This article will cover all the relevant data about equity shares and what are its advantages so that you can enter the market as an informed investor.
Participation in the share market has been on the rise for quite some time now. Multiple media have covered that the opening of Demat accounts in India has witnessed a significant rise in the past couple of years.
Now this increase in investors can go two ways, one where informed investors are exploring new investment avenues to grow their wealth or others simply following the crowd.
Doing the former is great by being part of the latter might not be the best decision.
What are Equity Shares?
Equity shares are part of companies that allows the public to become a part of their desired company. This also allows the investors to benefit from the profits of the company and the upward trend of the share market.
And the respective companies receive funds from the public and utilize them in the growth of the firm. As for the shareholders, they get the right to vote, can claim the assets, and get a share in the profit.
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Advantages of Investing in Equity Shares
The investment not only brings in a secondary source of income but also has many other benefits. They are listed down below:
Dividend income
Dividend income is a way for the shareholders to take part in the company’s profits. It can also be termed as the return the investors earn on investing.
The rate of dividends is different for different companies depending on their financial strength. If you are looking to take a long-term position in a company, best to choose shares that have a consistent record of good performance and dividend income.
Increase in investment value
Equities have the potential to grow your initial investment into big bucks. However, the trick is here to hold the position for the long term.
An initial investment of Rs.100 has the potential to grow and become thousands of rupees by just taking a long-term investment position.
Part of growth
Taking a buy position in a company’s equity share is like becoming the owner of the company. So as owners, you will be able to take part in the growth of the company.
And as an owner of something, this is a wonderful experience to witness your decisions grow into something bigger. And reward for you in this growth is the appreciation of the share price in the market.
Protection against inflation
Inflation always leads to a loss in purchasing power, thus the best way to tackle this situation is by investing in equity shares.
Usually, the share price also increases with inflation thus for any investor, this will provide them with a cushioning to the increasing inflation. Moreover, the return on equity is also higher than the inflation rate.
Right over the company’s income and asset
Investing in a company’s equity is equivalent to taking part in the company’s ownership. And you as an investor are also able to take part in the company’s assets and income.
Ever in the future if the company fails to provide dividends, it will dilute the assets to share the income with you.
Residual Claim
The equity shareholder has the legal authority to assert a residual claim against the company’s resources and earnings.
When all stakeholders, including debenture holders, lenders, etc., have been paid, this claim can be made on any remaining assets or revenue. If a business fails, this advantage may turn into a crucial factor.
This is so that instead of completely losing your investment, you can still make a claim against the corporation and obtain some of your money back.
Liquidity
Another benefit of investing or trading in equity is the liquidity it brings to the table. Irrespective of the volume of trading you take part in, it is easy to sell your investments in the market.
There will always be a buyer ready to purchase the share at your desired price during the market session. Thus, it comes in handy when you are in urgent need of cash, simply sell your shares and get the cash credited to your bank account directly.
Portfolio Diversification
Share market investment equals portfolio diversification. The more shares from different sectors you add to your portfolio, the better prepared you will be for market fluctuations.
Therefore, in case, one sector is underperforming, this will get compensated by the good performance of some other sector. Thus, losses of one sector will be covered up by the profits of another.
Tax Advantage
Equity investments come with several tax advantages. In comparison to other nations, capital gains on returns on equity shares are taxed at a significantly lower rate.
From a taxes perspective, equity shares don’t have a lock-in period. Long-term capital gains (LTCG) and short-term capital gains (STCG) taxes, however, are two different types of taxes that are assessed according to the length of time you remain invested.
The most recent adjustments, which were implemented in 2018, tax LTCG over Rs. 1 lakh at 10% without indexation. The STCG is subject to a 15% tax rate with indexation.
Exercise Control
And lastly, by investing in a company’s stock, you get to exercise voting rights in it and be part of bigger management decisions. You will get to participate in shareholder meetings and for every equity, you get one voting right.
Conclusion
Each year, there is a consistent influx of novices into the stock market. In India, where Gen Z is actively interested in making money, this is particularly true.
Influencers are sharing their knowledge on how to build wealth and earn consistently on various Social Media platforms.
More than any other alternative financial vehicle, stocks currently hold the youth’s interest when it comes to investing and trading.
Because of this, newcomers are actively starting to trade in the market. To aid you even more in your investment journey, this article focuses on the best aspects of investing in a stock.
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