For business, equity shares are considered a liability. The owner is supposed to distribute returns to the shareholders. Equity investments are highly volatile, which means they carry a high level of risk. However, they offer high returns to investors.
The company has to distribute dividends among the shareholders to pay them for bearing the risks. The shareholders also get the ownership title of the company to a certain extent (it depends on the number of shares they purchase).
Their benefit is not limited to the returns. They also get voting rights. Equity shares are offered to the public when a company needs to finance growth and expansion.
The shares of reputable and trustworthy companies are listed on the popular stock exchanges. They are traded to the interested investors.
The company collects the list of investors from the exchange and credits the dividend amount right to the bank accounts of the investors.
Investing in the Equity
Equity investments are highly recommended for long-term investors. It can get you up to 12% returns every year.
Let’s say you invested in the equity shares of a famous company at the rate of INR 150 per share. As the company grows, the price of these shares increases by INR 100, which makes each share worth INR 250.
The investors who purchased the shares for INR 150 can make a profit of INR 100 per share. If you have purchased 20 shares of the company, you will make INR 2000 from this investment.
Additionally, the company will offer dividends, bonuses, and other benefits.
Price Fluctuation in the Share Market
The stock market witnesses price fluctuations on a daily basis. In fact, the price of the stock tends to change every minute. The first and foremost factor that affects stock prices is the market.
The stock prices are mainly influenced by the demand and supply factors. For instance, if there is a high demand for the shares of a particular company, then its price will increase.
The price falls when there are a larger number of sellers for the stock than buyers.
Most people buy and sell stocks considering the latest headlines around the company. For instance, if the company is planning growth or a large investment, then its stock prices are highly likely to increase.
Negative news, on the other hand, can bring the prices of the shares down. That’s because people like to purchase the stocks of a company that’s likely to grow.
The stock value of a company also depends on its earning potential. You could use the technical analysis and trend charts to anticipate the stock price movements.
The money you make from the sale of the shares will be taxable. In other words, you are supposed to pay taxes to the government for the capital gains from share trading.
Here, the capital gain refers to the profit you earned from the sale rather than the selling price. The total tax you pay on these capital gains depends largely on the duration of your investment.
The longer you remain the shareholder of a company, the higher the tax you have to pay on the gains from share trading.
If you keep the shares for one-year and make profits from its sales, then it will be considered a short-term capital gain. On all types of short-term gains, you are supposed to pay a 15% tax on the income.
Long-term capital gains, on the other hand, are subject to a 10% tax. When you sell the shares listed on a popular stock exchange a year after you purchased them, then the money you make from the sale will be considered as the long-term capital gain. Either way, you have to pay tax on the capital gains.
Equity Shares and Equity Funds: Which is the Best Option?
Direct investments in equity shares can be complex. You need to know the working of the Nifty and Sensex to be able to make a direct investment in equity.
You should rather opt for equity funds to make the process easier and convenient. When you enter the equity fund market, you get a fund manager who takes care of the entire investment process.
There is nothing you need to worry about as everything is managed by the fund manager.
From your investment portfolio to the market factors, the manager will handle everything for you. The best part is that you can opt for a systematic investment plan (SIP), which requires an investment of up to INR 500 only.
Direct equity investment, on the other hand, requires large capital. Besides that, equity funds involve a simple and hassle-free investment process.
Gill Broking makes your Equity Investment & Trading Experience simple with major exchanges like NSE & BSE.