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What is an Equity Investments? Why Should You Invest in It? Research Team | Posted On Thursday, December 26,2019, 06:02 PM

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What is an Equity Investments? Why Should You Invest in It?



What is Equity Investment?

An equity investment is the money that is invested in a company by an investor. The company shares are usually traded in the stock market and when investors subscribe to these shares it contributes to the total capital the business wants to collect from the market. Thus the investor becomes part-owner of the company. Investing in large-cap shares helps investors earn profit along with regular dividend payments. By investing in slightly risky ventures investors can grow their investments through aggressive capital appreciation. When a company collects money from the market, it promises to pay the investors with returns. Thus along with monetary benefits, shareholders get certain right pertaining to important matters of the company.

See Also: Best Investment Plans for 2019

Why should you invest in Equity?

Here is why you should invest in equities:

  • The main benefit of equity investment is that it offers an avenue to amplify the invested amount. Unlike other investment options, you can get multi-fold returns from equities. This can come in the form of both capital gains and dividend payments.
  • Investors can easily diversify their investment portfolio by investing in company shares. Direct equities investment and investment in equities through mutual funds are some of the best ways to invest in equities. However, when you think of diversification you must maintain an appropriate mix of equities, bonds and other short-term assets.
  • If a company expands and wishes to raise capital from the equities markets, then the existing and new investors can increase their investments by investing in the right shares. Thus investors have a chance of gaining better returns on their investments.

How do the price of Equity Changes?

The company shares do not have a fixed price and this is why they are known as volatile investments. Several reasons can be held responsible for the change of stock prices.

Firstly, market forces like demand and supply can be used to explain the behaviour of stock prices. If there are more investors and less sellers of a particular stock then the stock prices go up. Consequently, the price falls if the demand for the particular stock is less. At this juncture, it is important to discuss the factors that affect the demand and supply of stocks and what causes investors to prefer a stock over the others.

Basically, it all depends on how a company is performing in the market. When investors come across positive news like growth or expansion of a company or the company’s ventures/ project being approved by the government then the prices of the shares increase. On the other hand, unfavourable news like legal suits or rejection of projects makes the stock prices fall. Also, the profits made by the company and its value in the market also help the prices of the stocks to rise. Apart from this, investors must also check the financial ratios of the company to the actual worth of the company.

How are Equity Taxed?

As we know, equity investments allow investors to make capital gains. Capital gains are the difference between selling price and purchase price of equities. Thus when you sell your shares you is liable to be taxed. However, the taxation on capital gains is based on the tenure of investment. If you sell your shares within 1 year of purchase then you will have to pay short-term capital gains tax which is 15%. But if you sell your stocks after 1-year from the date of purchase then you have to pay 10% LTCG tax on amount excessive of Rs. 1 Lakh.

See Also: A Five-Minute Guide to the Systematic Investment Plan

How to Invest in Equity?

With various types of equity investment schemes, investors can opt to invest in equities as per their risk bearing capacity. Unlike other investments, investment is equities are hassle-free and convenient. You need a Demat account and minimal documentation to begin your equity investment journey. Moreover, you can choose between lump sum investment or SIP investments.

Follow the below given steps to begin equity investments:

  • Sign in to a brokerage firm or fund house
  • Enter your personal details. Mention the amount you want to invest and the tenure of your investment.
  • Submit your KYC documents and get verified within 5 minutes
  • Invest in your favourite equity fund from the hand-picked mutual funds.

See Also: Types Of Investment Plans

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