Understanding the concept of shares and their classifications; updated article

What are the deeper layers of information regarding share types and The actual class of shares? What information should we be aware of And research when thinking about shares investments? What does the ownership of shares bring to your portfolio?

Last year we wrote an article on the types of shares and shares classification. In this article we will expand on that and provide you with some additional information. There are numerous types of shares and shares classifications, and the aim of this article is just to bring you a few of the most common ones, so that the beginner to the world of stocks and shares can learn the basics of the subject.

Equity shares/common shares/ordinary shares. These shares are the most commonly traded shares, and they give you a vote in company matters. They earn a dividend as long as the company is earning money, and this dividend directly corresponds to the profit made by the company. High profits mean high dividends for you. Ordinary shares have no special rights or restrictions. Whilst they have the highest risk, they also have the potential to bring the biggest financial gains.

Preference shares. In direct contrast to common shares, these shares are given preference when it comes to dividend payments. More importantly, if a company goes bankrupt, these shares are paid back before common shares. The shareholders of preference shares, however, do not enjoy normal voting rights. Dividends of preference shares have a fixed rate, and therefore provide more security, but this means that if the profits of the business increase, the value of preference shares remains the same. Low risk but only moderate returns.

Penny stocks are very low in price, but very high in risk. They cannot be traded on the regular stock markets, but just over the counter markets. Chosen wisely, penny stocks can offer a great investment opportunity, but the lack of information on many penny stock companies means that the risk level can be very high.

Bonus shares are given free of charge to shareholders as a gift. They are issued from accumulated profits and reserves. These shares are a type of windfall for shareholders, and are given out when a company has a large amount of undistributed profits. Bonus shares are issued after formal approval is given at the Annual General Meeting. A company can give out bonus shares no more than 2 times in a 5 year period.

Blue chip shares belong to well established companies such as Microsoft. These shares have a long track performance record and are popular with some types of investors as they are considered to be a safe and risk free investment. Their returns can be substantially lower than, say, a high risk investment in a new tech-based company.

Deferred shares are shares which are held by the founders of a company, and they cannot be transferred if they have been issued by a private company.

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The information supplied in this article is not to be considered as medical advice and is for educational purposes only.