In this modern world, the majority of the youth are so fascinated by one typical industry that is very Capital market or in simple words Stock Market “Share Bajzar”. Right?
If you try to look your surroundings, you may easily find such peoples that are actually whispering something or a little bit about the stock market.
Well Nowadays, It Doesn’t matter in which profession a person is. He/she usually discuss and try to conversate on the hot topic Stock Market.
Today in this short article, We are going to explain stock market jargons that most of your must know!
(A) Stock Split
Stock splits are a corporate action in which a company divides its existing outstanding shares into multiple smaller shares.
Let’s understand with an example :
If you are an active participant in the stock market, you may have noticed that recently in the month of July 2022, Tata Steel announced the stock split in the ratio of 10:1.
So for investors and shareholders, what does it mean? This means that now Tata Steel will split its stock price from ₹1000 to ₹100 for a single quantity.
In other words, shareholders who were owing a single share of Tata Steel of Rs 1000 will permitted to receive 10 shares of Rs 100 each. Here, The investment value won’t affected, but returns may affect either positively or negatively because of cheaper price, and better liquidity.
Note: If any stock splits there are more chances that retailers will now invest more which will rise company market capitalization.
(B) Bonus Shares
The easiest way of understanding bonus shares is understanding it as “a surprise from the company”. why the surprise, because surprises given free of cost by your loved ones to make you happy.
Additionally, if you are looking for a proper definition, bonus shares are additional shares provided to shareholders without any additional cost.
Usually, Companies issue additional shares to existing shareholders instead of delivering dividends.
Have you ever thought about it? Why do companies issue bonus shares? Well, the companies issue Bonus shares to settle reserve and surplus or capitalizing accumulated profits from their balance sheet.
Tip: Generally, the companies issue bonus shares in multiples (Example: 10:5, 20:10, 100:50), So if you don’t have enough shares then you won’t be eligible. To take advantage of bonus shares, make sure you purchased enough shares on the day the announcement was made.
Upon a bonus issue of shares, the dividend per share decreases as there is an increase in the number of shares.
(C) BuyBack
Buyback is another popular term that sounds many times by different companies at different intervals. A buyback is another corporate action, approved by the board members of the company.
Usually, when a company has enough cash in books but doesn’t see any investment opportunity or when the company find its share price undervalue so the company purchases some proportion of its shares from the existing shareholders.
In simple words, This purchasing of its own shares from the shareholders is known as the buyback of shares.
Generally, it assumed when a company announces a buyback of shares, it delivers a healthy sign to investors, as the investors carry this action as strong faith and trust in the company’s long-term perspective.
Apart from that, Investors should also know that the company may choose for buyback of share option as this option is more tax-effective than paying a dividend.
Two ways of buyback shares (i) open market route (ii) offer tender route.
If a company offers buy back shares at a specific price, shareholders will have the opportunity to receive the difference, which is a premium (fortunately, a type of gain).
Tip: A company that offers to buy back shares for a higher price than the current market price should be avoided since it is likely that the value of a share will increase soon.
(D) Dividends
If you are not a short-term trader or positional trader and tend to hold stocks for more than a year, you must have received a notification in your bank from your holding company. well, this is another gift that a usually company delivers to its shareholders.
When you buy the stock of a company, you become a part owner of the company. You are a part of the prosperous future the company wishes to build for itself. Hence, you also entitled to receive whatever profits it decides to redistribute as a reward for believing in its business and investing in it. This reward is termed as a dividend.
In the simplest term, when a company settle total profits after adjusting all expense, and whatever amounts are lefts, becomes extra profits and are distributed among shareholders.
Tip: An investor should look for high-growth stocks, instead of dividend-paying stocks because a company that doesn’t pay dividends can be considered more solidified and vigorous. They tend to deliver more returns in comparison to fixed dividends.
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Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any securities. Thus, the report & references mentioned are only for the information of the readers about the industry stated
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