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Understand the difference between par value and market value, with examples to explain why both are important in the stock market.
In the world of investing, terms like par value and market value are often used but can be confusing for beginners. While par value refers to the nominal worth of a share or bond fixed by the company at issuance, market value reflects its actual trading price in the secondary market. Knowing the distinction helps investors interpret company filings and market behaviour more effectively.
Par value, also known as nominal or face value, is the fixed value assigned to a share or bond at the time of its issuance. It is recorded in the company’s charter and printed on share certificates. For shares, par value represents the minimum legal price at which they can be issued. For example, if a company issues 1 Lakh shares at a par value of ₹10 each, its share capital will be ₹10 Lakhs. While par value is crucial for accounting and compliance, it does not reflect the actual trading price of shares in the stock market.
Market value refers to the current price at which a security trades in the open market. Unlike par value, it changes constantly, influenced by demand and supply, company performance, and broader economic conditions. For instance, the same share with a par value of ₹10 may trade at ₹250 in the stock exchange if investor demand is high. Market value is therefore a more accurate reflection of how investors perceive a company’s worth at any given point in time.
Understanding the contrast between par value and market value is essential in stock analysis:
| Basis | Par Value | Market Value |
|---|---|---|
Definition |
Fixed nominal value assigned by the company at issuance. |
Actual price at which a security trades in the stock market. |
Fluctuation |
Remains constant once fixed. |
Changes daily with demand, supply, and performance. |
Purpose |
Used for legal, accounting, and capital calculation. |
Reflects real-time investor perception and economic conditions. |
Example |
A company issues shares with a par value of ₹10 each. |
The same shares trade at ₹250 in the secondary market. |
This distinction shows that par value is more relevant for company records, while market value reflects the true market sentiment.
The difference between par value and market value exists because they serve different purposes:
Demand and Supply: Investor sentiment drives the market price higher or lower.
Company Performance: Strong earnings, dividends, or expansion plans boost market value beyond par value.
Economic Factors: Interest rates, inflation, and government policies affect market value, but not par value.
Par value stays constant for legal and accounting reasons, while market value reflects real-time conditions.
To illustrate the difference, consider a company issuing 1,00,000 shares with a par value of ₹10 each. This means the company’s share capital is ₹10 Lakhs. If those shares trade in the stock exchange at ₹200 each, the company’s market capitalisation becomes ₹20 Crores (1,00,000 × ₹200). This example highlights how market value can be significantly higher than par value due to investor demand and company performance.
Understanding the difference between par value and market value is important for investors and businesses:
For Investors: It helps distinguish between accounting values and real trading values when analysing shares.
For Companies: It defines the legal capital base while market value reflects investor confidence.
For Financial Analysis: It prevents confusion when reviewing financial statements and market reports.
Recognising both ensures a clearer picture of a company’s financial health and stock performance.
Par value is the nominal worth assigned at issuance, while market value reflects real-time trading prices. Although par value is mainly relevant for accounting and legal purposes, market value provides insight into investor sentiment and company performance. Knowing the difference allows investors to interpret both company records and market behaviour more accurately.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Par value is the nominal value assigned at issue, while market value is the price at which the stock currently trades.
Companies assign par value to establish a legal base for share capital and ensure shares are not issued below a minimum threshold.
Market value is determined by demand and supply in the stock market, along with factors such as company performance and economic conditions.
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