Investment in shares or equities is the most exciting form of investment due to certain unique characteristics. As an investment, equities have the potential to generate the highest form of returns or income.
When an investor buys a share of a company, they are actually investing in the business of that company. Therefore, as a shareholder, an investor becomes a stakeholder in that particular company’s business as well as in its growth.
If the company or business in which an investor has invested through buying equity performs well and its operations are profitable, the investor gains in the form of dividends, as they are effectively a part owner of the business
Dividends in the hands of investors are tax-exempt, and so is long-term capital gains (LTCGs) tax (investments in shares for more than one year). Additionally, as the company’s business thrives and profits soar, so does the value of its share in the stock exchanges. However, if the business incurs losses, the investor would also lose in the bargain.
An investor in equities needs to have knowledge of the company’s business as well as basic financial knowledge of how companies operate, create assets, and earn a profit is a must.
In other words, it is quite important to understand the fundamentals of the company and the business in which one is investing. In order to know the growth potential of a company or business, as a potential investor, one must analyse the company’s balance sheet, profit and loss statements, and cash flow statements. An investor must compare these with the previous year’s statements and also with the peer company’s statements.
Apart from analysing financial statements, an investor must analyse business dynamics as well, such as market size, customer preference, competition, and regulations, among others.
An individual can invest in equities either directly or through mutual funds, or by seeking the services of professional portfolio managers.
Lastly, when investing in equities, whether directly or through mutual funds, it helps to reach out for any professional advice from an accredited financial advisor to guide an investor on their investment decisions, while helping them to achieve sustained growth.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.