Basics Equity Mutual Funds And Schemes
What is Equity?
Equity represents ownership in a company acquired through contribution of capital, which is required to set up or run a business. This capital is raised through issue of shares to the public or a group of private persons, where each share represents a proportion of the stake on the assets and profits of the company. These shares are either bought directly from the company through an offer, or traded (bought and sold) on the stock exchanges.
Why invest in Equity Funds?
Despite the risk involved, investment in equities is known to offer investors high returns in the long run. Equities investment not only helps an individual in wealth creation over time, but also builds the nation’s capital in the process.
For the investor, equity offers numerous benefits such as:
Entitlement to company’s profits
The holder of a company’s equity or shares is entitled to a share of profit in the company. This share of profit is received through dividends.
Profit through value enhancement:
A shareholder can also make profits by selling the shares on the stock exchange at a price higher than the purchase price.
Even though equity is a risky asset, returns on investments in equity are known to beat inflation in the long-term, and thus help in wealth creation.
If you own a share for duration of more than 1 year, then any profit arising on the sale of those shares is tax free.
How do I invest in equity?
You can either invest in equity for the long-term, or trade daily with the intention to profit from market fluctuations. The prerequisite is a demat account with a Depository and Trading account with a recognized broker. IIFL offers both the services: of a depository participant as well as a recognized and a well-established broker in India.