What Is Equity Investing ?
Equity investing refers to buying and then holding on to shares of a company by an individual. This type of investing can also be done by funds. Equity investing is primarily done in anticipation of getting money from either dividend payments and/or capital gains which occurs when the price of the share increases. |
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Equity investment can be done either in companies that are well established or those that are newly created. Of course, it goes without saying that when you invest in a newly created company, the risks are higher. Nonetheless, equity investing is usually done with a long term perspective.
This type of investment does not allow the investor to hold on to either securities or certificates. Rather it is the fund manager, who manages the portfolio, who has direct access to the stock certificates. Basically when equity investment is done, it is considered to be a loan that the individual makes to the company. In return, the company gives the investor a share in the ownership of the company. However, the investor is not involved in the management or operations of the company. Usually the loan is repaid by the company in the form of dividends or by selling the ownership rights of the company. Dividend payments are always made from the profit made by the company. The year the company does not make a profit, no dividends are paid.
Usually when individuals like you and I want to go in for equity investments, we have to do it through a pooled investment fund like a mutual fund. These pooled investment vehicles are managed by professional fund managers, who invest in different types of companies and thereby allowing an individual to diversify his investment portfolio to get maximum profits.
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