13 Benefits of Equity Shares Investment
Equity is the amount of money that a company’s shareholder has put in to gain ownership rights. In simpler words, it is basically the amount of money that you have invested into the company to build its capital. If you own 10 shares of a company, which in total has 100 shares, you will then be a 10% equity owner of the company.
Now, if this company makes a profit, your capital investment will rise (to the extent of your share in profits) and vice-versa. Other than this, there are many other benefits of investing in equity shares. Let us know all of them in detail!
What Are Equity Investments?
Equity investment involves buying and holding equity shares in a company. When you buy equity shares of a company, you become its partial owner and are eligible to earn proportionate dividends. Further, if the value of the investments increases in due course of time, you also earn capital gains. However, if there’s a decrease in the value of the investment, you will suffer a loss. With equity investments, shareholders get voting rights, allowing them to participate in the operational decision-making of the business.
What Are the Benefits of Equity Share Investments?
The primary benefits of investing in equity shares are as follows:
- Ownership: Equity shareholders get partial ownership of the company. You will also get voting rights and contribute your opinion when it comes to the company’s operations and financial decisions.
- Dividend Income: Equity shares offer returns in the form of capital appreciation and dividend income. A dividend is an additional distribution of surplus profits by a company to its shareholders.
- Higher Returns: This is one of the primary advantages of equity shares; equity shareholders tend to get a higher amount of return if the company makes substantial profits. With a solid trading strategy, you can earn this within a short time.
- Small Investments: Investment in equity shares can be bought in smaller amounts and become a shareholder without a high capital requirement. You can even invest in a single share of a company without any threshold limit.
- Portfolio Diversification: Investing in equities of different companies helps in portfolio diversification. This means that even if some companies in your portfolio underperform, you can gain from the equity investments that you have made in other companies.
- Limited Liability: If you become an equity shareholder of a company, your liability as a shareholder is restricted to your amount of investment.
- Liquidity: Stocks are generally liquid assets whose ownership is easily transferable. This means you can redeem your current equity shares by quickly selling them off in the stock market.
- Wealth Creation: Equity shares have the capacity to offer inflation-beating returns helping you to create a good corpus in the future. However, they do have a risk element which can be negated if you hold these shares for a long duration.
- Tax Advantage: Returns from stock investments are taxed as per their holding period. If you hold your shares for 12 months or more, long term capital gains (LTCG) returns of up to ₹1 lakh are tax-exempt. LTCG of above ₹1 lakh is taxed at 10%.
On the other hand, if the holding period of stocks is less than 12 months, the short term capital gains are taxed at 15%.
- Collateral against Loans: As an equity shareholder, you can pledge your investments with a bank and get a loan against it. Generally, banks loan up to 50% of the eligible equity shares, and after repaying this, the pledge gets cancelled.
- Regulated by SEBI: In India, the regulatory framework created by SEBI is responsible for protecting the rights of all investors. It has also been instrumental in reducing fraudulent activities and promoting safe investment.
- No minimum holding period: There is no minimum holding period requirement for your investments in equity shares of a company. You can liquidate your invest at any time you want by selling you shares in the secondary market.
- Simple Process: The process of investing in equity shares is simple; you can buy them through offline brokerage houses, financial planners and online brokerage platforms. Moreover, the account setup process is easy as well as less time-consuming. All you need is a trading account and a demat account which your broker gets set-up for you, and you are good to go.
Who Should Invest in Equities?
If you are planning to purchase equity shares, it is important to understand that investing your entire investment fund into equity might not be a smart financial move. Diversification among other asset classes and equity shares is essential to avoid market volatility.
You should assess several factors, like your risk appetite, investment tenure, investment goal and return expectation, before going ahead with any investment in equities.
You can take recommendations from qualified financial advisors since equity funds are highly volatile and risky. This makes them ideal for aggressive investors who have a high risk tolerance level. Investing for a long time, at least 3 to 5 years, can also reduce the volatility associated with equity shares.
Issuance of equity shares is a long term financing option for any company. When you buy equity shares directly from a company, you get to enjoy a number of benefits such as easy transfer of shares, easy monitoring, ownership rights, risk spread, etc.
However, before making any investment decision, it is always recommended to conduct thorough market research or consult a financial advisor.
Frequently Asked Questions
How to invest in equity shares in India?
For investing in equity shares in India, it is essential to open a Demat account along with a trading account.
Is equity a good investment?
Yes, equity is a good investment because it tends to offer better returns than other investment options in the long run. Moreover, you can enjoy ownership and voting rights in a company if you invest in its equity shares.
What is the ideal time span for investing in an equity share?
Keeping in mind the volatility of the equity share market, it is advisable to invest for a medium to long time span here. This can extend up to 7 or 10 years but should not be less than 3 to 5 years.