November 27, 2025
10 mins read
Investors who buy equity shares own a small part of a company. They also give investors the right to vote and the opportunity to earn income through dividends and price increases. They can be sold quickly and have the potential to grow over time, but they also come with market and business risks.
When a company needs money to grow its business, it can sell small parts of its ownership to people. These small parts are called equity shares. In simple words, equity shares mean you own a piece of the company. In other countries, they may also be called common stock or ordinary shares.
By buying equity shares, you become a part-owner of the company. This gives you certain rights, like voting on important company matters and receiving a part of the profits when the company does well. Profits shared with shareholders are called dividends.
There are different kinds of equity shares. The four main types are:
Preference shares give their owners a fixed return. They are called “preferred stock” in some places because these shareholders are paid dividends before common shareholders.
These are the most popular type of shares. Owners of common shares have the right to vote on company matters and can also get dividends when the company makes profits.
Sometimes a company rewards its existing shareholders with extra free shares. These are called bonus shares. They come at no extra cost to the shareholder because they are issued from the company’s profit reserves.
Right shares are new shares that a company offers to its current shareholders at a discounted price. These are given in proportion to how many shares a shareholder already owns.
Equity shares have several key features:
Shareholders get the right to vote on important matters, such as who should manage the company. Good management can lead to higher profits, which means better dividends for shareholders.
When a company makes higher profits, it may issue bonus shares. These increase the number of shares you own without spending extra money.
Equity shares are easy to buy and sell in the stock market. This means you can quickly turn your shares into cash whenever you want. Unlike fixed deposits or bonds, equity shares don’t have a maturity date.
Equity shareholders are real owners of the company. They get share in the profits and also have rights to the company’s assets if it ever closes down. They can attend annual meetings and influence company decisions through voting.
People invest in equity shares for many reasons. Here are some important ones:
Capital Appreciation: Share prices may rise over time, increasing the value of your investment.
Dividend Income: Many companies share part of their profits as dividends, giving you regular income.
Ownership and Voting Rights: As a shareholder, you are part-owner of the company and can vote on major issues.
Liquidity: Shares can be bought or sold quickly in the stock market whenever you need money.
Protection against Inflation: Over time, shares usually grow faster than inflation, protecting your money’s value.
Diversification: You can spread your money across different companies and industries to reduce risk.
Like all investments, equity shares have both benefits and drawbacks.
Capital GainIf the price of the shares increases, you can sell them at a higher price and make a profit.
Limited LiabilityIf the company suffers losses, shareholders do not have to pay from their own pocket. You can only lose the money you invested, nothing more.
Control over the CompanyEquity shareholders are considered the real owners. They can vote on important company matters, such as choosing directors or approving big decisions.
Claim over Assets and IncomeIn case the company shuts down, shareholders have a right to whatever is left after all debts and expenses are cleared.
Stock SplitsSometimes companies split their shares to make them more affordable. This can attract more buyers and increase the value of your investment.
High RiskThe stock market is unpredictable. Share prices can go up or down due to economic changes, government policies, or market mood.
Price FluctuationsShare prices can change daily. One week you may see a profit, and the next week you may see a loss.
Limited ControlAlthough shareholders can vote, most small investors do not have much real power over company management.
Residual ClaimShareholders are the last to get paid if the company closes. First, the company pays debts, employees, and other expenses. Only then do shareholders get whatever remains.
Investing in equity shares is not without risks. Here are the main ones:
If the country’s economy is doing poorly, most companies’ shares will also perform badly.
A company with low profits or high debt may see its share prices fall.
Industries do not always grow. For example, some industries may slow down due to new technology or changes in demand. This affects share prices.
Companies that earn money from other countries are affected by changes in foreign exchange rates. If the value of the local currency falls, profits may drop.
Additional Read: Difference Between Equity and Preference Shares
Thanks to the advent of electronic trading, purchasing equity shares of companies has now become easier than ever. Here’s a short guide on how to get started.
Since shares are now mandatorily required to be held electronically, you need to first open a demat account with a Depository Participant. A demat account is used to digitally store the shares that you purchase online.
Once you’ve opened a demat account, the next step is to open a trading account with a stockbroker. A trading account lets you purchase and sell equity shares and other securities online.
With the trading and demat accounts up and running, the next step is to log into your stockbroker’s trading portal.
Upon logging in, all you need to do is enter the name of the stock in the search bar and enter a few details such as the number of shares and the price at which you wish to buy.
Once you’ve entered all the relevant details, proceed to place the order. The requisite funds will be debited from your trading account so make sure to first keep your account well funded.
The buy order will be placed and sent to the relevant stock exchange where it will be matched with a similar sell order.
Equity Shares | Preference Shares |
shareholders have voting rights | shareholders do not have voting rights |
shareholders have a greater say in the running of the business | shareholders are usually entitled to a fixed rate of return |
shareholders are entitled to a share of the profits when dividends are declared | shareholders are paid before dividends are declared |
shareholders also claim over the company's assets in the event of liquidation | shareholders have a lower claim |
Not everyone wants to invest in equity shares. There are other investment options too, such as:
Real Estate: Buying property like houses or land.
Commodities: Investing in gold, silver, oil, or other goods.
Private Equity: Investing directly in private companies.
Hedge Funds: Special funds that use advanced strategies to earn returns.
Venture Capital: Investing in new businesses or start-ups with high growth potential.
These alternatives can give good returns but may also carry their own risks.
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Common shares provide regular ownership and voting rights, while bonus shares are additional shares given to shareholders without any cost, typically issued from a company's reserves.
Equity shareholders have voting rights that allow them to influence key decisions like mergers, board appointments, and company policies.
Investors can earn additional profits through dividends and capital appreciation, as equity shares can increase in value based on company performance.
Equity shares are highly liquid, meaning they can be easily traded on the stock market, unlike some other forms of investment like bonds or real estate.
Equity shareholders have voting rights and participate in capital appreciation, while preference shareholders receive fixed dividends and have priority in asset distribution but usually lack voting rights.
Over the long term, equity shares tend to outperform inflation, making them a valuable investment for preserving and growing wealth in an inflationary environment.
Long-term benefits include higher capital gains and dividend payouts, while short-term benefits can come from price volatility and quick trading opportunities.
Equity shares may qualify for capital gains tax exemptions if held for a long-term period, while short-term gains are taxed at different rates depending on the holding period.
Equity shares are considered riskier than bonds or real estate, but they offer higher returns in the long run, especially for investors willing to accept short-term volatility.
Beginners can start by opening a Demat account and trading account with a registered broker, researching the stock market, and investing in blue-chip or well-established companies.
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