What is Equity?
Equity represents ownership in a company. When you buy equity shares (also called stocks), you become a part-owner of that business and share in its profits and losses.
Equity in Simple Terms
Imagine a pizza cut into 100 slices. If you own 10 slices, you own 10% of the pizza. Similarly, if a company has 100 shares and you own 10, you own 10% of that company - that's your equity stake.
Types of Equity
- Common Stock: Regular shares that give you voting rights and dividends
- Preferred Stock: Priority in dividends but usually no voting rights
- Private Equity: Ownership in private companies not listed on stock exchanges
How You Make Money from Equity
There are two main ways:
- Capital Appreciation: When the share price increases and you sell at a profit
- Dividends: Regular income paid by companies from their profits
💡 Real Example
If you bought 10 shares of TCS at ₹3,000 each (total ₹30,000) and the price rises to ₹3,500, your investment is now worth ₹35,000. You made ₹5,000 profit plus any dividends received!
Why Invest in Equity?
Advantages:
- High potential returns compared to fixed deposits
- Beats inflation over the long term
- Ownership in growing companies
- Liquidity - easy to buy and sell on stock exchanges
Risks:
- Prices can be volatile
- No guaranteed returns
- Company can go bankrupt
- Requires research and patience
Getting Started with Equity
For beginners, it's often wise to start with:
- Equity Mutual Funds: Professional managers invest on your behalf
- Index Funds: Follow the broader market automatically
- Blue-chip stocks: Established companies with proven track records
Remember: Equity investing requires a long-term perspective. Historically, equity markets have provided excellent returns for patient investors who stay invested for 5+ years.