Equity Shares: Meaning, Types and How They Work

Equity shares are the most common way to own part of a listed company. Knowing how equity shares work, from issue to trading to holding, is the foundation of stock market investing. This guide explains the meaning of equity shares, their types and the mechanics behind them.

Meaning of Equity Shares

Equity shares represent ownership in a company. Under Section 43 of the Companies Act, 2013, equity share capital is share capital that is not preference share capital, and it may carry voting rights or differential rights as to dividends, voting or otherwise. Holders of equity shares are part-owners, not creditors.

How Equity Shares Work

Equity shares follow a process that begins with a company raising capital and continues through trading, price discovery and settlement. Each stage helps explain how shares move between investors and how their value can change. 

1. Issue: a company raises capital by issuing equity shares, for example through an IPO.
2. Trading: listed equity shares trade on exchanges such as NSE and BSE.
3. Price discovery: prices move with demand, supply and company performance.
4. Returns: investors may earn dividends and capital gains, or suffer losses.
5. Settlement: trades settle through the clearing system, and shares are credited to the buyer’s demat account.

Rights Attached to Equity Shares

Equity shareholders receive specific rights that allow them to participate in certain company decisions and benefit from corporate actions. The exact rights depend on the share class, applicable law and the company’s decisions.

• Vote at general meetings, normally one vote per share.
• Receive dividends if declared.
• Participate in bonus and rights issues.
• Claim residual assets after creditors and preference shareholders.

Types of Equity Shares

Companies may issue different types of equity shares depending on their purpose and the rights attached to them. These categories include standard shares, shares with differential rights and shares issued through corporate actions or employee contribution schemes.

• Ordinary shares: standard rights.
• DVR shares: differential rights; Tata Motors cancelled its DVR shares in 2024 under a scheme of arrangement.
• Bonus shares: issued from reserves.
• Rights shares: offered first to existing holders.
• Sweat equity: for employees or directors.

Equity Shares and Market Size

Equity shares are grouped by market capitalisation. Large caps are the top 100 companies, mid caps are ranks 101–250, and small caps are ranks 251 onwards. Smaller companies can see larger swings on lower volumes, since some have low free float and thinner market depth.

Volatility Is Part of the Deal

The Nifty gained 24.60% in Samvat 2080 and 9.55% in Samvat 2079. In October 2024, it fell 6.22%. Even in a short session like Diwali Muhurat trading, equity shares moved only slightly: the Nifty rose 0.10% in 2025. Equity shares reward patience but carry real risk.

Holding Equity Shares: What Is Demat?

Most investors ask what is demat soon after buying their first equity shares. A demat account stores equity shares electronically with a depository; NSDL (1996) and CDSL (1999) are India’s two depositories. Demat accounts reached about 23.44 crore in July 2026. Listed shares can be transferred only in demat form since 1 April 2019. See a simple guide on what is demat for account details.

Tips for Investing in Equity Shares

1. Read the company’s financials.
2. Diversify across sectors and sizes.
3. Avoid investing money you may need soon.
4. Use limit orders.
5. Review periodically.

A Neutral Reference Point

Brokers and depository participants provide the infrastructure. SMC Global Securities, established in 1990, offers equity trading and demat services among its offerings. Compare charges and services before opening an account.

In Conclusion, equity shares give ownership, voting rights and a share of profits, with price risk attached. Learn how equity shares work, understand their types and hold them securely in a demat account.