When you start investing on NEPSE, you will quickly encounter different types of shares — ordinary shares, promoter shares, right shares, bonus shares, and occasionally preference shares. Each type has different characteristics, rights, and implications for you as an investor. Understanding these distinctions is not just academic — it directly affects how much you pay, what returns you receive, and what decisions you need to make when a company announces a right or bonus issue.

This guide explains each type clearly, with practical examples relevant to the Nepali market.

Ordinary Shares (Sadharan Share)

Ordinary shares, also called common shares, are the standard shares that most investors buy and sell on NEPSE. When someone says "I bought shares of Nabil Bank," they are almost always referring to ordinary shares.

Rights of Ordinary Shareholders:

Voting rights: You can vote at the company's Annual General Meeting (AGM) on matters like appointing directors, approving dividends, and changing the company's articles.
Dividend rights: You receive dividends when the company distributes profits. This can be cash dividends, bonus shares, or both.
Right share eligibility: When a company issues right shares, ordinary shareholders get first priority to buy additional shares at par value.
Residual claim: If the company is liquidated, ordinary shareholders receive whatever is left after all debts and preference share obligations are paid.
Transferability: You can freely buy and sell ordinary shares on NEPSE during market hours.

How Ordinary Shares Are Valued:

Every ordinary share in Nepal has a par value (face value) of NPR 100. This is the original denomination at which the share was issued. However, the market value — the price at which it actually trades on NEPSE — can be much higher or lower depending on the company's profitability, growth prospects, and market sentiment.

For example, a bank share might have a par value of NPR 100 but trade at NPR 450 on NEPSE. The difference (NPR 350) represents the premium that investors are willing to pay above the face value based on the company's earnings and future potential.

Kitta: The Unit of Shares

In Nepali stock market terminology, "kitta" means unit of shares. When you say "I have 100 kitta of NABIL," it means you own 100 shares of Nabil Bank. IPO allotments are also expressed in kitta — "I was allotted 10 kitta" means you received 10 shares.

The minimum lot size for trading on NEPSE is 1 kitta (1 share). There is no requirement to buy in lots of 10 or 100 as some other stock exchanges mandate.

Promoter Shares (Sansthapak Share)

Promoter shares are held by the founding members (promoters/sponsors) of a company. These are the people or institutions that originally established the company by putting up the initial capital.

Key Characteristics:

Lock-in period: Promoter shares have a mandatory lock-in period during which they cannot be sold. For banks and financial institutions, this is typically 3-5 years from the date of operation. The idea is to ensure that founders remain committed to the company's success during its early years.
Same economic rights: Promoter shares carry the same dividend rights as ordinary shares. If a company declares a 20% cash dividend, promoter shareholders receive the same 20% on their holdings.
Restricted transfer: Even after the lock-in period expires, transfer of promoter shares requires SEBON approval and must follow specific procedures. A promoter cannot simply sell their shares on the open market like ordinary shareholders can.
Separate listing: On NEPSE, promoter shares of some companies are listed as separate tickers. They often trade at a discount to ordinary shares due to transfer restrictions and lower liquidity.
Voting power: Promoter shareholders have voting rights and typically control the company's board of directors due to their large ownership stake.

Why This Matters to You:

If promoters are increasing their stake, it is generally a positive signal — they believe the company will do well. If promoters are reducing their stake (after lock-in expires), it may signal that insiders expect challenges ahead. Watching promoter holding disclosures on NEPSE can provide useful investment insights.

Right Shares (Hak Share)

Right shares are additional shares offered to existing shareholders at par value (NPR 100) in proportion to their current holding. When a company needs to raise additional capital, it can offer right shares to its current shareholders before approaching the general public.

How Right Shares Work:

Suppose you own 100 kitta of ABC Bank, and the company announces a 1:2 right share issue. This means for every 2 shares you currently hold, you can buy 1 additional share at NPR 100 (par value). So with 100 kitta, you are entitled to buy 50 additional kitta at NPR 100 each, costing you NPR 5,000.

Why Companies Issue Right Shares:

To increase paid-up capital (required by regulators, especially for banks to meet NRB's minimum capital requirements)
To fund expansion or new projects
To strengthen the balance sheet

The Application Process:

The company announces a right share issue and sets a "book closure date."
If you own shares on the book closure date, you are eligible.
You receive a right share application form (now managed through MeroShare in some cases, or through the issue manager's office).
You fill out the application and pay NPR 100 per share for the shares you are entitled to.
You can apply for your full entitlement, partial entitlement, or choose not to apply at all.
Allotted shares are credited to your DMAT account.

What Happens If You Do Not Apply?

This is important. If you do not apply for your right shares within the application period, you lose that entitlement permanently. The unsubscribed shares are then offered to other shareholders who applied for additional shares beyond their entitlement, or to the general public.

More critically, not applying for right shares leads to dilution. Your ownership percentage in the company decreases because total shares increase but your holding stays the same. If the share was trading at NPR 500 before the right issue, the post-right adjusted price will be lower because more shares now exist. You effectively lose value.

Right Shares and Share Price Adjustment:

After a right issue, NEPSE adjusts the share price to reflect the new shares. The formula is:

Adjusted Price = (Market Price Before + Par Value x Right Ratio) / (1 + Right Ratio)

For example: If a stock trades at NPR 500 and the right ratio is 1:1 (one new share for every one held): Adjusted Price = (500 + 100 x 1) / (1 + 1) = 600 / 2 = NPR 300

This is not a loss — you now have twice as many shares at NPR 300 each, and you paid NPR 100 for each new share. Your total investment value remains the same mathematically.

Tax on Right Shares:

When you sell right shares, capital gains tax applies on the difference between your selling price and the cost (NPR 100 par value for right shares). The tax rate is 5% for shares held more than one year and 7.5% for shares sold within one year.

Bonus Shares (Bonus Share)

Bonus shares are free additional shares distributed to existing shareholders from the company's retained earnings or reserves. Unlike right shares, you do not pay anything to receive bonus shares.

How Bonus Shares Work:

When a company has accumulated profits that it does not want to distribute as cash dividends, it can capitalize those reserves by issuing bonus shares. For example, a 20% bonus share means for every 100 shares you own, you receive 20 additional shares free of charge.

If you own 200 kitta of XYZ Insurance and they declare a 30% bonus, you receive 60 additional kitta (200 x 30%). Your total holding becomes 260 kitta.

Why Companies Issue Bonus Shares:

To increase paid-up capital without asking shareholders for money
To meet regulatory capital requirements (especially banks and insurance companies)
To reward shareholders while retaining cash in the business
To make the share price more "affordable" by increasing the number of shares (price adjusts downward)

Effect on Share Price:

Like right shares, bonus shares trigger a price adjustment on NEPSE:

Adjusted Price = Market Price Before / (1 + Bonus Ratio)

If a stock trades at NPR 1,000 and declares a 100% bonus (1:1 ratio): Adjusted Price = 1000 / (1 + 1) = NPR 500

You now have twice as many shares at half the price. In theory, your total value is unchanged immediately after the bonus. However, in practice, bonus shares are often viewed positively by the market because they signal that the company has strong retained earnings.

Tax Implications of Bonus Shares:

In Nepal, bonus shares are subject to a 5% tax on the face value of bonus shares received. This tax is deducted at source by the company before crediting the shares to your DMAT account. For example, if you receive 100 bonus shares (par value NPR 100 each = NPR 10,000 total face value), the tax is 5% of NPR 10,000 = NPR 500.

When you eventually sell these bonus shares, your cost basis is NPR 0 (since you received them free), so the entire selling price is your capital gain for tax purposes.

Book Closure Date:

To be eligible for bonus shares (or cash dividends, or right shares), you must own the shares on the "book closure date" announced by the company. If you buy shares the day after book closure, you will not receive the declared bonus. NEPSE marks stocks as "ex-bonus" after the book closure date.

Preference Shares (Agradhikar Share)

Preference shares are relatively rare on NEPSE, but they do exist and it helps to understand them.

Key Characteristics:

Fixed dividend: Preference shareholders receive a fixed dividend rate (for example, 8% per year on par value) before any dividend is paid to ordinary shareholders.
Priority in liquidation: If the company is wound up, preference shareholders get their capital back before ordinary shareholders.
No voting rights: In most cases, preference shareholders cannot vote at AGMs. This is the trade-off for having priority on dividends.
Cumulative vs non-cumulative: Cumulative preference shares accumulate unpaid dividends — if the company skips a year, it must pay the backlog before ordinary shareholders get anything. Non-cumulative preference shares do not have this feature.

Why They Are Rare in Nepal:

Most Nepali companies prefer to raise capital through ordinary shares (which carry voting rights and align shareholder interests with management) or through debt. Preference shares are an intermediate instrument that has not gained significant popularity in Nepal's relatively young capital market. When they are issued, it is usually by financial institutions meeting specific regulatory capital requirements.

IPO Shares vs Secondary Market Shares

While not a different "type" in the legal sense, it is worth understanding the distinction between shares obtained through an IPO and shares bought on the secondary market.

IPO Shares:

Bought directly from the company at a fixed price (par value NPR 100 for most companies, or at a premium determined by SEBON)
Applied for through MeroShare using ASBA
Allotment is by lottery if oversubscribed (which most IPOs in Nepal are)
Cannot be traded until the company is listed on NEPSE (listing typically takes a few weeks after IPO closure)
Often provide significant listing gains when market price opens above IPO price

Secondary Market Shares:

Bought from another investor (not the company) through NEPSE via a broker
Price determined by real-time supply and demand
Available immediately — no waiting period
Can be sold whenever the market is open
You pay the market price, which may be much higher than par value

Why This Distinction Matters:

Many Nepali investors focus heavily on IPOs because the barrier to entry is low (you invest NPR 1,000 for 10 kitta at par) and listing gains can be substantial (sometimes 50-200% on day one). However, IPO allotments are small and uncertain due to oversubscription. Building a meaningful portfolio requires buying on the secondary market at higher prices.

Par Value vs Market Value vs Book Value

Understanding these three values is essential:

Par Value (Face Value) — NPR 100:

The nominal value printed on the share certificate. In Nepal, all shares have a par value of NPR 100. This is the price at which you apply for IPOs and right shares. It has no relation to what the company is actually worth.

Market Value:

The price at which the share currently trades on NEPSE. Driven by supply, demand, company performance, and market sentiment. This can range from below NPR 100 (for struggling companies) to thousands of rupees for strong performers.

Book Value:

The company's net assets (total assets minus total liabilities) divided by the number of shares outstanding. It represents what each share would theoretically be worth if the company sold all assets and paid all debts. Comparing market value to book value gives you the price-to-book ratio — a key valuation metric.

Practical Scenarios

Scenario 1: You receive a right share notice

You own 500 kitta of Global IME Bank. They announce a 1:4 right issue (one right share for every four held). You are entitled to 125 additional shares at NPR 100 each. Total cost: NPR 12,500. You should almost always apply — the shares are being offered at NPR 100 while the market price is far higher.

Scenario 2: A company declares 25% bonus + 5% cash dividend

You own 1,000 kitta. You receive 250 bonus kitta (taxed at 5% on face value = NPR 1,250 deducted). You also receive NPR 5 per share cash dividend = NPR 5,000 (minus 5% TDS = NPR 4,750 net). Your holding grows from 1,000 to 1,250 kitta.

Scenario 3: You see promoter shares listed cheaper than ordinary shares

A company's ordinary shares trade at NPR 350 but promoter shares trade at NPR 280. The 20% discount reflects lower liquidity and transfer restrictions. If you are a long-term holder who cares about dividends (which are the same for both), promoter shares might offer better value — but only if you can tolerate the liquidity risk.

Summary

Share Type	Cost to You	Voting Rights	Dividend Rights	Tradeable on NEPSE
Ordinary	Market price	Yes	Yes	Freely
Promoter	N/A (founder investment)	Yes	Yes	Restricted
Right	NPR 100 (par)	Yes (once allotted)	Yes	After allotment
Bonus	Free	Yes (once allotted)	Yes	After allotment
Preference	Issue price	Usually no	Fixed, priority	Limited

Understanding these different types of shares equips you to make better decisions when companies announce corporate actions. Always apply for right shares if you can afford it (skipping leads to dilution), welcome bonus shares as a sign of company strength, and evaluate promoter activity as a signal of insider confidence. The more you understand the mechanics, the more confidently you can navigate NEPSE.