What are equity shares ? What are the difference between share and equity?

You might have come across equity shares and share market frequently if have been trading for quite awhile. In this article we will cover both and discuss the basic difference between equity and shares. Understanding both the aspect will not only increase your portfolio but at the same time you will be able to use trading analysis in the right direction.

Equity means ownership of a stake in the company. In a more simple sense it means ownership of capital or net worth after reparation of all the debts. Normally, traders buy equity investment with the hope that they will enjoy the appreciation of price and the returns from the value increased. The feeling of ownership provides traders a cushion of comfort and security while dealing with daily utilities. Moreover, the stake in the company is given monetary value by calculating the money that would be returned if all of it was liquidated and all debt paid off. Each and every shareholder are the collective owners of the particular company. Equity could go two ways, it could be either positive or negative.

Equity is positive if the company has more assets than liabilities and negative if the company has more liabilities than assets. Companies issue this equity to provide themselves capital to purchase asset. A company’s net worth is decided on the basis of this equity.

There are various types of equity but when it comes to equity shares for a company, it normally goes Public or Private equity, as mentioned below:

◆ Public Equity

When a company goes public, they can issue shares to the public as a source of long-term financing. Market value, which is also often referred to as an “equity share” is calculated by taking the difference between the assets and liabilities of the company. When the company gets funding, shareholders and traders benefit in two ways in the form of yearly dividend and appreciation of the investment. As the company’s turnover and profits increase, so does the dividend. Shares are highly liquid and can easily be bought or sold in market, but the price will be heavily influenced by the current scenario of the market place. Preference in equity help indicates which shareholders get paid first if the company were to file for bankruptcy. General equity shareholders without preference are given voting rights in the company, while preference shareholders are not able to vote. However, there are commonly many shareholders that hold small amounts of the company spread across large distances so they usually do not exercise enough collective control over the company to control it effectively.

◆ Private Equity

Shares of ownership which are not listed or publicly traded can be sold by private companies.These are funds that investors will invest directly in the company. After agreement with shareholders and the company, the capital will be invested in the company itself so they can grow, buy new assets and technology. For many entrepreneur, this option has been considered instead of the traditional high-interest bank loans. Certain forms of equity, like venture capital, also finance ideas and early-stage companies. This investment can also benefit the investor, but it usually requires very long holding periods with high risk. Most of the investors will hold onto the initial investments and shares until the company can sell or present an initial public offering. But this method requires to have patience as it will take a very long time for the company to get matured.. In addition, it is often difficult to liquidate the holdings because, unlike the public markets, there is no market price. This price is set rather by negotiation between buyer and seller.

For most of the investors, it is very common to get confused between these two, but once you understand the basics, it’s quite simple. Let’s understand what actually a share is. When you buy a share, you are just purchasing a piece of paper that represents your ownership in the company. Shares are the unit of the capital of the company, by acquiring a share a trader can get ownership of the company. Shares are highly liquid and can be traded freely in the market in the stock exchange. Now the main thing here is that the holding of shares will determine the percentage of equity held by an investor directly or indirectly. This gives the opportunity to hold the investment in any entity for the long term as well as short term, thus share contracts are easily trade able and can get squared off in the stock exchange.

While shares are the proportion of ownership of the company a trader has, Equity on the other hand, is “what” you actually own in the company. It is calculated by subtracting the company's liabilities from its assets. if a company has INR 2 million in assets and Rs 750,000 in liabilities, then the equity of the company is Rs 1,250,000. Simply put, shares are just a representation of your ownership in the company, whereas equity is the actual ownership that you have in the company. This is an important distinction to make when looking at a company's financials. The share price can be very different from the equity of a company.

Now that we have understood the difference between equity and shares. Lets take another step to understand “equity market” where all the trading and investment happens. Equity market is a market where the purchase and liquidation of the listed stocks take place. In Indian market, the equity market consist mainly of two exchanges which is considered one of the largest markets, NSE and BSE. The main reason for the existence of these markets is to help private sectors to accumulate capital by issuing shares to traders and investors through brokers which help them facilitate properly. To trade in the market you need to have a trading account opened with the broker and a Demat account which will help you to hold the shares for long. The trade cycle in these markets starts from trader which and end with traders, with buy/sell process. The order is given by the trading account to the broker and the broker pushes the order to the exchange and then the exchange will match the best seller/buyer so that the order can be executed. This delivery will happen in trade date plus two days. The orders can be placed by various platforms like Apps, telephone and online. The timing for trade is from Monday to Friday between 9:00 am - 3:30 pm. To trade in the market the basic things one needs to know is the fundamental and technical analysis so that it becomes easy to trade in the Market.

As an investor, it is important to understand between shares and equity, you should consider it as an asset class rather than an investment instrument. Investing in any of it involves high risk and major losses. You need to understand the market scenario thoroughly and have proper research of basic fundamental and technical analysis. Here with Mitrade Trading insights, you can get latest and detailed inputs on current happenings and news on financial markets so that you can utilize the best opportunity with your investments.