What are Equity Shares? | 2025 Complete Beginner’s Guide
What are equity shares is one of the first questions new traders ask. Equity shares represent ownership in a company and come with rights like voting, dividends, and capital appreciation. In this 2025 guide, we break down their meaning, features, types, advantages, disadvantages, and real examples from India’s stock market.
What are Equity Shares? (Meaning Simplified)
Equity shares are the most common type of shares issued by companies. When you buy equity shares, you essentially become a part-owner of that company.
These shares grant investors:
Voting rights in company decisions.
Dividend rights (profit distribution if declared).
Capital appreciation as share prices rise.
In India, equity shares are listed and traded on stock exchanges like NSE and BSE.
Features of Equity Shares
Understanding what are equity shares also means knowing their unique features:
Ownership: Shareholders are part-owners of the company.
Voting Rights: Investors can influence management decisions.
Risk & Reward: Higher profits if the company grows; losses if it doesn’t.
Dividend Rights: Paid when declared by the board.
Transferability: Shares can be bought or sold in the stock market.
Types of Equity Shares in India
Equity shares are not all the same. Companies issue different types depending on objectives:
Ordinary Shares – Basic ownership shares with voting rights.
Rights Issue Shares – Given to existing shareholders at a discount to raise capital.
Bonus Shares – Free shares issued from company reserves.
Sweat Equity Shares – Issued to employees/directors for value-added services.
IPO Equity Shares – Shares offered for the first time to the public.
👉 Example: Infosys and Reliance often issue bonus shares to reward shareholders.
Advantages of Equity Shares
Potential for High Returns: Long-term wealth creation.
Voting Power: Influence company direction.
Dividend Income: Extra reward if profits are distributed.
Liquidity: Easily tradable on NSE/BSE.
Hedge Against Inflation: Value often grows faster than inflation.
Disadvantages of Equity Shares
High Risk: Prices fluctuate daily.
No Fixed Returns: Dividends are not guaranteed.
Dilution Risk: New share issues reduce ownership percentage.
Market Dependence: Linked to company performance and economic factors.
Equity Shares vs Preference Shares
| Factor | Equity Shares | Preference Shares |
|---|---|---|
| Ownership | Yes | Yes, limited |
| Voting Rights | Yes | Usually No |
| Dividend | Variable | Fixed priority |
| Risk | Higher | Lower |
| Return | Capital gain + dividend | Primarily fixed dividend |
This comparison helps beginners understand why equity shares are riskier but potentially more rewarding.
How Equity Shares are Issued in India
In India, equity shares are usually issued through:
IPO (Initial Public Offering): New companies raise capital by listing on NSE/BSE.
FPO (Follow-on Public Offer): Listed companies issue additional shares.
Rights Issues & Bonus Shares: For existing shareholders.
All processes are regulated by SEBI. To buy equity shares, investors need a Demat account.
Real-World Example of Equity Shares
Reliance Industries Ltd: Equity shares listed on NSE/BSE, offering dividends + long-term price growth.
Infosys Ltd: Known for issuing bonus equity shares to reward investors.
These examples help clarify what are equity shares in India with practical context.
Why Equity Shares Matter for Beginners
Equity shares are the foundation of wealth-building. For beginners, they:
Provide exposure to India’s fastest-growing companies.
Teach discipline in risk management.
Offer opportunities to participate in IPOs.
Build long-term wealth alongside NISM-backed education.
👉 At Trading Shastra Academy, we ensure students not only understand equity shares but also learn how to trade them strategically with hedging, arbitrage, and options.
FAQs
Q1: What are equity shares?
A: Equity shares represent ownership in a company, giving voting rights and potential dividends.
Q2: What are the features of equity shares?
A: Ownership, voting rights, dividend rights, risk, and transferability.
Q3: What are the types of equity shares in India?
A: Ordinary, rights issue, bonus, sweat equity, and IPO equity shares.
Q4: What are the advantages of equity shares?
A: High returns, voting power, dividend potential, liquidity, inflation hedge.
Q5: What are the disadvantages of equity shares?
A: High risk, no fixed return, ownership dilution, market dependence.
Q6: How are equity shares different from preference shares?
A: Equity shares have voting rights and variable dividends; preference shares have fixed dividends with priority.
Q7: How are equity shares issued in India?
A: Through IPOs, FPOs, rights issues, and bonus shares under SEBI rules.
Q8: Do equity shareholders get dividends?
A: Yes, but only when declared by the company board.
Q9: Can beginners invest in equity shares?
A: Yes, equity shares are beginner-friendly but require risk management.
Q10: Are equity shares risky?
A: Yes, but they also provide higher long-term returns than most assets.
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Disclaimer
This blog is for educational purposes only. Stock market investments are subject to risks. Please do thorough research before investing.