Equities

Equity or Stock is the capital raised by the company through the issue of shares.

Share is a financial instrument that shows that one owns a part of a company business, that provides the benefit or profit in proportion of share.

An equity investment generally refers to the buying and holding of shares of stock of companies on a stock market, by individuals and firms and expecting return of income from dividends and capital gains. Equity can have somewhat different meanings, depending on the context and the asset type. In accounts or finance, you can think of equity as one’s degree ownership in any asset after subtracting all debts associated with that asset. For example, a car or house with no outstanding debt (loan) is entirely the owner's equity because he or she can readily sell the item for cash and pocket the resulting sum.

Investing in stocks may not be everyone's choice as it's a volatile asset class and there is no guarantee of returns. Further, not only is it difficult to pick the right stock, timing of your entry, exit and knowledge of stock market analysis is important. Over long periods, equity has been able to deliver higher returns (inflation-adjusted returns) compared to all other asset classes.

Inflation is a sustained increase in the price level of goods and services in an economy over a period of time. It is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling and is measured as an annual percentage change. Putting differently, as inflation rises, every rupee you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation.

In equity investment, the risk of losing a considerable portion of capital is high unless one opts for stop-loss method to curtail or reduce the losses. In stop-loss, one places an advance order to sell a stock at a specific price, lesser than that at which it was purchased. To reduce the risk to certain extent, you could diversify your investment across shares of companies of different sectors and market capitalization.

Market capitalization is the market value of a company's outstanding shares of stock. Commonly referred to as "market cap,". It is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share.

A calculation can be made to assess whether an equity is over or under priced, compared with a long-term government bond. This is called the yield gap or Yield Ratio. It is the ratio of the dividend yield of an equity and that of the long-term bond.

Dividend is a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits. Dividend refers to a reward, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks or any other form. A company’s dividend is decided by its board of directors and it requires the shareholders’ approval. However, it is not obligatory for a company to pay dividend. Dividend is usually a part of the profit that the company shares with its shareholders.

However, when firms face cash shortage or when it needs cash for re investments, it can also skip paying dividends. When a company announces dividend, it also fixes a record date and all shareholders who are registered as of that date become eligible to get dividend pay-out in proportion to their shareholding. Companies with high growth rate and at an early stage of their ventures rarely pay dividends as they prefer to reinvest most of their profit to help sustain the higher growth and expansion. On the other hand, established companies try to offer regular dividends to reward loyal investors.

To invest in direct equities, one needs to open a Demat account that is Dematerialized account. It is an account used to hold financial securities (equity or debt) in electronic form. PAN card and an Aadhar card is a mandatory requirement for opening a Demat account with any broker or bank (except those who are exempt from obtaining PAN as per Government rules). It is required for KYC (know your client) procedure while opening an account with the market regulator, that is Securities and Exchange Board of India (SEBI). Documents required to open a Demat account are - Proof of Identity, Proof of Address, Proof of Bank Account.

A person cannot go directly to the stock market to buy or sell shares. Buying and selling of stocks has to be done through brokers. They are individuals, companies or agencies registered with and authorized by SEBI to trade on the stock exchanges. Brokers will charge a brokerage fee or brokerage for the assistance they provide.

Once you have a broker, the next step is to open a Demat and trading account. This account will hold the stocks of companies that you have purchased and will reflect them in your name. Shares cannot be held in physical form and they form part of the dematerialized or Demat account. In order to buy or sell shares, one needs to inform the broker the quantity to be bought or sold along with the price at which you wish to carry out the transaction. While investing in the share market, below are the general guidelines.

Understand your investment requirement and take decisions accordingly. Decide your goal and plan the investment strategy accordingly. Find out the stocks that are likely to align with your investment objectives. Enter the market at the right time. Try and buy the share at its lowest cost especially when the market is weak and sell when it is strong. This would yield higher returns. While trading you should communicate the requirements to your broker. Ensure that the broker does accordingly and cross-check to avoid any errors. Monitor your portfolio regularly. Instead of purchasing all shares of one company, have the best possible mix of stocks of different companies to have diversification. It helps to avoid unnecessary risk.

Initial Public Offering- IPO. It’s an offer that is available for Stock Market Investors when a company is getting listed on a stock exchange. To simplify, it’s the first time when a company that has been private is being made available to public. Any Stock Broker will allow you to apply for an IPO. Stock Brokers with Research Houses keep releasing these IPO reports every-time a company is coming with an IPO with a guideline whether to subscribe or not.