What are Equity Shares in the Indian Stock Market?
You’ve probably heard of the investors and traders on Dalal Street or Wall Street in the movies. If you have, then, you’re probably familiar with the term “stock. An “equity share” is nothing but stock; you could think of it as a fancy, more sophisticated way of saying stock. That said, in this article, we elaborate further so that you have a comprehensive understanding of equity shares. Investing in the equity market has been one of the best ways to grow your wealth, and hence it is essential that you understand what it means.
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What are Equity Shares?
Equity shares, also known as stock, or just shares are a type of financial security that denote ownership in the company. In simple words, equity shares are like parts of the company.
So, when an individual purchases equity shares, they become a shareholder—or owner—of the company. By owning equity shares, investors have the potential to participate in the company's growth and profitability. They also gain voting rights and have a claim on the company's assets and earnings. But why would a company want to give its shares to the public? The straightforward answer to the previous question is: to raise capital to expand business operations and undertake new business projects..
Features of Equity Shares
Ownership and Voting Rights: Equity shareholders have the right to vote on important corporate decisions and are considered co-owners of the business. They have the right to cast a vote on issues including the election of directors, corporate mergers and acquisitions, and constitutional amendments.
Dividend Income: Dividends are paid to equity shareholders and represent a portion of the company's profits allocated to shareholders. Based on the company's performance and the board of directors' determination, dividends are paid.
Residual Claims: Equity shareholders have a residual claim on the company's assets in the case of liquidation. The residual assets are allocated to equity shareholders after fulfilling the claims of creditors and preference shareholders.
Limited Liability: Equity shareholders are only liable for the amount they invested in the shares. Shareholders are not personally responsible for the company's debts in the event of financial troubles.
Types of Equity Shares
The following are some of the different types of shares available in the Indian stock market.
These are the most common kinds of equity shares that companies issue. Regular equity shareholders are entitled to dividends and other ownership perks, as well as voting rights.
In terms of dividend payments and capital repayment in the event of liquidation, preference equity shares have a preference over regular shares. reference shareholders typically do not have voting privileges.
Bonus equity shares are issued from a company's retained earnings, which are then divided among investors as a new ownership interest in the business.
Benefits of Investing in Equity Shares
Potential for Capital Appreciation: Equity shares offer the potential for capital appreciation because the value of the shares might rise over time. When a business does well, there may be a rise in interest in buying its shares, which would raise share prices.
Dividend Income: Equity investors have the chance to earn consistent dividend income. A business may pay a portion of its income as dividends to its shareholders if it continuously makes a profit.
Portfolio Diversification: Equity shares can be used to diversify one's investing portfolio. Investors can spread their risk and potentially obtain greater total returns by purchasing shares of a variety of businesses operating in diverse industries.
Outpaces Inflation: Equity shares have historically demonstrated the potential to outperform inflation in the long term. Thus, investing in equity shares can be a way to preserve and grow wealth in real terms in an inflationary setting.
How to Invest in Equity Shares in India?
Now that you know what equity shares are and understand the benefits of investing in them, how can you start your equity investment journey in India? To invest in equity or other assets that trade in the Indian stock market, you will require a demat account. This demat account you can get by approaching a SEBI licensed depository participant like blinkX. Once you open demat account, you can start investing in the equity markets instantly. That said, you must have a proper, well-defined investment plan.
Equity shares give investors a chance to be a part in the journey and success of a business. Individuals can become shareholders and get ownership rights, dividend income, and capital appreciation potential by purchasing equity shares. Before purchasing equity shares, investors should carefully assess firms and their financial situation. For those with a lengthy investing horizon and a willingness to accept the risks involved with the stock market, you can open a demat account and start investing in equity shares.
Frequently Asked Questions
Equity shareholders are free to sell whenever they wish during market hours as long as there are other buyers in the market who are willing to buy those shares.The Indian stock markets have abundant liquidity, so typically there are always buyers.
The company's board of directors decides on dividends based on the dividend policies of the company, which depend on a number of variables, such as profitability, financial stability, potential for future growth, etc. Once declared, dividends are typically paid to equity shareholders via electronic transfer to their bank accounts.
Investing in equity shares may not always be profitable; the value of the shares fluctuate and investors may have to realise losses in some cases.
Some of the main reasons equity shares may lose value include financial and debt related issues, poor company management, industry downturns, market volatility, and developments in the political and economic environments.
No, the Indian stock market offers various investment options apart from equity shares like exchange-traded funds, futures & options, mutual funds, etc.
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