What are Equities?
Equity is a part of a company, also known as stock or share. When you buy shares of a company, you basically own a part of that company. A company`s stockholders or shareholders all have equity in the company, or own a fractional portion of the whole company. They buy the shares because they expect to profit when the company profits. There are two basic types of shares that any company issues: equity shares and preference
A. Equity Shares
Both public and private corporations issue equity shares. Equity shareholders are the owners of a company and initially provide the equity.
There are also a few drawbacks of owning equity shares. Although part owners of the business, common shareholders are in a weaker position.
Senior creditors, bondholders and preferred shareholders have prior claims on the earnings and assets of a company. While interest payments are guaranteed to bond holders, dividends are payable to shareholders at the discretion of the directors of a company.
B. Preference Shares
A preference share is a type of share capital that generally enables shareholders to fixed dividends ahead of the company`s common shares and to a stated rupee value per share in the event of liquidation. Typically, the preferred shareholder occupies a position between that of a company`s creditors and its common shareholders.
As preferred shares have characteristics of both debt and equity, they provide a link between the bond and common equity sections of a portfolio. One shortcoming of preferred shares is that many are non-voting. However, after a specified number of preferred dividends are withheld, voting rights are usually assigned to preferred shareholders
Why invest in equities?
Investing in shares offers many benefits over other asset classes like a high level of liquidity which gives you ready access to your money.
There are over 6000 companies listed on the stock market in which you can buy shares, so there are plenty to choose from to match your investment needs.
Other benefits include:
Stocks can help you build long-term growth into your overall financial plan. Over a longer period of time, shares can produce significant capital gains through price appreciation. Some companies also issue free or bonus shares to their shareholders as another way of passing on company profits or increases in their net worth. Stocks, as an asset class, have outperformed most other type of investments over longer periods of time.
In addition, stocks pay dividend income, which has the potential to grow overtime. Shares that pay regular dividends are called income stocks. These companies have capital appreciation potential and when dividends are reinvested into additional shares, there is also the potential to compound investment returns.
Stock represents an ownership or equity stake in a corporation. If you are a stockholder, you own a proportionate share in the company’s assets.
That means you gain a part of the ownership of the company.
C. Tax Benefits:
Investment in shares reaps great tax benefits. The dividend income generated on shares is completely tax-free. Long-term capital gains arising on equity investment is not taxed by the government. That means, if you invest in a company and keep the shares for 12 months, you don’t need to pay any tax on income you earn on selling the shares after 12 months. Short term capital gains tax on shares is also just 10%, while investment in other asset classes attracts short-term capital gains tax of 30%.
D. Control over your financial future:
You can decide exactly how your money is invested, enabling you to have utmost control over your finances. You can choose to invest independently using your knowledge and expertise, share this responsibility with Genext wealth advisor who can advise you on what shares to buy and sell or ask Genext wealth advisor to manage portfolio for you.
What are the frequently used terms when investing in equities?
This represents the highest price a prospective buyer is willing to pay for a stock.
This represents the lowest price a prospective seller is willing to accept for a stock.
C. Market Order:
An order to buy or sell a specified number of shares at the best available price at the time the order is received on the exchange floor. All orders not bearing a specific price are usually considered "at the market" which could mean paying the "offer" when buying or accepting the "bid" when selling.
D. Limit Order:
An order for which you request a specific price at which the transaction may be executed.
E. Stop Buy and Stop Loss Orders:
Orders to buy or sell that are placed above or below the current market price, which become active orders when the price of a board lot rises or falls to the specified price. These orders may be placed to execute at the market, at a specified limit or within a specified price range. A stop buy order can be used to protect against losses in a short sale, whereas a stop loss order can be used to protect a paper profit or to limit a possible loss when you already own the shares. Not all stock exchanges will accept these orders. Stop buy and stop loss orders are risky because they may not necessarily fill at the specified price but at the best possible price available at that time.
How do you ensure the security and privacy of my account?
Only you know your Login ID and Password, as these are stored in encrypted form with us.
Issue Related Terms & FAQs
A. Price Band:
Price band indicates the different price levels within a given range in which the investor can enter his bid.
B. Floor Price:
It is the lower end of the price band.
C. Cap Price
It is the upper end of the price band.
Offer document means prospectus in case of a public issue, which is filed with Registrar of companies (ROC) and stock exchanges. The offer document contains all relevant details pertaining to the issue upon which the investors can make his/her decision. Draft Offer Document: means the offer document in the draft stage, which is filed with SEBI for its observations. The draft offer documents are filed with SEBI atleast 21 days prior to filing the offer document with ROC and Exchange.
E. SEBI’s Role:
Any company making a public issue or a listed company making a rights issue of value more then Rs.50 Lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after receiving observations from SEBI. The validity of SEBI observation is 3 months only i.e the company has to open its issue within 3 months period.
F. Cut off Price
In case of public issues the actual discovered price/ issue price can be anything between a given price band. The discovered issue price is called the cut off price.
G. Basis of Allotment:
The allotment in case of QIB category is on a discretionary basis while in case of Retail and Non-QIB (HNI) category the allotment is on a proportionate basis.