Benefits & Risks in Investing in Equity Stocks

by Nisha Sharma Research Analyst

Investing in equity stocks involves buying and selling of shares of a publicly listed company. The equity shares listed on BSE and NSE are traded through brokers and sub-brokers. When an investor, invest in equity stocks, there is an extremely attractive return but there is also a chance of loss. Indian equity market generated 14–15% return in the past 15 years.

Things Need to Know Before Investing

1. Proper Time- Stock Market is a game of time. If someone buys or sell the stocks on the correct time then it gives a good return, otherwise making a loss when they are unable to proceed on correct time. So, first set up the goal and then invest in the stocks to get the return for the desired goal.

2. Patience for Return- Many time stock markets will test your patience. As the stock market is like the roller coaster ride and anytime it may fluctuate. So stick to that stock in a tough time and later it may give profit and help you to minimize the loss.

3. Keep Learning- As the equity market is so much volatile. So, profit and loss is part of the equity investment. The trick to overcoming this is only to keep learning from mistakes. Overcome the previous mistake else it will become a bad experience for your equity investment.

“Higher the Return, Higher the Risk. Lower the Risk, Lower the Return.”

Benefits of Investing in Equity Stocks

1. Tax Benefit- Equity shares offer a tax advantage to the investor. If there is large profit on the investment due to the increase in the share value then the tax applicable on that amount is lower than the tax charge on any other income. As the investment held for more than 12 months are tax-free up to 1lac while the investment held for less than 12 months are taxed at 15%.

2. High Return- As the equity market is so much volatile in nature so it can give the profit as well as loss. But the return by equity stocks can be much higher than any other types of investment.

3. Liquidity- As compared to other types of investment this investment is more liquid in nature. So, an investor should buy or sell the share at any time within less than a minute without going anywhere in searching for price and the buyer. It all can be done on the ease of your fingers.

4. Transferable- It is one of the major advantages of the equity shares as it allows the easy of transferability in which the shareowner can easily transfer the ownership to someone new or new shareholder.

Risk of Investing in Equity Stocks

1. Capital Loss- As we discussed above the equity stocks are volatile in nature so there may be profitable but there is also the loss which arises due to the market condition.

2. Business Risk- This risk will be due to the performance of the business. It can be escalated when business is not doing well. Failure of the management and poor quarter results are the reason for fluctuation in share value.