Chapter 2 of 12 · 14 min
The types of stocks
Equity vs preference, large vs small cap, growth vs dividend — decoded.
Walk into a fruit market and you'll see apples sorted by size, sweetness, and origin. Stocks get sorted the same way — and the labels confuse beginners more than anything else. Here is every common label, in plain words.
By legal type: equity vs preference shares
| Equity shares | Preference shares | |
|---|---|---|
| What you get | True ownership + voting rights | Fixed dividend, paid before equity holders |
| Profit share | Rises and falls with the business | Usually a fixed percentage |
| Risk | Full business risk | Lower, debt-like |
| Halal view | Generally acceptable (real ownership) | Usually NOT halal — a fixed return regardless of profit resembles interest |
When people say "stocks" or "shares", they almost always mean equity shares. That is what trades on the NSE and BSE, and that is what this course is about.
By company size: large, mid, and small cap
"Cap" is short for market capitalisation — the total value of all of a company's shares. Price of one share × number of shares. In India, SEBI defines the buckets by ranking:
- Large cap — the top 100 companies (think TCS, Reliance, HUL). Stable, widely tracked, harder to manipulate. Slower growth, lower risk.
- Mid cap — companies ranked 101–250. Established but still growing. Medium risk, medium reward.
- Small cap — ranked 251 and beyond. Young or niche businesses. Can grow spectacularly or collapse quietly. Highest risk.
🎛 Try it: Build a company
Drag price and share count — see why a ₹3,000 stock can be far smaller than a ₹50 one.
Market capitalisation = price × shares
₹1,00,000 crore
LARGE CAP territory
(rough 2026 cutoffs — exact lists are republished by AMFI every 6 months)
💡 Beginner rule of thumb
Start with large caps. They publish detailed reports, analysts watch them, and fraud is rarer. Small caps reward experience — earn that experience with safer money first.
By behaviour: growth, value, and dividend stocks
- Growth stocks — companies expanding fast (revenue growing 15–30% a year). They usually reinvest profit instead of paying dividends. You earn when the share price rises.
- Value stocks — solid companies whose shares look cheap compared to their earnings or assets, often because they are temporarily out of fashion.
- Dividend stocks — mature companies that pay out a healthy share of profit as cash every year. Loved by people who want income, not just growth.
Labels you will hear in India
- Blue chip — informal name for the biggest, most trusted large caps.
- Penny stocks — shares trading at very low prices (often under ₹10) with tiny market caps. A favourite playground for scams. Avoid as a beginner, full stop.
- PSU stocks — Public Sector Undertakings, companies majority-owned by the government (SBI, NTPC, Coal India).
- FMCG, IT, Pharma, Auto, Banking… — simply the industry the company belongs to. These are called sectors.
☪️ Sectors and Shariah
Sector labels matter enormously for halal investing. Entire sectors are off-limits because their core business is prohibited: conventional banking, conventional insurance, NBFC lending, alcohol, tobacco, gambling. Others — IT, pharma, cement, autos, FMCG — are generally fine if the company also passes financial checks. Chapter 10 teaches you the exact screening rules; the Gennoor Invest screener applies them for you with evidence.
🛠 Build the skill — 15 minutes
- Open the Stocks page on this site and look at the sector column.
- Find one large-cap IT company, one FMCG company, and one bank.
- Check their verdicts: notice that the bank fails the screen no matter how big and reputable it is — the business itself is the issue, not the quality of the company.
📌 Remember
- Equity shares = real ownership and the subject of this course. Preference shares usually fail the halal test.
- Large/mid/small cap is about company size — and risk rises as size falls.
- Growth, value, and dividend are styles of investing, not types of companies in law.
- Sector determines the first halal test: some businesses are prohibited entirely.
✅ Check yourself
5 quick questions — answer honestly, learn instantly.
1. A share priced at ₹18 is automatically…
USE CASE2. Your friend wants "safe" stock returns and is offered preference shares paying a fixed 9%. The halal concern is…
3. SEBI's definition: a "large cap" company is…
USE CASE4. You hold ₹50,000 and zero experience. A YouTuber pitches a ₹6 penny stock "about to explode". Best move?
5. A "dividend stock" typically is…