Equity Investments

What is Equity?

In a company, the total capital of the business is divided into smaller units known as equity share.

When an investor owns the equity share of a company, he becomes a shareholder.

Equity is a stock/ share or any other security that represents an ownership interest in a company.

Investors earn returns by way of dividends and capital appreciation. On top of it, sometime they receive bonus or rights shares, which further maximizes their returns.

Why should you think about Equity?

The choice of Investment Avenue can make or break the realisation of financial dreams. It is because of the forces of inflation and taxes. These tend to reduce the purchasing power of your money and impede faster wealth accumulation.

If you have been restricting you investments to only bank fixed deposits (FDs), then you might face difficulties in protecting your wealth. Sometimes returns on the FD after tax might be less than inflation rate too. Hence, inflation and taxes are always going to stay but your choices of investing can bring about a lot of difference in your rate of return.

Advantages of Equity Shares

  • High returns: Investing in equity shares provides high returns to investors. Shareholders have an opportunity to enjoy wealth creation, not just through dividend earnings but also through capital appreciation.
  • Provides a cushion against inflation: When an individual invests in equity shares, he/she has the potential to earn high returns. The rate of returns earned is often higher than the rate of wearing down of the investor’s purchasing power due to inflation. Thus, investing in equity shares acts as a hedge against inflation.
  • Ease of investment: Investing in shares is simple. Investors can avail the services of a stockbroker or financial planner to invest through various stock exchanges in a country.
  • Diversification of investment portfolio: Investors always prefer to stick to debt instruments since they are low-risk investment options owing to lower volatility. However, debt instruments may not always generate high returns, which is why individuals can diversify their investment portfolio by investing in equities for higher returns.

What are the risks of investing in equities?

The biggest risk of investing in equities is that the price of your holding can fall. Thus, if you sell at that time, you incur a loss. However, if you are a long term investor, this risk becomes lower.

How can I lower equity risk?

Try to invest for the long term. Do not panic when the market, or your share or fund price dips.
Diversify your portfolio. Hold shares of different types of companies across industries.
Invest in funds that are exclusively equity and also have a mix of equity and debt.

How are Equity Shares taxed?

When you invest in shares, you make capital gains on the sale of shares which are taxable. Capital gains is the difference between the selling price and purchase price of the equity share. The rate of taxation on capital gains depends on how long you stayed invested in the stocks. When you sell an equity share, listed on a recognised stock exchange, within one year from the date of purchase, you earn short-term capital gains. These will be taxed at the rate of 15%.

Conversely, if you sell a listed equity share after one year from the date of purchase, you earn long-term capital gains (LTCG). LTCG in excess of Rs 1lac are taxable at the rate of 10% without the benefit of indexation.

How can I begin investing in equities?

You can open a demat account with a broker firm to invest in the stock market.

You can approach a financial advisor who will guide you on how to open a demat account, what to buy, and then purchase the funds for you.

For all of the above, you will first need to complete KYC (Know Your Customer) verification.

Please contact us for more details. We will be happy to serve you.