{"id":3984,"date":"2021-08-17T17:33:07","date_gmt":"2021-08-17T12:03:07","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=3984"},"modified":"2022-05-24T14:11:09","modified_gmt":"2022-05-24T08:41:09","slug":"equity-investment","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/equity-investment\/","title":{"rendered":"Equity Investment for Beginners \u2013 Meaning, Types, and How To Invest"},"content":{"rendered":"\n<p><strong>\u201cI try to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.\u201d\u2015 Warren Buffett<\/strong><\/p>\n\n\n\n<p>How many people can call themselves businessmen with just a Rs 100 investment?<\/p>\n\n\n\n<p>That is the kind of opportunity that the <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a> presents. It is a platform where publicly traded shares can be bought and sold to generate profits. Investment in these publicly traded shares and other kinds of shares issued by companies are what are called <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> investments. Let\u2019s dive in and understand what is <a href=\"https:\/\/www.tickertape.in\/blog\/precize-revolutionising-equity-investment-in-india\/\">equity investment<\/a>, what are the types of equity investments and how to invest in equity.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#What-is-equity\" title=\"What is equity?\">What is equity?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#Types-of-equities\" title=\"Types of equities\">Types of equities<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#Preferential-shares\" title=\"Preferential shares\">Preferential shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#Treasury-stock\" title=\"Treasury stock\">Treasury stock<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#How-to-get-started-with-stock-selection\" title=\"How to get started with stock selection?\">How to get started with stock selection?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#Equity-diversification\" title=\"Equity diversification\">Equity diversification<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/equity-investment\/#Types-of-payouts\" title=\"Types of payouts\">Types of payouts<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"what\"><span class=\"ez-toc-section\" id=\"What-is-equity\"><\/span><strong>What is equity?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Shares that are issued by companies as pieces of ownership of that company are called equities. The total amount of <a href=\"https:\/\/www.tickertape.in\/blog\/equity-share-capital\/\">equity shares<\/a> you own represents your stake in the company. The total equity of a company can be calculated by adding up the total assets of the company and reducing the total liabilities.&nbsp;<\/p>\n\n\n\n<p>Although equity investments do not give you regular and fixed returns like bonds and FDs, they do give you voting rights and a claim on assets if the company is liquidated. There are not many assets where people can put in money and expect them to grow while also beating inflation in most of the years.&nbsp;<\/p>\n\n\n\n<p>With rising inflation, your money in the bank account is not enough to fund your retirement. You do not need to read annual reports of hundreds of companies, research every single news article coming up and then regularly monitor each event every day to succeed in investing. <a href=\"https:\/\/www.tickertape.in\/blog\/stock-market-index\/\">Index<\/a> investing provides you with a much easier path, it might not be as exciting as trading in F&amp;Os or cryptocurrency but it still gives multifold returns. An investment in Nifty on its inception in 1995 would have multiplied your initial investment at a <a href=\"https:\/\/www.tickertape.in\/blog\/compound-annual-growth-rate\/\">CAGR<\/a> of 11%, a quicker pace as compared to <a href=\"https:\/\/www.tickertape.in\/blog\/the-golden-behaviour-during-crisis\/\">gold<\/a> which is India\u2019s favourite asset to hold for the long term.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"types\"><span class=\"ez-toc-section\" id=\"Types-of-equities\"><\/span><strong>Types of equities<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Now, equities can also be further bifurcated into a few categories and that will shape up how your income grows in the future. The most popular is obviously common stock which people usually refer to as <a href=\"https:\/\/www.tickertape.in\/blog\/what-are-equity-shares-meaning-types-features-limitations-and-more\/\">equity shares<\/a>. It provides you with a degree of ownership as per the number of shares you own, along with this you get involved in management since you get to exercise your voting rights and claim on assets.&nbsp;<\/p>\n\n\n\n<p>If the company does well, these common stockholders are rewarded in form of share appreciation and dividends. In case of dissolution of the company, these stockholders are well protected due to limited liability and any residual income once the debt is cleared.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Preferential-shares\"><\/span><strong>Preferential shares<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This type is comparatively conservative since a predetermined amount of <a href=\"https:\/\/www.tickertape.in\/blog\/read-this-before-investing-in-majesco-ltd-for-its-dividends\/\">dividend<\/a> is supposed to be paid and there is no capital appreciation. In case of winding up, the preferred <a href=\"https:\/\/www.tickertape.in\/blog\/shareholders\/\">shareholders<\/a> are paid whatever is owed to them and they have the privilege to be paid before common shareholders. They do not have any voting rights but there is sometimes an offer by the company which enables them to convert to common shares. There is also something referred to as common surplus, this is the excess amount paid by investors over the par value of shares during the issuance of shares.&nbsp;<\/p>\n\n\n\n<p>If shares are valued at par, there is a nil amount under this head. Not all profits of a company are shared with stockholders as dividends and some portion is left for investing in future growth as well, this unused or stored portion of profits is called retained earnings.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Treasury-stock\"><\/span><strong>Treasury stock<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This is the stock that is purchased back by the company in order to reduce outstanding shares in the secondary market. This is also called re-acquired stock.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"how\"><span class=\"ez-toc-section\" id=\"How-to-get-started-with-stock-selection\"><\/span><strong>How to get started with stock selection?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Investing in equities is simpler now as compared to the times when shares were acquired in physical form. Investors and traders now have to open a dematerialization account with a broker and they can start with their journey in the stock markets. While passive investing into indexes like <a href=\"https:\/\/www.tickertape.in\/indices\/nifty-index-.NSEI?utm_source=blog&amp;utm_medium=article\">Nifty <\/a>is a great option, there is a category of investors who would like to exercise greater control on their investments and would also want to invest in the companies they like.&nbsp;<\/p>\n\n\n\n<p>Every sector and industry has its own parameters, however, there are a few basic rules which are common among all multi-bagger scrips. An investor should first understand his risk appetite before getting into the markets. The next step is to always own stocks in industries that you understand, otherwise own simple stocks in non-complexed sectors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"equity\"><span class=\"ez-toc-section\" id=\"Equity-diversification\"><\/span><strong>Equity diversification<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Another important aspect is, to keep a <a href=\"https:\/\/www.tickertape.in\/blog\/mitigating-portfolio-risk-through-diversification\/\">portfolio<\/a> diversified while investors should have sufficient investments in equity, it is equally important to also invest in real estate, bonds, gold, and fixed deposits because the <a href=\"https:\/\/www.tickertape.in\/blog\/volatility\/\">volatility<\/a> is much higher in equities. Even when a person is investing in equity it is important to invest in various sectors and not concentrate your wealth in very few scrips.<\/p>\n\n\n\n<ul><li>A rational investor should look for companies with honest and experienced top management and ethical corporate governance. It is also important to check the <a href=\"https:\/\/www.tickertape.in\/blog\/2022-guide-on-shareholding-pattern-definition-meaning-analysis\/\">shareholding pattern<\/a>, whether there is sufficient promoter\u2019s holding, investments by FIIs and DIIs and the level of promoter\u2019s pledge.<\/li><li>Another crucial factor is the amount of debt; investing in <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-discover-debt-free-companies-using-a-stock-screener\/\">debt-free companies<\/a> is a much safer way to compound your wealth. An active investor must tune into con-calls, company presentations, look if there is any government decision impacting the company and also regularly monitor the company in case there is an issue related to its top management or if there is a sudden fall or rise in sales.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"payouts\"><span class=\"ez-toc-section\" id=\"Types-of-payouts\"><\/span><strong>Types of payouts<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is more to earnings from equity than just <a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">dividend<\/a> payments and capital appreciation, although they are considered primary forms of shareholder remuneration.<\/p>\n\n\n\n<ol><li><a href=\"https:\/\/www.tickertape.in\/blog\/what-is-dividend\/\">Dividend<\/a> is distributed from profits earned in the financial period, a portion of this is stored as retained earnings.&nbsp;<\/li><li>Capital appreciation is the increase in price due to market forces of demand and supply.<\/li><li><a href=\"https:\/\/www.tickertape.in\/blog\/buyback-of-shares\/\">Buyback of shares<\/a> occurs when companies buy their own shares to reduce the number of tradable shares in the market.<\/li><li>The next source is the <a href=\"https:\/\/www.tickertape.in\/blog\/reliance-announces-rights-issue-what-it-means-to-investors\/\">rights issue<\/a>. Under this, existing shareholders are invited to purchase more shares at a discounted price as compared to the <a href=\"https:\/\/www.tickertape.in\/blog\/market-value\/\">market value<\/a>.&nbsp;<\/li><li>The concept of <a href=\"https:\/\/www.tickertape.in\/blog\/bonus-shares\/\">bonus shares<\/a> occurs when the existing stockholders are given company shares without any additional charges. They are funded through excess reserves and paid instead of dividend payments.<\/li><\/ol>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fequity-investment%2F&#038;text=Earnings%20from%20equity%20are%20not%20limited%20to%20just%20dividend%20payments%20and%20capital%20appreciation.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">Earnings from equity are not limited to just dividend payments and capital appreciation. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fequity-investment%2F&#038;text=Earnings%20from%20equity%20are%20not%20limited%20to%20just%20dividend%20payments%20and%20capital%20appreciation.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<p>An equity investment in a company, whether it may be in the primary or secondary markets is an act of acquiring ownership in the company. Like any business owner, an equity investor can partake in the business activities of the company in proportion to their stake in the business, earn dividends on profits and sell a part or complete ownership in the company as and when they feel the need to do so.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Looking to invest in equities and understand them better? Click here to read about equity investments, types of equity investments and how to select the right equity.<\/p>\n","protected":false},"author":52,"featured_media":3870,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[8],"tags":[],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/08\/Informative-1-2.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3984"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/52"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=3984"}],"version-history":[{"count":7,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3984\/revisions"}],"predecessor-version":[{"id":8663,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3984\/revisions\/8663"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/3870"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=3984"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=3984"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=3984"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}