What are Equity Shares?

EQUITY SHARES : Joint stock companies collect their long term/fixed capital by issuing
shares (equity and preference). This is called “stock financing”. Shares constitute the
ownership securities and are popular among the investing class. Investment in shares is
risky as well as profitable. Transactions in shares take place in the Primary and secondary
markets. Large majority of investors (particularly small investors) prefer to purchase
shares through brokers and other dealers operating on commission basis. Purchasing of
shares is now easy and quick due to the extensive use of computers and screen based
trading system (SBTs). Orders can be registered on computers. The shares available for’
investment are classified into different categories such as blue chip shares, growth shares,
speculative shares, income shares and so on. For profitable investment in shares, the
companies must be selected properly by studying the balance sheets and other details of
various companies. Shares certificates in physical form are no more popular in India due
to demat facility. It gives convenience in handling and transfer of shares. For this, demat
account can be opened in the bank which provides depository services (e.g. ICICI Demat).
Blue Chip Shares: Shares of known and financially sound companies are called blue chip
shares. Such companies are called blue chip companies as they are well established over
a long period and are stable and profitable. Such companies have a record of consistent
growth over years and have bright future. Blue chip companies are popular in the stock
market and they carry goodwill and market reputation. Such companies are managed by
professionals and offer attractive dividend to shareholders. Blue chip shares have
continuous market demand as investors prefer to invest in blue chip companies due to
safety, security and attractive return. Even when the stock market is dull, the prices of blue
chip shares do not go down quickly and considerably. In India, Reliance, Tata Companies,
L & T and companies relating to information technology are regarded as blue chip
companies. Their shares are quoted at higher prices in the stock market. Bank gives loan
easily and quickly on the security of blue chip shares.