1.11How can ordinary people make money from stocks?
There are two main ways: capital appreciation (the share price rises and you sell for more than you paid) and dividends (the company pays you part of its profit).
These two returns come from the business itself: profits shared now (dividends) and the business becoming more valuable over time (price rise).
You buy a flat for ₹40 lakh and rent it out for ₹15,000 a month. The rent is like a dividend. Years later you sell the flat for ₹60 lakh. The ₹20 lakh gain is like capital appreciation.
Suppose you buy 10 shares of ITC at ₹400 = ₹4,000. Over a year you receive dividends of ₹15 per share = ₹150. The price rises to ₹450, so your shares are worth ₹4,500. Your total gain is ₹500 (price) + ₹150 (dividends) = ₹650. (Hypothetical numbers.)
- Price gain = (₹450 − ₹400) × 10 = ₹500
- Dividends = ₹15 × 10 = ₹150
- Total = ₹650
- Return = ₹650 ÷ ₹4,000 × 100 = 16.25%
- The price can fall below your buying price.
- Dividends are not guaranteed; companies can cut or stop them.
- Some people also trade short-term (covered in Level 5), which is much riskier.
- Two returns: price rise and dividends.
- Total return adds both.
- Neither is guaranteed.
Q1. Name the two ways to earn from shares.Show answer
Capital appreciation (price rise) and dividends.
Q2. You buy at ₹200 and sell at ₹260. Gain per share?Show answer
₹60.
Q3. Are dividends guaranteed?Show answer
No.