The field of commerce, business and finance is really vast and there are different concepts prevailing in these fields that hold importance. There is an important concept called equity investments. It is the process where money that is invested in a company by buying shares of that company in the stock market. In case of equity investments, the amounts are invested in stocks and equity derivatives of different listed and unlisted companies. The market movements play an essential role in the performance of equity investments.
Types of Equity Investments
There are different types of equity investments options that are available. Each option has different risks and rewards involved in them. Shares are one type of equity investment that is basically units of partial ownership of the company one invests in. Through this the person or a company becomes a shareholder of another company. The concepts of shares in companies that have assets include higher valuation.
The second type of equity investment is mutual fund investment. It is termed as an investable fund that is collected from multiple investors which invests in assets like equity or bonds. These are ultimate for investors who have less idea about which stocks to invest. There is less exposure to a particular company share and assigns its assets to companies functional in different sectors. This is the equity investment made through mutual funds. There are advantages of equity mutual funds of transparency and professionalism in managing the funds.
The equity investment at risk is when equity in a company is through buying stocks. In order to calculate the equity investment, the total liabilities are subtracted from total assets that showcase the value of a company’s equity investment.
Ways of Investing in Equity
There are different ways of investing in equity. The first and foremost way is to open an account with a mutual fund family. The second way includes purchasing shares of equity mutual fund through a brokerage account. The third way includes purchasing shares of equity mutual fund through different plans at work. In very layman terms, equity investment is mainly purchasing and holding of shares of stock in a stock market. The equity holder gets a certain rights, which include voting rights, which means that they can vote candidates for board of directors.
Advantages of Equity Investments
The advantages of equity investment include diversification, which means that equity can be diversified across different geographical boundaries and different business phases. Earlier equity investments were considered as risky and uncertain but now there is risk adjustment. The disadvantages of equity investment include manager bias, as the investors cannot control over the equity funds they invest in. There is high level of volatility found in cases of equity investment. Sometimes there is also a possibility of over diversification, which can serve as a major limitation as the investor keeps on repeating the index.
It is very essential to have correct amount of knowledge when it comes to topics relate to finance and business. It is advisable to all always refer to professional help before taking a financial decision.