Before investing in equity market first we have to aware about Equity.
Definition of Equity: It is a stock in the ownership of a particular company. It is the difference between liabilities and assets. As you get more equity, your ownership stake in the company becomes greater. Equity, shares all means the same.
Being a Owner means holding a company’s equity that you are one of the many owners (shareholders) of a company and as an owner you are authorize to your share of the company’s earning and any voting rights attached to the equity.
A stock is represented by a stock certificate. This is a piece of paper that is a proof of your ownership. Now a day it is known as dematerialized form which means it is in electronic form shares have been kept safe. The purpose behind of doing this is to make the shares easier to trade. Before when a investor wants to sell shares, that person physically took the certificate down to the brokerage but now trading with a phone call or a click of the mouse makes life easier for every trader.
Let us know about Equity Finance: Issuing stock is called equity finance. Questions comes to the mind is Why company issue stock? The main reason is at some point every company needs to raise money. To do this either company borrow from somebody or raise it by selling part of the company, which is known as issuing stocks. Issuing stocks is the advantageous way for the company because it does not require pay back the money or make interest payments along the way. Selling of a first stock issued by the private company itself known as initial public offering(IPO). It is important to understand the difference between financing through debt and equity. When you buy a debt investment such as bond you are guaranteed the return of your money along with promised interest payments. This is not the case with equity investment.
Now important views on risk factors: The most focused point is that there are no guarantees when it comes to individual stocks. Yes this point sounds negative but there is also a bright side. Taking a greater risk demands a greater return on investment. This is the important reason why stocks have historically outperformed other than investment such as bonds or saving accounts. For the long term, investment in stocks has historically had an average return.
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