Ownership also allows stockholders to benefit from any profits the company makes. When a company pays out profits to the shareholder, the money received is called a "dividend". The corporation's board of directors chooses when to declare a dividend and how much to pay. Most older and larger companies pay a regular dividend, most newer and smaller companies do not. Newer companies prefer to use profits for research and development, expansion into new markets, and “growing” the business.
When compared with savings investments (like bonds or bank certificates of deposit) stocks have the potential to earn more money -- but they also carry the risk of loss. Learning about the stock market and the various investment strategies can help to minimize loss, and most investors find they do much better on the stock market than is possible with any kind of savings investment.
Stocks have greater liquidity ie you can sell it at any time and get the money which cannot be done in fixed deposits and bonds.
The average investor buys stock hoping that the stock's price will rise, so the shares can be sold at a profit. This will happen if more investors want to buy stock in a company than wish to sell. Usually, the potential of a small dividend check is of little concern.
What is usually responsible for increased interest in a company's stock is the prospect of the company's sales and profits going up. A company who is a leader in a hot industry will usually see its share price rise dramatically.
Investors take the risk of the price falling because they hope to make more money in the market, than they can with safe investments such as bank or government bonds.
Equity Shares yield returns in two ways: one, dividends declared by companies usually at the end of a year (and sometimes during the course of the year) and, two, capital gains on sale of Equity Shares.
Liquidity of investment in equity shares depends upon the trading volumes of the share. If the share is actively traded, an investor can easily sell the shares and realize the sale proceeds. However, if the share is not traded (or is delisted), then liquidity is a constraint. Technically, it is possible to buy even single shares in dematerialized securities regime and also to buy small lots of 50 to 100 shares so as to keep the investment amount low.
Equity shares are primarily volatile instruments. Equity share is an appropriate investment avenue for an investor who is not risk averse. Such an investor is prepared to take risks in order to generate higher returns. Returns from equity shares at aggregated levels have been historically higher than most other avenues over the long term. However, individual investors could gain or lose depending on the companies’ shares they invest in. An investor needs to be aware of the companies and their performances. Company performance should be monitored closely in order to track the investment performance. An investor should also have some basic knowledge of financials and of market systems in order to manage equity investments. The trends in equity market are reflected in the movement of the equity indices and the volume of the trading activity.
Subscribe in a reader
