💰 Understanding Share Prices
Face Value, Issue Price & Market Price - Made Simple!
🤔 Ever Wondered About Different Share Prices?
Let me tell you a story...
Last week, my student Rahul asked me: "Sir, I saw that Reliance shares have a face value of ₹10, but they're selling at ₹2,500! What's going on? Is someone cheating?"
Great question, right? This confuses SO many students. Today, I'm going to clear this up once and for all. Trust me, by the end of this, you'll get it completely!
So here's the deal - when we talk about share prices, there are actually THREE different prices. Yeah, THREE! And they're all different. Let's break them down one by one.
📊 The Three Types of Share Prices
Face Value
The "printed" value on the share
Issue Price
The price when company first sells shares
Market Price
The current price in the stock market
🏷️ Face Value - The "Name Tag" Price
Okay, so what's Face Value? Think of it like the price tag printed on a book or a movie ticket. It's the ORIGINAL value that the company decides when it creates the share.
Simple Definition
Face Value = The nominal value printed on the share certificate
It's also called "Nominal Value" or "Par Value" (same thing, different names - don't get confused!).
Important Things to Know:
- It's fixed - Face value NEVER changes. Once decided, it stays the same forever.
- Usually small amounts - Most companies use ₹1, ₹2, ₹5, or ₹10 as face value.
- Company decides it - When forming the company, founders choose this value.
- Used for accounting - Important for company's books and calculating dividends.
📝 Real Examples:
- Reliance Industries - Face Value: ₹10
- TCS (Tata Consultancy) - Face Value: ₹1
- Infosys - Face Value: ₹5
- HDFC Bank - Face Value: ₹1
Notice something? All these are BIG companies, but their face values are tiny! That's normal.
💡 Pro Tip: Don't judge a company by its face value! A ₹1 face value company can be worth crores. Face value is just a number for accounting - it doesn't show the company's actual value.
🚀 Issue Price - The "Launch" Price
Alright, now let's talk about Issue Price. This is the price at which the company FIRST sells its shares to the public.
Imagine you're launching a new product. You decide the selling price, right? Same thing here! When a company goes public (IPO - Initial Public Offering), it decides at what price to sell shares.
Simple Definition
Issue Price = The price at which company first sells shares to investors
This happens during an IPO (Initial Public Offering) or when company issues new shares later (FPO - Follow-on Public Offering).
Key Points About Issue Price:
- Usually MORE than Face Value - Companies almost always issue shares at a premium (higher price).
- Based on company valuation - Depends on company's worth, growth potential, market conditions.
- Fixed for that offering - Everyone who buys in that IPO pays the same issue price.
- Can be different each time - If company issues shares again later, the issue price will be different.
📝 Real IPO Example:
Zomato IPO (2021):
- Face Value: ₹1
- Issue Price: ₹76
- What does this mean? Company sold shares at ₹76 each, even though face value was just ₹1
Why such a big difference? Because the company's actual value was much higher! Investors were willing to pay ₹76 for a share with ₹1 face value because Zomato as a business was worth it.
Zomato Example: Premium = ₹76 - ₹1 = ₹75
So basically, Zomato was selling shares at a premium of ₹75 above the face value!
📈 Market Price - The "Right Now" Price
Okay, here's where it gets interesting! Market Price is what the share is selling for RIGHT NOW in the stock market.
Think of it like this - remember how onion prices change every day? Sometimes ₹20/kg, sometimes ₹80/kg? Same thing with shares! The market price keeps changing based on demand and supply.
Simple Definition
Market Price = The current trading price of a share in the stock market
This is what you'll see on apps like Groww, Zerodha, or Google Finance when you search for a stock.
What Makes Market Price Change?
- Company performance - Good profits? Price goes up! Losses? Price goes down.
- News and events - New product launch, management change, legal issues - everything affects it.
- Economy - Overall market conditions, inflation, government policies.
- Demand & Supply - More buyers = price up, more sellers = price down.
- Investor sentiment - What people FEEL about the company's future.
📝 Real Market Price Example:
Reliance Industries shares:
- Face Value: ₹10 (fixed, never changes)
- Issue Price in 1977: ₹10 (same as face value back then)
- Market Price today: Around ₹2,500
Whoa! From ₹10 to ₹2,500? Exactly! That's because Reliance became a massive, successful company over the years. The market price reflects what investors TODAY think the share is worth.
🎯 Important: Market price can be ABOVE or BELOW the issue price depending on how the company performs. If a company does well, market price shoots up. If it does badly, market price can even fall below the issue price!
🆚 Face Value vs Issue Price vs Market Price
Let me put all three together so you can see the difference clearly:
| Feature | Face Value | Issue Price | Market Price |
|---|---|---|---|
| What is it? | Nominal value printed on share | Price when first sold by company | Current trading price |
| Who decides? | Company (at formation) | Company + Market conditions | Stock market (buyers & sellers) |
| Does it change? | ❌ No, NEVER changes | Different for each issue | ✅ Changes every second! |
| Typical amount | ₹1 to ₹10 usually | ₹50 to ₹500+ usually | Can be anything! |
| When relevant? | Company accounts, dividends | During IPO/FPO | When trading shares |
| Example (Reliance) | ₹10 | ₹10 (in 1977) | ₹2,500 (approx today) |
🎯 Complete Example - All Three Together!
📱 Let's Take a New Tech Company: "TechStart India"
Step 1: Company Formation (2023)
Founders decide: Face Value = ₹10
This is just a number for accounting. It's printed on share certificates. Will NEVER change.
Step 2: IPO Launch (2024)
Company goes public and sells shares at: Issue Price = ₹150
Why ₹150 and not ₹10? Because the company's actual value is much higher! Investors are buying a piece of a growing business.
Premium: ₹150 - ₹10 = ₹140 above face value
Step 3: After IPO - Stock Market Trading
Market Price keeps changing:
- Day 1: ₹180 (good response, people buying!)
- After 1 month: ₹165 (some selling, price correcting)
- After 6 months: ₹200 (company announces great profits!)
- After 1 year: ₹120 (market crash, everything falling)
- After 2 years: ₹350 (company doing amazingly!)
See what happened?
- Face Value: Still ₹10 (never changed)
- Issue Price: Was ₹150 (that's history now)
- Market Price: Went from ₹180 → ₹165 → ₹200 → ₹120 → ₹350
Market price reflects what people think the share is worth TODAY!
💡 Common Student Confusions (Cleared!)
❓ "Why is market price so different from face value?"
Because face value is just a number for accounting! It doesn't show the company's real worth. Market price shows what investors think the whole business is worth.
❓ "If I buy a share at ₹2,500, am I overpaying? Face value is only ₹10!"
Nope! You're not overpaying. You're paying for the company's business, profits, future potential - not just the face value. Face value is meaningless for buying decisions.
❓ "Can market price go below face value?"
Yes, absolutely! If a company is doing really badly, market price can fall below face value. But this is rare and shows the company is in serious trouble.
❓ "Which price should I look at when buying shares?"
Market Price! That's the ONLY price that matters when you're trading. Forget face value and issue price - they're history. Market price is what you'll actually pay.
📝 Quick Summary - Remember This!
Face Value
The Fixed Tag
- Never changes
- Usually ₹1-₹10
- Just for accounting
- Ignore when buying!
Issue Price
The Launch Price
- First-time sale price
- During IPO
- History after IPO
- Matters only if you bought in IPO
Market Price
The Real Deal
- Changes constantly
- What you actually pay
- Based on demand-supply
- This is what matters!