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.
Risk & 5-Year Returns
How these compare
Indicative 5-year CAGR (2020–2025) and typical risk for the instruments discussed in this topic.
| Instrument | 5Y CAGR | Risk |
|---|---|---|
Nifty 50 Index Fund Large-cap diversified. ~15% drawdowns normal. | 16–18% | Medium–High |
S&P 500 (INR) Currency diversification. USD/INR adds tailwind. | 16–18% | Medium–High |
Direct Stocks Concentration risk. Needs research & discipline. | Varies widely | Very High |
Past returns do not predict future results.
See full comparison on Portfolio →Go deeper
Direct Stocks — A Realistic Guide for Indian Investors
Before you buy your first share, understand what you're actually buying, how to value it, and why most retail traders lose money.
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.