Equity Share

What Is Equity Share? | Features | Types – FinanceTillEnd

What Is Equity Share?

Equity shares are a type of money that companies use. They take the money from the people to use for a long time. The people who have equity shares can vote, share profits, and claim assets. The value of an equity share can be measured based on things like par value, face value, and book value.

Types Of Equity Shares Available

1. Ordinary Shares

A company can release such shares to get money for running their business. These shares let you be part of the company and have a say in how it is run. If there are lots of such shares, you will have a lot of voting power.

2. Preference Equity Shares

Preference shares are given to investors as a guarantee that they will get their dividend before the ordinary shareholders. But preference shares do not have voting rights or membership rights, which are provided on common stock.

There are two types of preference shares. The first type is participating, which means the investor will get the profits and bonus returns. The second type is non-participating, so they do not get any of that.

3. Bonus Shares

A company can issue shares of stock because it has enough money. The shares don’t increase the value of the company because they just represent how much money that is left over from making products.

4. Rights Shares

The company is selling shares that are discounted for investors. The company wants people to invest in the company and will only sell shares for a certain amount of time.

Why Should You Invest in Equity Shares?

Investing in these shares has benefits, like 

1. Hedge Against Inflation 

Investing in shares of companies that make a profit will increase the amount of money you have. If you invest your money for a long time, the value will go up.

2. High Income

The equity share market is a good place for investors to make money. Investors not only get to keep the value of their shares but they also get paid dividends.

3. Portfolio Diversification 

Some people who are scared of risk will not try to buy stock or a bond. But if they invest in those things, the price will go up and down. When it goes down, those people can buy more.

Features of Equity Shares

Stock market is good for investing. You can buy stocks. They have certain characteristics that make them popular investments.

  • Most types of stocks give people the right to vote for who will run the company. If you choose good managers, the company will be able to do more things and make more money, which means that investors’ dividends will go up.
  • If you own some shares of a company, when they make money in the next year, you will get more money.
  • Even though you cannot get the money you put in your company back until it closes, people can buy and sell shares of your company if they want to. This is called secondary market. This way, investors can take their money out of the company when they want to. This makes it easier for them to create more wealth because their shares will be worth more.

What Are The Risks Associated with this Investment?

The equity share market is usually the most volatile segment in a stock market. It can be affected by minor fluctuations, and it affects businesses when their production cycle becomes slower.

This means that during a downturn in the business cycle, these businesses’ profits are lower because they have to use them up to meet all of their existing liabilities before they give any back to people who invested in the company’s equity shares. So equity markets tend to do worse during periods of market downturns.

Market fluctuations are a part of the business cycle. Sometimes the shares may not have a good return, but they will be better when the economy is better.

If you invest your money, it will grow. If you give the money to someone else, they will use it to make more money. They can then give some of the money back to you and you will have even more than what was there before.

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