Should you buy shares issued at the premium price?

The shares available in Indian share market of any company have a par value or Face Value (FV). The face value of shares is usually Rs. 1, Rs. 2, Rs. 5, Rs. 10 etc. The FV has to be a positive integer whole number. It cannot have a fractional value like Rs. 1.50 or Rs. 2.25. The shares which are issued in the market are usually issued at a premium price.

premium shares

Let us take an example to understand what shares issued/offered at premium price means.

ABC Company’s share has a face value of Rs. 2 per share. During its public launching (IPO) the company decides to issue shares at Rs. 50 per share in the market. The shares are issued at a premium. That is more than its face value. You can calculate the premium thus.

Premium per share = issue price – face value

As per our example of ABC Company, the premium per share can be calculated as follows

Premium per share = 50 (Issue price) – 2 (face value) = 48

In other words, the face value per share is Rs. 2, Premium is Rs. 48, and the issue price is Rs. 50.

Let us go deeper to understand the concept of why companies issue shares on the premium price and not the face value.

Equity financing

When any company plans for expansion or additions to the existing line of business and grow big the individual owners or partners require funds or the company requires funds for further modernization and expansion. They can get funds through banks, NBFI, or the general public or it can raise funds through equity route or debit route.

When the promoters take the equity route that is called equity financing, the company or its promoters sell a portion of their holding to the public. The number of shares which can be issued to the public is limited by authorized capital. AC is the capital that can be raised which is a total number of shares multiplied by its face value. The authorized capital is mentioned in the company’s MoA (Memorandum of Association). MoA is prepared by the company at the time of its registration and is a legal document which has to be submitted to SEBI (Securities and Exchange Board of India) along with other documents.

It should be noted that the company cannot issue more shares than the number indicated in its MoA. It can raise more capital by issuing shares at a premium.

The reason why the shares are issued at a premium

As stated above the company needs cash for the modernization and expansion plans of its business. As the company wishes to go public that is promoters are ready to dilute their shareholding. Since the company is in businesses for the last several years it develops goodwill among the public, an established brand of product, and a reputation in its line of business earning sufficient profit. When it issues shares at a premium it has two advantages, firstly short term that is higher the premium, less is the number of shares that it has to issue in the market and promoters holding remains higher. Secondly, the long-term benefit is that if shares issued are less the dividend per share is higher. In other words, the existing shareholders will get a better dividend yield. Since promoters’ holding percentage is more, a number of shares held by them are more and they get a larger share of the dividend.

If the premium is higher it has twin advantage for the company and its promoters. They are able to generate the required capital for their expansion plan and holding a larger portion of shares of the company. In future, they can buy-back shares from the public to further strengthen their hold on the company.

It is seen from time to time the company buy-back its shares from the share market when the promoters feel that the share price is undervalued in the market and increase their holding. Promoters know the functioning of the company so they buy their undervalued shares and when in future their share price increases they sell it and book profit. On the other hand just to fool investors and drive up the share price of their company the promoters go in for a buy-back.

If you are undecided that shares should be purchased at the premium price they are offered at or not, you can contact us and we will be glad to solve your query.

Online Trading Tips to Secure Better Returns on Your Investment

Share trading is buying and selling of shares in the stock exchange. When this trading takes place through computers and the internet it is called online trading. For trading, you need two accounts, demat account, and trading account. Traders/investors who wish to trade on their own prefer this type of trading facility.

Online Trading Tips

Discussed here are few online trading tips to secure better returns on your investment.

Start with small capital

Those who are the newbie in stock trading should start with small amount of capital in the beginning. Human beings make mistakes and so even if you suffer loss during your first few trades your trading spirit will not be broken as you would have not lost much right in the beginning. You will gain experience of how the website works and what are the options that are available.

Study stock market

Before entering into the field of trading, one should study the basics of the stock market and features of an online trading website. You should be aware of how stock markets work, its basic terminologies, and types of trades available. If you do not study and observe you may end up buying/selling wrong orders.

Do your own research

One should gain some understanding of fundamental and technical analysis of the company to choose the right stocks for investment. For this you can rely on your own research and mathematical calculations or take help from experienced people in the field. If your trades are based only on impulse, the outcome of the trade will be unpredictable.

Trade only in a few sectors

One can trade in many sectors but it is advisable to stick to those sectors of whom you have knowledge about. By selecting a few sectors you can stay updated about all the occurrences in those selected sectors and that will be beneficial. You can search about news, related articles, financial reports of the companies in those sectors through the internet, business newspapers, magazines etc. in which you are interested. Company news helps in planning strategy and trade execution.

Using trading tools

There are many tools available to help you come to a decision when and what to buy/sell. Few of the tools are charting tools, stock watch list, SMS/email alerts, charts, graphs, high and low, etc. These resources will help you in taking right decisions. These tools give you information whereby you do not trade on impulse or intuition.

Trade from anywhere

Being online and registered you can trade from wherever you are from home, from office, while traveling or even in some remote location provided you have an internet connection!

Choose a good online brokerage firm

While choosing an online broker see to it that his web speed is good and has a good reputation. The available services for an online trading platform can make a difference between financial success/failure. Check for online broker pricing especially if you are a day trader as in the long run it will make a lot of difference in your profits. A good broker will offer resources for education and research.

Online trading will provide you the convenience of trading and few other benefits. We provide trading tips regarding which shares to purchase/sell so as to derive maximum returns. You can contact us on phone, email or by filling up the details which appear on our webpage.

How can you earn money from Indian share market?

Many people start stock trading to make good money. However equity trading is not easy for all, despite it, many investors have made a good profit in stock trading. There are some basic principles of trading like one must have discipline, patience, market understanding and research ability.

Indian share market

Indian stock market is quite volatile. This creates confusion among investors regarding their decision to hold or sell stocks. Therefore, there is no tested or proved the formula that can help to achieve desirable success in the share market. However, there are some trading rules that can help to increase chances of success during trading.

1. Follow disciplined approach 

If you study the history of the Indian stock market then will find one thing that whenever the stock market goes up suddenly it creates some panic moments for investors. A big number of investors had lost their money when the Indian stock market had a bullish trend. It happened due to the volatile nature of the stock market. On the other hand, some investors who had followed a disciplined approach earned good money. Therefore if you have a long-term trading plan then should use a systematic disciplined approach.

2. Control your emotions

There are numerous investors who have lost their money because they did not control emotions during share trading. Investors invest in share market to make good profit and greed of this they invest in wrong shares. Greed and fear are two factors associated with emotions and these must be controlled during stock trading.

3. Trade with surplus funds

Some investors take the loan and invest in the stock market in the belief that it will return good money that is wrong. The stock market is full pack with up and down. You should not test your skills or luck with debt money. If you are a newcomer in the stock market then it is advised that you should use your surplus money for trading. If you start making the profit then use the same amount to buy other shares.

4. Set realistic goals

Most of the investors set earning goals for invested money. You also can set financial or profit goals during trading but it must be realistic. There is no guarantee that you will get the same return each time. Therefore you must set achievable and realistic financial goals.

5. Avoid herd mentality

Many traders follow herd mentality means they buy or sell a specific share if most of the traders are buying or selling. In such way, they try to go behind majority without their own research. You should avoid such mentality because it will not work in long run. You should do your own research and follow self-trading strategies.

The stock market is one of the best ways to get the good return of invested money but here also you will have to follow some basic rules. If you follow these then can stay in the stock market for a long time because profit and loss are two faces of trading in the Indian share market.

Many investors have been made the good profit, you also can but will have to keep patience and avoid greed during trading.

How to choose a better stock option for investment?

Share market is considered one of the best options to increase investment in a short period of time. However, it is good if you are ready to take the risk with your invested money because here profit and loss both exist. Either you are a beginner stock trader or having experience of few years, you should focus on choosing the best or a better option to get back more value of your investment.

stock option for investment

Each company listed in the stock market promises to return huge amount than invested but investors have limited money to invest. He cannot buy stocks of all companies, therefore, research-based selection of stocks and an adequate comparison is compulsory before buying stock.

Here we have discussed a few rules that will help you to choose the best stock option.

First Rule: You should invest in easily understandable business model companies. It will help you to predict the company’s future because its business model is simple and a common man easily can understand it. You also can select those companies which have a sustainable business; generally, such companies are considered trusted investment option in the share market.

Second Rule: In stock trading, a famous saying is “past performance is not a guarantee of future performance”. However, it is not true when you choose stocks to buy. As a company’s past track record helps to predict its future growth. Therefore before buying stock of any company you should do adequate research about past business growth of the company.

Third Rule: Some companies give a high dividend to their shareholders while some give very poor. You should go to companies which distribute rich dividends. You should give preference to rich dividends companies in your investment portfolio.

Fourth Rule: Diversify your investment portfolio. It means you should pick stocks from different industries and different fields. If any news, government rule or any other outer things affect the stock of any specific industry in such cases other stocks of your portfolio can manage the loss of those shares.

Fifth Rule: Always said choose “Best in Breed”, it applies in stock choosing also. There are numerous companies in different segment and industry but some companies are considered as “best in breed”. You should choose such companies. The stock of such companies gives high return and shareholders trust on their business model.

Sixth Rule: The most common share trading strategy is “Buying when the price is low and sell when the price is high”. However, you should go beyond it and buy stocks of new growing companies. Most of the experts suggest that buying shares of new and growing companies at an early stage is a guarantee of high return on long-term. You can go for it if looking for better stock options for long-term investment.

In the stock market, a number of techniques and strategies are used to choose the best and profitable stock option to gain a high return on invested money. One strategy may work for one but there is no guarantee that the same strategy will work for you as well.

Therefore you must be more conscious to follow anyone.

Share market investment tips for early-stage investors

These days each and every one wants to become rich as quick as possible. To search such ways, some people buy lottery tickets while some move towards share market investment. There are a big number of people who thing investment in stock market is the easiest and quick way to become rich. However, it is not true for all if you don’t follow some basic rules of the investment in the share market. Some early-stage investors also rely upon luck when they don’t have basic investing knowledge.

investment tips

Here are some common investment tips that early stage investors should follow:

1. Go for long-term aims

First of all, you should ask yourself what is the aim of investment in the share market. Do you need investing money back in the next 3 months, 6 months or a year? Are you investing for future expenses like buying a home, car or bear college expenses etc.?

Before investing in the share market, you must have a clear purpose of the investment. If you are expecting a huge profit in a short period of time then you must rethink about investment in the share market. Due to the volatility of the share market, it may not return desirable return in short time. You will have to go for long-term aims.

2. Diversify investment in share market

The most popular method to manage investment risk is diversifying investment. The most popular thought about investment is “Don’t put all eggs in one basket”. It is really true in the share market. You should buy stocks of different companies which deal in different industries. If any bad news or event hit the companies of the specific industry then investment in other industries may help to recover from the loss. All experienced investors make their investment portfolio with the share of different companies belong to varies industries.

3. Controls on emotions

To control emotions during stock trading is the key to make the profit in share trading. Most of the early stage traders and beginners fail to control their emotions especially when they suffer from the loss. Sometimes, fluctuation in the share of a particular company or companies of the specific industry may be due to rumors, market news, government’s new policy or rules and investors’ hopes along with emotions. So, you should not flow in emotions like others and make a decision on the basis of the company’s prospects, management, and assets.

4. Understanding of your risk tolerance ability

Risk tolerance varies person to person and is a psychological trait. It is based on different parameters like age, education, lifestyle, income etc. Risk is an important element of the stock trading and both early-stage investors and experienced have to face it. You must have risk tolerance ability if you are planning to invest in share market for long time. Stock trading is not free from risk, so you must be familiar with your own risk tolerance ability. However with understating of your risk tolerance capacity, you will avoid to invest in those companies which can make you anxious.

If you follow the above-mentioned tips then you can become a successful early-stage investor.