What is a Stock?
When a company wants to grow, it sells small pieces of ownership to the public. Each piece is called a stock. Here is what that really means for you as an investor.
Key takeaways
Why do companies sell stocks?
When a company wants to grow — open new branches, buy new machines, hire more people — it needs money. One way to raise that money is by selling small pieces of ownership to the public. Each small piece is called a stock (also called a share). When you buy a stock, you become a part-owner of that company.
A simple example
Imagine a company is worth ₹1 crore and it divides itself into 1,00,000 shares. Each share is worth ₹100. You buy 10 shares for ₹1,000. You now own a tiny piece of that company. A year later, the company does well and is now worth ₹2 crore. Each share is now worth ₹200. Your 10 shares are now worth ₹2,000. You made ₹1,000 profit — without doing any extra work.
How do you make money from stocks?
Two ways. First, the price of the stock goes up and you sell it for more than you paid — this is called a capital gain. Second, some companies share a portion of their profits with shareholders regularly — this is called a dividend. Both can grow your wealth over time.
What is the risk?
The price can also go down. Companies can perform poorly, face competition, or be affected by the economy. There is no guarantee. This is why stocks are considered higher risk than a fixed deposit or savings account — but over long periods of time, they have historically given much better returns. The key word is long-term. Short-term, stocks can be unpredictable.