What is the Face Value of Stocks? Explained in Simple Terms

If you’ve ever come across a company’s stock details and seen something like “Face Value: ₹10,” you might have paused and asked yourself, “What exactly does that mean?” Is it the current market price? The stock’s actual worth? Or just some technical accounting term?

Let’s clear things up. In this blog, you’ll get a simple breakdown of what face value is, why it matters, how it differs from market and book value, and how it connects to dividends, IPO pricing, and stock splits. Let’s start!

What is Face Value?

Face value is also termed as par value or the nominal value of the share. It refers to the value of a share as recorded in its books and share certificates. This value is determined by the company before issuing its shares for the first time. It’s important to note that this is only an accounting value, not the actual worth of the security. 

There is no maximum limit for face value in India, but the minimum face value set by SEBI is ₹1. Face values are usually rounded numbers like ₹1, ₹2, ₹5, ₹10, ₹100, etc.,  for easy accounting calculations. It’s a number assigned by the company when the stock is issued, and it usually remains constant over time. 

For example, Ather Energy was recently listed with a face value of ₹1. Vishal Mega Mart was listed with a face value of ₹10. This means each share was originally priced at ₹1 and ₹10. These values will stay fixed, no matter what the market price is today.

How is Face Value Different from Market Value?

Here is ‌what you should understand:

• Face Value is the original value printed on the certificate of the share.
• Market Value is the real-time price at which a stock is bought or sold in the stock market.

As a case in point, if a company’s stock price is ₹750, and the face value of the stock is ₹10, then:

• The market value is ₹750.
• The face value is ₹10.
• The rest is the premium (₹740).

Face value is the amount of money that a share represents, and the market price refers to the price that people are willing to pay. The two, therefore, do not always coincide.

Real-Life Analogy: Face Value vs Market Value

To make it easier to grasp the concept of face value, think of a silver ₹1 coin that was minted over a hundred years ago. If you tried to use it in a shop today, it would still only be worth ₹1; that’s its face value. But to a collector, its age and rarity might make it worth ₹10,000.

Stocks work similarly. The face value of a share is its original value, printed on the share certificate when it’s issued. The market value, on the other hand, is what someone is actually willing to pay for it today. That value can rise or fall depending on factors like demand, company performance, market trends, and other important factors.

What are the Advantages of Face Value in Investing?

Face value may seem like just a number, but it plays a functional role in several areas:

1. Dividend calculation
2. Stock splits and bonus issues
3. Share capital accounting
4. Valuation during IPOs

Let’s understand each.

How do Dividends get affected by the Face Value?

In India, the amount of dividend decided by the company is based on the face value. The dividend has nothing to do with the market price.

In simple terms, a 100% dividend means the company will pay an amount equal to the full face value of the share. Suppose you have invested in a stock with a face value of ₹10, and the company has announced a 200% dividend. 

This implies that you will be receiving ₹20 per share as a dividend (200% of ₹10).

Face value is important as it decides what you would be entitled to if you had been issued dividends.

Face Value and Stock Splits

Stock splits are also closely related to the concept of face value. Stock splits increase your shares. Each share’s face value becomes smaller. Still, your overall investment does not change.

Face value decreases when a stock split happens.

Example:

• A stock with a face value of ₹10 is split in a 1:5 ratio. 
• Now, each share’s face value becomes ₹2. 
• If you had 1 share earlier, now you have 5 shares, 1/5th worth of the original.

What is the Role of Face Value in IPOs?

When a company launches its Initial Public Offering (IPO), the issued price consists of the following two components:

• Face value
• Premium

Suppose a company offers the shares at ₹160 with a face value of ₹10:

This means that ₹10 is the minimum worth.₹150 is the premium that the company makes through the brand, the growth, and the value, taken into consideration.

Face value helps investors know the exact breakdown of ‌IPO pricing. It enables you to calculate the base value and the premium. This brings clarity in assessing whether the offered price is justified based on the company’s fundamentals and market positioning.

Can the Face Value Change?

Yes, when special corporate activities like the following occur:

• Stock splits
• Consolidation of shares

Face value only changes in cases of some specific actions affecting the company.

Face Value vs Book Value vs Market Value

Let’s break this down with a simple table:

Face value does not change, book value is subject to fluctuations, and market value is highly speculative.

Face Value in Bonds

Bonds, like stocks, also have a face value. The face value is more significant in bonds. 

For bonds:

• The face value is the actual value received by the investor at the end.
• Interest payments or coupons are calculated on the face value.

Example:

• Suppose the face value of a bond is  ₹1,00,000 and the interest on it is 6%. The owner will get ‌interest of ₹6,000 every year.
• And after maturity, the owner will get ₹1,00,000, which is the face value of the bond.

Conclusion

Now that you know what is face value, you can see how it is a constant reference for the stock and bond markets. It might not mean anything to you in general, but it is one of the most important factors when dividends are declared, IPOs are launched, stock splits or bonus shares are issued, and share capital on a balance sheet is assessed.

At Share.Market by PhonePe, we recommend that you check the face value of the share, not for returns, but for context. It helps you understand the structure of the company and how corporate actions will affect your holdings. Happy learning!

FAQs 

1. What is the face value of a share?
The face value of a share is the official value of a share. It is the value written on the share certificate and in the company’s books.

2. Can the face value of a share be greater than the market value?
Yes, poor-performing companies, especially debt-ridden ones, can have more face value than the market value.

3. Is face value the same as the price I pay for a stock?
No. The price you pay is the current price or market value. 

4. Can a company change the face value of its shares?
Yes, a company can change the face value of its shares through a stock split or share consolidation. 

5. Does face value affect my returns?
Not directly. Your returns depend on ‌the market prices and dividends, but dividends are calculated at face value.