Understanding the Process and Dynamics of Share Purchase: A Comprehensive Guide

Introduction to Share Ownership

When you buy shares, you become a part owner of a company. Owning shares gives you the right to a portion of the company's profits as well as the obligation to bear a portion of its losses, limited to the face value of your shares.

What Happens When You Purchase Shares?

Ownership and Rights

When you purchase shares, you are essentially buying a piece of the public company. Your rights include several important aspects:

Voting at general meetings: Typically, you have one vote per share in key decisions such as the election of directors. Receiving dividends: You may be entitled to receive dividends when and if they are declared by the company.

Market Dynamics and Stock Prices

The stock price of a company is determined by market forces, particularly demand and supply. If the demand for shares is high, the price will rise, and if the supply is high, the price will fall, maintaining an equilibrium state.

Share Purchase Mechanism

After a company's shares are listed on the stock market, the buying and selling process operates on the principle of supply and demand:

Buyers and Sellers

The buying and selling of shares only occur when a seller decides to sell and a buyer wants to purchase. The price is determined based on market forces and supply and demand.

Creating More Shares

Shares can be created by splitting existing shares. For example, a share that is currently trading at Rs 100 can be split into shares with a face value of 10, each trading at Rs 10. This process helps ensure liquidity in the market.

Bonus Shares

Companies may also issue bonus shares to shareholders by liquidating the capital of the company. This is typically a reward for long-term shareholders and helps to increase the number of shares without diluting their value.

Conclusion: Happy Trading

Understanding the dynamics of share purchase and the processes involved can be crucial for making informed investment decisions. Whether you decide to hold onto your shares or sell them based on market fluctuations, being aware of the mechanisms that govern the stock market can help you achieve your financial goals.

Happy trading!