Equity Share-Meaning-Examples-Features-characteristics-Advantages-Benefits-Disadvantages-Limitations-iBizMoney

What is Equity Share with Examples?

Equity shares are one of the few assets whose returns have risen faster than inflation throughout time. Stocks have provided a return of 17.60% CAGR over the past decade, far outpacing any other investing vehicle. Let us understand what is equity share with examples in this topic.

Buying equity shares is a frequent technique for consumers to invest in the stock market. The consistent high profits that equities have offered attract a large number of investors. Making money in stocks can be done in a straightforward manner. All you have to do is pick the correct stock to invest in. However, high-quality supplies are hard to come by. It requires a high level of expertise and a careful examination of the stocks and ETF Stock underlying factors.

What is Equity Share?

An investor purchases a share of a company with the hopes of making a profit in the future. Those that invest in a company’s equity do so as shareholders. This entitles you to share in the company’s earnings and losses.

Voting gives each shareholder a voice in the company’s most consequential matters. Along with any appreciation in value, shareholders may also receive dividend payments from the corporation. Companies with greater assets and cash flow, such as those that have been in business longer, are more likely to pay dividends and bonuses to their shareholders.

Shares represent fractional ownership in a corporation. When a business is establish, its partners or investors provide the seed money. Since the company is expanding, additional funding is require to maintain current operations. Business loans, bringing on partners, and seeking out new investors are all viable options for funding the company’s growth.

Example of Equity Shares

Think about the following business: The Aple Inc. annual report for the fiscal year that ended the previous year. According to the financial information presented, total assets are $365,725 million, and total liabilities are $258,578 million. Determine the shareholder equity of Aple Inc. as of the previous year based on the evidence.

Total Assets minus Total Liabilities equals Shareholder Equity. The result is that the Shareholders’ Equity is $107,147 million ($365,725 million – $258,578 million).

Since it informs the firm of both the assets it possesses that will generate future cash inflows and the liabilities it must pay that will result in future cash outflows, equity is a measure of a company’s financial health.

How Does Equity Shares Work?

Equity share function according to the market’s supply and demand. Stock prices tend to fall as more investors unload their holdings. When more investors purchase shares in a company, the stock price rises.

Shares of a firm can be bought and sold depending on investors’ predictions about the company’s future performance. If they believe the company will grow and prosper over the next few years, they will invest in its shares. This will lead to a rise in stock prices. When investors are pessimistic about a company’s prospects over the next few years, they often unload their holdings in that stock.

As a result, share prices will fall. A share’s market price is determine by both demand (the number of people who want to buy) and supply (the number of individuals who are willing to sell). If you have a good sense of how demand and supply will shift, you can profit from buying and selling equity shares.

History of Equity Share

In a small Belgian village, equity share were first issued in the 1400s. In the heart of town, merchants from all over the world gathered. They started stocking up on perishables in anticipation of a price increase, and it worked out well. Until now, no trading had ever taken place before.

At a later date in 1611, the Dutch East Indian Company began shipping gold, porcelain, spices, and silks around the world. The companies asked customers to put money toward the trip because of the high price of shipping. In return, they promised a cut of the profits from the excursion.

This method provided the impetus for the creation of the first stock exchange. Specifically, it was refer as “The Amsterdam Stock Exchange”. At this market, Dutch East India Company stock traded hands often.

Benefits of Investing in Equity Share

Making quick money is the primary focus of active investing. People that are risk takers and can keep an eye on the market may find success in this. Long-term “buy and hold” investing is the cornerstone of the passive investment approach. The objective of a passive investor is to hold on to a stock for a very long time. Benefits of investing in equity share are as following:

The Importance of Asset Diversification

Purchasing something with a positive expected return is the essence of investing. Various types of investments can be categorize into “asset classes,” such as equity share, bonds, real estate, and commodities. These asset types are categorize by the amount of risk they present to your money, the way in which they are taxed, and the expected returns they provide.

In the past, fixed deposit accounts were the primary means by which Indians saved and invested. This has proven to be a secure investment option for those seeking a guaranteed return on their capital. A decrease in your investment’s return is possible if the central bank reduces interest rates. The returns on fixed deposits, if that’s where you’ve put all your money, could decline.

For this reason, diversifying your investments over a number of asset classes is recommendable. If the value of the stocks you bought rises but the interest on your fixed deposits falls, you will still come out ahead financially. The term for this strategy is “diversification.” Diversifying your investments across various asset classes is a good way to reduce your overall exposure to risk while maintaining a relatively consistent rate of return.

Curbing the Effects of Inflation

Depending on the rate of inflation, your savings may or may not grow at a faster rate than the cost of living. Many people who put money into the market prefer to maintain their purchasing power by investing in assets like stocks rather than spending it. For instance, bank fixed deposit rates have fluctuated between 6% and 9% from 2011 and 2020.

However, stock investments have the potential to give double-digit returns, as evidenced by the compounded annual returns of market indices such as the Nifty Bank Index, which gave a compounded annual return of around 13.44%, and the Nifty FMCG Index, which gave a compounded annual return of around 15.24%. The value of your investments has a potential to grow in the stock market, outpacing inflation.

Opportunity to Significantly Increase Income

If the stock price rises, your initial investment will increase in value, and if dividends are paid out, you’ll receive a steady stream of cash flow. Investors can buy and sell a company’s shares on the stock market after they have been issued. The demand and supply for a certain security determines its price. It is possible to make a profit by purchasing shares at a discount and then selling them at a higher price, provided that the demand for the shares exceeds the supply.

If you acquire one equity share of a pharmaceutical company for INR 100 on the open market, that’s only one example. Most investors believe the pharmaceutical industry will expand, driving the stock price to INR 150 within a year. You can expect a 50% ROI in 12 months if you invest in this. Investors are entitled to dividend payments from their companies if and when they are declared. Investing in dividend-paying firms might supplement your normal income.


For an investor, equity shares are more than just a means to financial gain; they are a valuable asset in their own right. Researching the fundamentals and financials of a company in depth is necessary before making a direct investment in its equity share. This requires patience and extensive knowledge of the financial markets. You should familiarize yourself with the fundamentals and invest in accordance with your personal preferences before you get started.