Indices rise for second straight session

Prelims level : Banking Mains level : GS - III
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Equities continued to register a strong rally for the second consecutive day on Tuesday with the benchmarks gaining more than 1% each to close at near six-month high levels. Strong global cues and a steady flow from foreign investors boosted sentiments at a time when investor confidence is already high on expectations of political stability as the general elections near.

What is Equity Share:

Equity is an instrument for its owner for share in profits (and losses). Equity shares are instruments issued by companies to raise capital and it rep resents the title to the ownership of a company.

An investor becomes an owner of a company by subscribing to its equity capital (whereby investor will be allotted shares) or by buying its shares from its existing owners.

As a shareholder, investors bear the entrepreneurial risk of the business venture and are entitled to benefits of ownership like share in the distribu ted profit (dividend) etc.

The returns earned in equity depend upon the profits made by the company, company’s future growth etc.

Equity share is initially issued to those who have contributed capital in setting up an enterprise.

This would be called the Public Issue. Apart from a Public Issue, equity shares may originate through an issue of Bonus Shares, Convertible securities etc. All of them are collectively called Common Stock or Simply Stock.

Please note that if the company fails or gets liquidated otherwise, the claim of equity shareholders on earnings and on assets in the event of liquidation, follows all others.

Similarly, the dividend on equity shares is paid after meeting interest obligations and dividends to Preference shareholders.

That is why the holders of the Equity shares are also known as ‘residual owners’.

Since the equity shareholders bear such risks, they expect handsome returns by way of DIVIDENDS and price appreciation of the share, when their enterprise performs well.

Stock Market Index

  • A share market Index shows how a specified portfolio of share prices is moving in order to give an indication of market trends.
  • It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards.
  • For Ex. BSE Sensex is one index.
  • TheBSE SENSEX is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange.
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