If you are looking to invest money in an avenue that can promise awesome returns even at high risks, stock investment is something you can think of. In recent times, the popularity of stock investment has increased tremendously with more people vying for it. But, this task is not as easy as it seems. Though you can choose the best stock broker in India to invest in stocks, choosing which stocks to invest in is a big question.
So, here we have brought a guide on the different types of stocks you can choose to invest in. This would help you in finding the right stock for your investment goal.
What are stocks?
Stocks or shares refer to the ownership of the shareholders in a publicly listed company. Investors can become shareholders of a company when they buy its shares.
Now, let’s see different types of stocks on the basis of different scenarios.
Based on Ownership
1. Common Stocks
The shareholders of common stock are entitled to get a share in the company’s profits. They also have the right to vote. Investors who possess a company’s common stocks have the capacity to earn dividends, however, this is not guaranteed.
It is believed that common stocks provide higher returns than other types of stocks.
2. Preferred Stocks
Preferred Stocks provide shareholders with a kind of ownership in the business functions. However, a majority of companies do not give voting rights to the shareholders. Preferred shareholders are known to provide impressive, assured dividend payments. However, these stocks are considered less risky by the cheapest stock broker in India than common stocks as they are usually chosen in the case of bankruptcy.
3. Hybrid Stocks
Hybrid stocks refer to preferred stocks with the choice of getting them transformed into a fixed quantity of common stocks at a programmed time. These shares are also known as convertible preferred shares. They may give voting rights as they are a mix of common and preferred shares.
Based on Market Capitalization
1. Large-cap stocks
There are many stocks that carry complete market capitalization. These stocks are usually from large corporations like Infosys, Reliance Industries, Tata Motors, and others.
The prices of these types of stocks usually remain steady and encounter low variation. They give impressive dividends and are considered less risky than small-cap and mid-cap stocks. These stocks are generally preferred by conventional investors.
2. Mid-cap stocks
According to SEBI, mid-cap stocks are from companies that range from 101 – to 250 in terms of market capitalization.
Mid-cap stocks provide higher returns because these companies are still in the early stages of development. Also known as ‘baby blue-chip stocks,’ these stocks are of companies that have consistent growth but a small market capitalization.
3. Small-cap stocks
Small-cap stocks are extremely unstable and preferred by only aggressive investors who invest with a long time horizon in mind.
Based on Dividend Pay-outs
1. Growth Stocks
Growth stocks do not usually give out dividends because the company prefers to reinvest earnings in its own projects. Investors in growth stocks profit from capital appreciation (increase in stock price).
Based on The Risk
1. Blue-chip stocks
Blue-chip stocks are those of well-established companies that have consistent earnings and returns. These firms have lower liabilities, allowing them to pay regular dividends to their shareholders. Furthermore, blue-chip companies provide consistent returns and are less risky.
2. High Beta stocks
‘Beta,’ as per the experts, is a risk measure. It can be both positive and negative. According to the best stock broker in India, a positive beta indicates that the stock and market are both doing on the same path. Whereas, a negative Beta refers that the stock and the market are moving in opposite directions.
Based on Price Trends
1. Cyclical Stocks
Cyclical companies’ stock prices are highly volatile because they follow the trends in the overall economy. Prices for cyclical stocks rise as the economy grows. When the economy weakens, its stock prices will fall. They track the entire economic cycle, from expansion to peak, recession to recovery.
Cyclical stocks are companies that produce or sell consumer goods and services that are in high demand when the economy is doing well. Restaurants, hotel chains, airlines, furniture, high-end clothing retailers, and automobile manufacturers are among them. When times are tough, these are also the goods and services that people cut first.
2. Defensive Stocks
Non-cyclical stocks are usually profit-giving irrespective of the monetary trends as they are usually involved in the manufacture or provided goods and services. This is why they are always in the need for power, food, gas, and water. This is because they tend to safeguard investors from the ill effects of a weakened economy. They are the best avenues to invest when the economic viewpoint is austere.
So, here we have highlighted all popular types of stocks that you can choose to invest in. Hopefully, the above given information would help you in the best investment decision down the line.