Equity investment - Types, How to Invest And Best Equity Mutual Funds To Invest

An equity investment aims to earn returns by investing in company shares or stocks. This very popular mode of investment comes with the probability of getting higher returns than other investment options and higher risks. With equity investments, it is possible to be a part of a company's ownership which allows an individual to share the company's profits and losses.

Equity Investment Meaning

Equities represent a company's ownership that a person can invest in by purchasing shares or stocks of the company. Both direct and indirect investments in equities are possible

The process of investing in equities includes buying company shares. Companies directly issue their shares to the public, and investors can trade them among themselves on stock exchanges. You can also invest in equities indirectly through mutual funds and ETFs (Exchange Traded Funds).

Direct Equity Investment

Direct equity investment refers to directly investing in a company's stocks or mutual funds without involving any third-party manager. You must track and manage your investments independently without supervision in this type of investment. 

Equity investment in ELSS

ELSS is an abbreviation of Equity-Linked Savings Scheme which is an equity-based tax-saving mutual fund. Equity-linked means these funds invest most (80%) of their corpus in equities or similar assets. It allows you to save taxes under Section 80C of the Income Tax Act by offering up to Rs.1.5 lakh tax deductions on your yearly taxable income. 

How to Invest in Equity Mutual Funds?

Follow these steps to invest in equity mutual funds:

Step 1: Open a Demat account and complete KYC verification.

Step 2: Research the risks associated with different funds and their annualised returns. 

Step 3: Choose a scheme in which you want to invest.

Step 4: You can invest in the fund via the online website or the mobile app of AMC (Asset Management Company).

Step 5: Follow the given instructions and complete the payment to invest.

Best equity mutual funds to invest

Various parameters such as expense ratio, 5-year returns, and Value Research Online (VRO) rating indicate a scheme's profitability. Here is a list of the best mutual funds with an estimation of annualised returns up to 10 years: 

*Data collected on April 26, 2023.

Disclaimer: Mutual fund values are dynamic and are subject to change frequently.

Types of Equity Investments

There are several different types of investments in equity from which you can choose. Some of them are:

• Equity/hybrid mutual funds
• Shares
• Arbitrages
• Retained earnings
• Future and Options (F&O)
• Private equity investments

Equity investment calculator

With an equity investment calculator online, calculating returns from your mutual funds is not an issue. Follow these steps to estimate your returns:

Step 1: Find an online calculator.

Step 2: Add details, including the invested principal, expected returns, and the possible tenure.

Step 3: You’ll get an estimation of your returns for a specific tenure.

Equity investment example

The most direct method of equity investments is through company shares. Companies offer their stocks to the common people who buy and invest in their companies. In return, they participate in the company’s growth and profit through capital gains and dividends.

Suppose a person has bought 100 stocks of a company priced at ₹800 each (total invested amount is ₹80,000). If he/she holds them for 10 years at a 12% rate of return, he/she will get ₹1,68,468 in profits (with yearly compounding).

Benefits of investing in equities

Equity investments are known for being more beneficial than other investment options. Some of these benefits are:

• Offers comparatively higher returns than other assets
• Ideal for combating inflation
• Flexible investments with high liquidity
• Investing in equities is easy, even for beginners
• Excellent for long-term investments due to profit-based returns
• Easy to diversify at relatively low costs (via equity funds)

Equity investment valuation

Market equity value is calculated by multiplying the current share price of a company by the number of existing shares. Understanding the value of equity is important to get a clear estimation of your possible returns. 

The formula used to calculate the market value of a stock is:

Stock price x outstanding shares = Equity value

The value of equity can help to predict a company’s financial status. Knowing the equity value will help you to make smarter investments in the right stocks. Equity investment valuation will depend on the equity value, annual expected return rate, and investment period.

Final words

When you start, the equity investment process may seem complex, but it allows you to get attractive returns with little effort. Mutual funds are simplified equity investments, and you can also take help from a third party to manage and organise your portfolio. 

FAQs

How to invest in equities?

Equity investments are possible through direct and indirect investments. Follow these steps:

Step 1: Open a Demat account with a broker. Link it to your bank account.

Step 2: Complete the KYC verification.

Step 3: Select the shares you want to invest in.

Step 4: Select the price and complete your transaction.

What is an example of equity investment?

An example of an equity investment would be equity mutual funds, where it is possible to get a portfolio of multiple shares from different companies.

What are the four types of equity?

Common stocks, preferred stocks, contributed surplus, and additional paid-in capital are four common equities types.

What are the three types of equity investment?

The three types of equity investments are equity funds, common shares, and private equities.

How do beginners invest in equity?

Beginners can seek help from financial advisers and brokers. However, with mobile apps of their chosen banks and funds, they can start investing immediately. Having a Demat account is necessary for online investment.