  • There are several types of stocks in the share market based on different parameters.

  • Stocks are usually divided based on ownership, market capitalisation, and dividend payments.

  • The price of some stocks usually depends on supply and demand dynamics. On the other hand, economic conditions affect the cost of a few stocks.

There are various types of stocks in the stock market. They are divided based on different parameters. They are as follows.

  • Types of Stocks based on ownership rules

Ownership rules are the most fundamental criteria for classifying stocks. Two factors are considered here: the rights and privileges of a stock. Based on ownership, the different types of stocks are as follows.

Types of Stock Ownership Rules
Common StockCommon stocks offer dividends to shareholders. Dividends are a portion of the company's profits. In India, these are the most popular types of stocks.
Preferential StockPreferential stocks give assured dividends. Additionally, Preferential stocks have higher priority than common stocks in case of liquidation.
Mixed StocksPreferred and common stock characteristics are combined in hybrid stocks. Convertible bonds, which enable investors to change their bonds into debt or equity, are the most popular kind.
Convertible Preference SharesThese are first issued as preference stocks. After a while, they are converted to a predetermined number of common stocks. A company may or may not give voting rights with such stocks.
Stocks With Embedded Derivative OptionsTypically, a firm only buys back its shares if it feels it is appropriate to do so. Yet, some firms offer stocks that have call-able or put-able embedded derivative options. A call option allows the firm to repurchase its stock at a certain price or on a predetermined date. With a put option, the shareholder can sell the shares back to the firm at a specific price or at a predetermined time. Companies usually don't issue such stocks.
  • Types of Stocks based on Market Capitalisation

Market capitalisation is the total value of all the shares of a company. The following are the three categories of stocks based on market capitalisation.

Types of Stock Market Capitalisation
Large-cap StocksThey are the top 100 companies in terms of market capitalisation. They are usually less risky and more stable.
Mid-cap StocksStocks ranked between 101 and 250 based on market capitalization. They generally have slightly higher growth rates compared to large-cap stocks. The economic cycles and specific industry trends affect them more quickly. This makes them volatile
Small-cap StocksAll other companies below the 250 rank are small-cap stocks. They are very volatile as their market value and liquidity is quite low.
  • Types of Stocks based on dividend payments

Dividends are the profits of a company that are shared with the shareholders. The stocks based on dividend payments include the following ones.

Types of Stock Dividend Payments
Income stocksIncome stocks give dividends regularly. They have the potential to increase a shareholder's income. Hence, they are known as income stocks. Financially sound companies often hold such stocks. However, these firms grow slowly as profits are usually distributed.
Growth stocksGrowth stocks do not offer dividends. Rather, the firm uses its revenues for business expansion. Therefore, the value of these stocks rises quickly. Investors only get returns if the market value of the stock increases. Hence, these stocks are more risky.
  • Types of Stocks based on Fundamentals

The market value of stocks depends on their demand and supply. However, investors need to analyse the fundamentals of a company. Based on this, stocks are of two types.

Types of Stock Fundamentals
Overvalued StocksYou can’t determine the market price of these stocks from their expected earnings. Thus, the market price of these stocks is more than the intrinsic value.
Undervalued StocksThe market value of these stocks is less than the intrinsic value
  • Types of Stocks based on risk

A stock will be risky if its price changes very quickly. Based on risk, stocks are usually divided into the following types.

Types of Stock Risk
Beta StocksBeta is a financial ratio used to measure the volatility of stock prices. A higher beta suggests that a stock is more risky.
Blue-Chip StocksThese are stocks of large and established companies. Their stock prices are usually stable.
  • Types of Stocks based on price trends

The price of stocks may change due to changes in market conditions. There are two types of stocks based on their response to price trends. They include the following.

Types of Stock Price Trends
Cyclical StocksThe price of cyclical stocks changes as per the economic conditions. Their prices fall when the economy doesn’t perform well. Investors may invest in these stocks when the economy's performance is very good.
Defensive StocksThese stocks are highly dependent on the economy’s performance. Stocks of food and insurance companies are some examples. They are generally a safe investment option.

Conclusion

There are several types of stocks. Understanding types of shares properly allows investors to manage the portfolio risk and make the right investment decisions. Each type of stock can be suitable for a specific market condition or investment strategy. Hence, investors can take advantage of the wide variety of stocks available. However, remember that the appropriate stocks rely on your investment strategy and risk tolerance. Always consider these factors while investing in any stock.

The types of stocks are common stock, preferred stock, large-cap stocks, mid-cap stocks, small-cap stocks, domestic stock, international stocks, growth stocks, value stocks, IPO stocks, dividend stocks, non-dividend stocks, cyclical stocks, non-cyclical stocks, safe stocks, income stocks, Blue chip stocks, ESG stocks, and Penny stocks.

The types of stocks based on market capitalization are Large, mid, and small-cap.

The classification of stocks is primarily based on ownership rules, market capitalisation, dividend payments, fundamentals, risk, and price trends.

Preferred stock gives its holders priority over the company's earnings but does not give them voting rights like a common stock.

A detailed list of the stocks available on a particular exchange and their issuers.

  • Common stocks
  • Preferred stocks
  • Hybrid stocks
  • Embedded-derivative stocks

Common stock is the most common type of stock issued by companies.

Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage