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Monday, June 6, 2011

Free Float verses Restricted Shares

Free float shares are those shares which are easily available for trading in the market.
As these shares are in the hands of public, these are also called public float. The word public comprises individual investors, HNI’s, businesses and institutions.
In simple words, free float is open market shares that are free for trading.
If a company 10 million outstanding share and out of which only 3 million are restricted shares, then free float of the company is 7 million shares.
Shares of companies with smaller float are more prone to price volatility and price manipulation.
When free Float shares are subtracted from outstanding shares, what we get is restricted shares.
In normal course, restricted shares don’t come in the open market for trading.
Restricted shares are-
·         Shares held by founders, directors or acquirer with controlling authority
·         Shares held by government as promoter or acquirer
·         Share holding through FDI route
·         Strategic stake by private corporate bodies/individual

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