Equity Shares — Primary Market
Primary market refers to new issues of shares by new companies as well as existing companies in the form of IPO i.e. initial public offerings. Apart from shares, other instruments commonly issued in the primary market are
• Debentures,
• Convertible debentures,
• Shares with attached options like warrants, etc.
Equity Shares — Secondary Market
Secondary market refers to the stock exchanges where an investor can buy (or sell) shares which are listed on them. As a result of significant changes in the recent past, particularly computerization, online trading, dematerialization and depository participation, investors are now dealing with much more transparent, easier and efficient secondary markets.
Equity Shares yield returns in two ways:
• Dividends declared by companies usually at the end of a year (and sometimes during the course of the year)
• Capital gains on sale of Equity Shares.
Liquidity of investment in equity shares depends upon the trading volumes of the share. If the share is actively traded, an investor can easily sell the shares and realize the sale proceeds. However, if the share is not traded (or is delisted), then liquidity is a constraint. Technically, it is possible to buy even single shares in dematerialized securities regime and also to buy small lots of 50 to 100 shares so as to keep the investment amount low.
Equity shares are primarily volatile instruments. Equity share is an appropriate investment avenue for an investor who is not risk averse. Such an investor is prepared to take risks in order to generate higher returns. Returns from equity shares at aggregated levels have been historically higher than most other avenues over the long term. However, individual investors could gain or lose depending on the companies’ shares they invest in. An investor needs to be aware of the companies and their performances. Company performance should be monitored closely in order to track the investment performance. An investor should also have some basic knowledge of financials and of market systems in order to manage equity investments. The trends in equity market are reflected in the movement of the equity indices and the volume of the trading activity.
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