Although equity has done brilliantly in the past few decades, investors were not able to make money. There is a discomfort amongst Indian investors to invest in equity.
If as a wealth multiplier I ask you to invest in equities or equity funds, the obvious reaction will be “I want decent returns but I don’t want risk in our investment”
WHAT IS EQUITY?
Equity or shares is nothing but ownership, ownership in companies. For instance, if you hold 100 shares of an XYZ company out of 1000 shares floated by that particular company you are 10% owner of that company. Which means when that XYZ Company makes a profit you get your share in form of a dividend.
Investment in Equity is like farming –
- Sow a seed
- Water it for it to grow
- Have patience
- With time you will get fruits of your hard work and patience
THE ADVANTAGES AND DISADVANTAGES OF EQUITY INVESTMENT
ADVANTAGES OF INVESTING STOCK MARKET
Once you invest in shares, you are entitled to receive a dividend from the company you have invested in.
Apart from the dividend, an investor can gain capital with the price rise of share and the rise in the market. Capital Gain is the other source of return on investment apart from dividends.
Whenever companies you have invested in require further capital for expansion or so they issue ‘rights shares’. Hence, an investor receives investment priority over other general investors.
At times, when companies make exceptional profits they issue bonus shares to its shareholders. Bonus Shares is a type of dividend. Bonus shares are free shares given to existing shareholders.
Investment in equities can be easily transferred or liquidated.
With stock-split, the per-share price reduces in the market which eventually increases the readability of share. In the end, stock split results in higher volumes with a number of investors leading to high liquidity of the share.
DISADVANTAGES OF INVESTING STOCK MARKET
Investment in equity is risky as compared to any other investment instruments. The money is invested based on the intuition of an investor in the company.
INSTABILITY OF STOCK MARKET PRICE
Stock market price of any equity share varies widely.