What is Face Value of Shares: Meaning

What is the meaning of the Face value of the Shares? If you are a new investor or trader in the Share Market, you may have heard the word Face Value or Market Value of the shares. New Investors generally get confused between these two words .i.e. Face Value and Market Value. 

Meaning of the Face Value and Market Value. There is a minor difference between the Face Value and Market Value of the shares. We will discuss the meaning of the Face Value and Market Value of the shares.

Meaning of Face value

A new investor finds that the RIL is Currently trading at 2100 levels but the actual Face Value is Rs 10.  Are you confused too? Let's understand the meaning of Face Value.

What is the Face value of Shares or the meaning of the face value of shares: Discussion

We can also call it the Nominal value of the shares. It is also called the original cost of the share. The Face Value is decided by the company before the IPO (Initial Public Offering). Face Value either be Re 1, Rs 2, Rs 5, Rs 10, or even Rs 100.

Meaning of Face Value with example

The Face Value of the share is decided at the time of Initial Pubic Offering, So we will take the example of IRFC IPO. The Face Value of the IRFC share is Rs. 10 of a single share, but the issue price was Rs 25-26. There is a difference of Rs. 15-16 over the face value. This extra amount which is charged by the company is actually the premium on each share charging from its potential Investors and traders. The Face value of most of the shares is Re 1 to Rs 10, the rest is the premium charged by the company. The premium depends on the earning and growth potential.  

Therefore,

Issue Price = Face Value + Market Premium

How to become a successful trader

  At Par Value Vs Above Par Value Vs Below Par

Let's take an example of Zomato, the price band of zomato was Rs. 72 - 76, but it open at 115. Here the price opens at a premium. this is called price Above Par.

If the price of the Zomato's share is open between Rs 72-76, this is known as  At Par.

And if the share of the company is listed below the price band or issued at discount, means the price opens below Rs. 72, this scenario is known as Below Par Value.

How the Stock Market Works? 

How to know the Face value of the share?

If you want to know the face value of a company, there are many ways of checking the face value of the shares like, you can check the balance sheet of the concerned company. You can also visit the websites of NSE and BSE. You can also get this information on moneycontrol or any other similar website. 

NSE Website

{Join our Telegram group for updates on Stock Market, here}

Effects on Face Value after Share Split.

The face value of the shares remains unchanged generally. But this can change if the organization wants to increase the number of outstanding shares by the process of a stock split. In the stock split, the one share can be divided into 2 or more shares and in effect, the Face Value decreases in the same proportion.

Let's understand this with the example,  the price of XYZ Ltd. is Rs. 600 and the face value of the share Is Rs. 10. Now if a company wants to split the share into two, then the market value and the face value are reduced to half. The market value will be 300 and the face value will be Rs. 5. 

In the process, the face value and the market value of the share will get reduce and the number of the shares will get increase proportionally.

Effects of Face Value after Dividend 

The dividend is decided on the face value of the shares, not on the market value. During the announcement of dividend if the face value of the share is Rs. 10 and the market price is Rs 1000 and the company announces a dividend of 150%, then the shareholder will get a dividend on the face value not on the market value. So the investor will get Rs. 15 on each shareholding, not Rs. 1500 on each share.