Here we are talking about stock markets. Stock markets offer us an excellent opportunity to make money. But, before you really invest into the stock markets, you should be educating yourself about the Stock markets. I am saying so because the stock markets are about BIG RISKS AND BIG RETURNS. And I am sure that we are here to win, not to lose.
So, let’s get started on a very elementary concept about stocks and shares – the face value of shares.
The face value of a share at IPO
When a stock or a share or even better word that’s used in the stock market is EQUITY, when that’s launched in the stock market for the first time, it happens by the bidding system. And that whole bidding process is termed as IPO or initial public offering.
The shares that are up for grab for the very first time have the face value of Rs. 10/-. That’s it. The actual share value may not stand at Rs. 10/-. The actual value could be more than that. Infact, much much more than that. But, the face value is Rs. 10/-.
Does it change after the IPO or remain the same.
The share value may keep changing. And so does the face value. But the face value unlike the stock actual value is determined by the company to whom belong the shares. The company may decide to split the shares.
When the split happens, the share may trade at even higher price. But still, the stock value may be lesser. For example, the company may slit the shares into 1:2 or 1:10 or any ratio between that.
But why? Why is the Face value of a share important.
The share face value is what really is used to calculate the dividend income. The company will declare the dividend income on the face value. Let’s say that the face value of a share is 10/-, and the company has declared the dividend income of 50%, it would mean that the company is going to pay you Rs. 5/- on each of your shares.
The share actual value may be say, Rs 800/-.but you don’t get 50% on that. Your dividend income will be calculated on the share face value.
