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Stocks

Types, taxation, and how to actually evaluate a company before you buy.

A stock makes you a part-owner of a company. Owning a great business for many years is one of the most powerful wealth-creation tools — but it demands patience, research and a strong stomach for volatility.

🗂️Types of stocks

Not all stocks behave the same — categories tell you what to expect.

  • Large-cap — Top 100 by market cap (Reliance, TCS, HDFC Bank). Steadier, slower growth.
  • Mid-cap & small-cap — Faster growth, sharper falls. Higher conviction required.
  • Growth vs value — Growth: high earnings growth, premium price. Value: under-priced relative to fundamentals.
  • Dividend stocks — Mature companies returning cash to shareholders (ITC, Coal India, PSUs).

🧪How to evaluate a company

Before you click 'Buy', spend 30 minutes on these basics.

  • Business — What does it sell? Will it sell more in 10 years? Read the annual report's first 20 pages.
  • P/E ratio — Price ÷ earnings per share. Compare to sector average. Sky-high P/E = priced for perfection.
  • ROE / ROCE — How efficiently capital is used. Look for >15% consistently for 5+ years.
  • Debt-to-equity — <1 for most sectors. High debt + falling earnings is a red flag.
  • Management — Check promoter pledging and related-party transactions. Honesty matters more than IQ.

🧾Taxation in India

Hold period decides the tax slab. Plan exits with this in mind.

  • STCG (<12 months) — Short-Term Capital Gains taxed at 20%.
  • LTCG (≥12 months) — Long-Term Capital Gains: 12.5% on gains above ₹1.25 lakh/year.
  • Dividends — Added to income, taxed at your slab. TDS @10% if >₹5,000/year.

Micro Pro Tips

  • 🐢
    Hold winners, not losers — Beginners do the opposite — book small profits and 'hope' losses bounce back.
  • 🚫
    No F&O for the first 5 years — SEBI data: 9 out of 10 retail F&O traders lose money. Learn cash equity first.
  • 📚
    Read the annual report — It's free, it's regulated, and it tells you 90% of what you need to know.
🌟 Treat each stock purchase like buying a stake in a private business. If you wouldn't own the whole company for 10 years, don't own a single share for 10 minutes.