Equity Investment – Types and Associated Risk

Manish Kothari
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isVerifiedExpertAuthor is a Zfunds Verified Expert
Manish Kothari

What is Equity Investment ? 

The primary vision of making investments is to gain returns, grow wealth and beat inflation Returns on investments can either be fixed or market-linked. The market-linked investments can be called equity investments as they invest in instruments of the stock exchange. There are various investment alternatives under different investment categories. For instance, Equity mutual fund investments or direct equity investments are examples of market-linked/equity investments whereas FDs or post office TDs are fixed return investment alternatives. 

How to Invest in Equity ?

Equity investments are market-linked investments where returns are neither assured nor fixed. They are dependent on the performance of the underlying asset. Here, the amount is basically invested in the stocks and equity derivatives of the unlisted and listed companies. These feature a significant element of risk as market movements play a very crucial role in their performance. Further in this article, we are going to explore different risks, types, and significant aspects of equity investments. 

Types of Equity Investment

Equity Shares

Shares can be defined as partial ownership of the entity one has invested in and such investors are referred to as shareholders of that entity. Shares are traded on designated stock exchanges such as BSE and NSE if they belong to listed companies. Shares of unlisted companies too can be privately exchanged through off-market transactions.

Future and Options (F&O)

These are contracts that allow an investor to trade the underlying stock at the current price but defer the delivery to a predetermined time in the future. In the case of the futures contract, both the parties are legally bound to execute the agreement at a specified date, the options contract gives the investor the right but no obligation for agreement execution as per the mutually agreed price at any time during the contract. 

Equity Mutual Funds

In a mutual fund, the money is pooled from multiple investors to invests in assets like equity and bonds. Equity Mutual Funds primarily invests in listed markets securities and are ideal for investors who have a limited idea about which share to invest in due to lack of knowledge, skill, or time. 

Why Equity Investment Should be Made ?

Investors have financial goals which motivate them to invest in fixed instruments. Nevertheless, the choice of investment alternative can make or break the realization of financial dreams. It is because of the forces of taxes and inflation. These tend to decrease the purchasing power of money and impede faster wealth accumulation. If investors restrict their investments to only bank FDs, then they might face difficulties in protecting their wealth as it won’t create a fortune for you with a good corpus. 

If an investor considers equity shares or equity mutual funds, the chances of them creating a decent corpus and achieve their financial goals are much higher as this investment not only beats investment but also gives gains that are more than that of the fixed investment instruments. However, this can only be possible if your equity investments are made through research and expert financial advice. You can reach out to ZFunds for amazing financial expertise and advice. 

Risk Associated With Equity Investment

Performance Risk:

Equity shares and Equity Mutual Funds may or may not perform according to expectations as it is impossible to do speculation in the market. This is the essence of performance risk and it affects both individual shares as well as the whole sector from time to time.

Market Risk:

This involves the possibility of investment facing loss due to market forces and factors. If the markets are not doing well due to factors such as political instability, economic slowdown, or others that may negatively impact the overall health of the markets. 

Liquidity Risk:

Liquidity can be defined as the ability of an investment to be sold at a fair price and in sufficient quantities to have liquid cash as and when required by the investors. These investments possess the liquidity risk which can force inventors to sell the investments at a lower price. 

Who Should Invest in Equity ?

Investors who are looking forward to gaining market exposure, earn returns that can beat inflation and help in wealth creation, and are willing to take the related risk can look forward to investing in equity investments. The success of the investments will depend on the investor’s skills, knowledge, and financial advisory. 
Investors should also note that it is important to stay invested for the long term so as to beat the high volatility and make the most out of their investments. Investors are advised to stay put during volatile and tough times as in long run, equity markets have historically always moved upwards.

How to invest in equity mutual funds ?

If you are looking to start your equity investments journey or are already investing in it, you can use our app ZFunds to invest in multiple equity mutual funds with the help of only a few clicks. You can also reach out to us for expert financial advice to plan your funds and fortune in the best manner. Following are some top equity funds you can invest in through our app:

  1. DSP Midcap Fund
  2. SBI Small Cap Fund
  3. SBI Focussed Equity Fund
  4. ICICI Prudential Bluechip Fund
  5. Parag Parikh Flexicap Fund

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