What are Equity Shares?

What is equity share, indeed?!! Think about owning a piece of the company where every rise in the company boosts your financial growth. That is equity share. By purchasing equity shares you become the owner of the company. These shares offer the potential for high returns. 

In this blog, we will discover the definition and unique features. 

Equity Share Definition 

Equity shares also called common stocks, are one of the most popularly traded financial equipment in the market. They give partial ownership in a company and the right to participate in the company’s profit. Although it comes with high returns there is a risk of market volatility. This makes it an attractive but risky investment if someone is looking at a long-term opportunity. 

Equity shares are mostly traded on stock exchanges and their prices vary on the basis of the company’s financial performance, investor sentiment, and economic conditions.

What are the Key Features of Equity Shares?

Equity shares differ from other types of shares and bonds due to their characteristic features. The same features can also help in understanding the features of business and help get into better and well-researched market. 

Listed below are a few: 

• Ownership in the company

• Voting rights 

• Dividends 

• Limited liability

• Liquidity 

What are the types of Equity Shares? 

Equity shares are generally referred to as “common stocks” in the company, there are various types according to their role in the market: 

The types of equity shares are given below: 

Authorized and Issued shares:

• Authorized Share: the total number of shares a company is allowed to give. 
• Issued shares: the actual number of shares a company has given to shareholders. 

Voting and Non-voting shares: 

• Voting shares: it allows a person voting rights. 
• Non-voting shares: does not allow voting shares but other benefits. 

Listed and Unlisted shares: 

• Listed shares: shares to be traded on the stock exchange. 
• Unlisted shares: shares of a company to be sold separately. 

What are some of the Risks of Equity Shares? 

As mentioned above there are potential risks to equity shares, which makes it a little difficult to invest in the near future. 

Equity share risks are shared below with you:

• Market Volatility: The market always seems to change with no promise of consistency, and with investment in the shares of the company you are not only together in the profit, but also loss, so in the long run, it can seem to be a risk.
• Company-specific risks: Every company comes with a gift and curse, and the shareholder has to bear both. This is why it is necessary to understand that studying the company’s history is very important. 
• No guaranteed returns: There is not always a promise on returns or returns on time, investors may receive dividends or may not, or they may receive it lower than they expected.
   

Read More: 

• How to Become an Auditor? 
• What is Capital Budgeting and its Process?
• What is a Financial Market? - Types and Functions of Financial Markets
• Hedge Fund Career Path in India

 

Frequently Asked Questions (FAQs)

What are equity shares, and how do they work?

Equity shares, give partial ownership in a company and the right to participate in the company’s profit. are mostly traded on stock exchanges and their prices vary on the basis of the company’s financial performance, investor sentiment, and economic conditions. 

How are equity shares different from preference shares?

Equity shares provide voting rights and have the potential for high returns through capital gains and dividends. However, dividends on equity shares are not fixed. In contrast, preference shares offer fixed dividends but typically lack voting rights, and preference shareholders are paid before equity shareholders in case of liquidation.

Are equity shares a safe investment?

Equity shares offer high potential returns but come with significant risks due to market volatility and company-specific factors. They are suitable for investors with a high-risk tolerance and a long-term investment horizon. Proper research and portfolio diversification can help mitigate risks.