What is Equity?
In simple terms, Equity represents the value that would be returned to a company's shareholders if all assets were liquidated and all debts paid off. Think of it as your "net ownership."
Why Equity Matters to Businesses
Equity is crucial for businesses because it acts as a tool for Financing Expansion. Instead of taking high-interest loans, companies sell shares (equity) to investors to raise cash for growth. This is known as "Equity Financing."
The Performance of Equities
Historical data shows that equities often outperform other asset classes, especially during high inflation, despite their volatility.
| Asset Class | Average Annual Return |
|---|---|
| Stocks (Equity) | ~19% |
| Bonds | ~8.8% |
| Fixed Deposits (FD) | ~7.4% |
The Golden Rule: 100 Minus Your Age
How much should you invest in equity? A common rule of thumb is: 100 - Your Age = % Equity Allocation.
- If you are 35 years old, you should ideally invest 65% of your portfolio in equity.
- As you get older, you shift more towards safer assets like bonds.
How to Start Equity Trading
Equity trading is surprisingly simple. To begin, you need three things linked together:
- Savings Bank Account: To hold and transfer your funds.
- Demat Account: To hold your shares in digital form.
- Trading Account: To actually buy and sell shares on the exchange.
Ready to grow your wealth?
Happy Investing! Stay tuned to Official Money Mindset.
Disclaimer: Investing in equities involves market risk. The returns mentioned are historical and not a guarantee of future performance. Please consult a SEBI registered financial advisor.