What is Equity Investor?
Equity investors are investors (retail or Institutional investor) invested in a company (whether publicly or privately held), to achieve a financial gain or return via capital appreciation, dividend payments, or addition of shares, etc., usually for a substantial period.
An equity investor, unlike a trader, invests in inequities of a corporation for an extended period. Investment in a share is for a target that generally surpasses the yearly barriers. To earn a large amount of wealth from investing in equity requires the company to expand and achieve its potential, which requires an extended time. If invested for a longer period and the business of the company flourishes in an expected manner, typically these stocks provide admirable returns.
Risks of Equity Investor
- Investing in a stock does not guarantee any returns. The amount invested could deteriorate or lose its entire value in adverse scenarios such as management frauds, unfavorable financial environment, and many more.
- Again, in the case of liquidation of the entity, equity shareholdersEquity ShareholdersShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting period. would be the last ones to receive their proportion. This situation makes the shares locked, and it is tough to sell these out while the process is going on. So, the major thrust has to be absorbed by equity holders. But, with the help of intense research and understanding the industry situations, these unfavorable scenarios could be averted in the early period.
- Retail investorsRetail InvestorsA retail investor is a non-professional individual investor who tends to invest a small sum in the equities, bonds, mutual funds, exchange-traded funds, and other baskets of securities. They often take the services of online or traditional brokerage firms or advisors for investment decision-making., or small investors, are up against the big organizations, financial entities, and large investors in terms of knowledge and reach about the information and resources. Information is a crucial factor in the stock market, and big investors have reliable contacts with managements, heavy software, expert staff to remain aware of any unwanted situation. But, retail or small investors face severe challenges when compared with organized investors. Retail investors only rely upon the information available in the public domain.
The market is flooded with success stories of long-term stockholders, but not all the stories are the same. The stock market is widely infamous for its volatility and punishments. So, it’s not an easy task to earn handsomely at all times. The following are a few pointers that could increase the chances of success in the equity world.
- To excel in the world of the equity marketEquity MarketAn equity market is a platform that enables the companies to issue their securities to the investors; it also facilitates the further exchange of these stocks between the buyers and sellers. It comprises various stock exchanges like New York Stock Exchange (NYSE)., the investor should possess at least an elementary knowledge of the business and the industry to which the company belongs. He must be aware of the prevalent condition in the industry and company respectively, to have a rough idea about the upcoming situation and its impact on the company.
- Good or workable knowledge of the financial terms along with a detective mindset would help an investor in deciding to understand the quantitative side of an entity and to make a fair evaluation with its competitors. A good investor, with strong knowledge in finance, would be in a better position to track down the frauds, or declining condition of the organization by reviewing statements of the company.
- Equity investment also demands a strong discipline over the life of the investment. There would arise various circumstances when it would be not very easy to remain invested in the stock. Most of the holders couldn’t make it to the list of great earners because sometimes they lose courage or faith in their earlier evaluation. Hefty returns take time to build and for that, an investor should remain invested for a substantial period.
Equity Investor vs Shareholder
In general parlance, people use the words shareholders and equity investors interchangeably, but these are not the same. Those terms have a slight difference which makes them unique to each other.
- A shareholder or stockholderStockholderA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares. is a person listed in the register of the company, whether privately or publicly held. The shareholders are considered as the owners of the entity due to their holding in the equity of the organization. They are entitled to various benefits such as dividends, right issues, bonus issuesBonus IssuesBonus shares refer to the stocks issued by the companies for free of cost to their existing shareholders in the proportion of their stock holdings. Companies issue such shares to compensate the shareholders with a higher dividend payout in the form of stocks., and stock appreciation. Further, in the case of liquidation of the companyLiquidation Of The CompanyLiquidation is the process of winding up a business or a segment of the business by selling off its assets. The amount realized by this is used to pay off the creditors and all other liabilities of the business in a specific order., the stockholders are paid after all the payments have been made to the entity’s suitors. So, the risk of losing the invested amount also lies here.
- On the other hand, an investor is a person employing funds in a particular vehicle for generating financial returns out of it. The investors could invest in various vehicles such as mutual fundsMutual FundsA mutual fund is an investment fund that investors professionally manage by pooling money from multiple investors to initiate investment in securities individually held to provide greater diversification, long term gains and lower level of risks., equities, bonds, options, commodities, and others, to name a few. Most of the time, investors employ multiple techniques to invest in a company coupled with fundamental or technical research of the organization and said to be as long term investors of Buy and holdBuy And HoldThe term "buy and hold" refers to an investor's investment strategy in which they hold securities for a long period of time, ignoring the ups and downs in market price during a short period of time. investors.
- In conclusion, a person could be a shareholder and investor at the same time, if the investment is expected to last for the long-term to earn financial benefits over the period. But, even a trader, who remains invested in a company for a short period of time, could be designated as a shareholder as his/her name is enlisted in the shareholder’s register.
- Investment in equities is one of the best ways to get more productive quickly. We all have heard multiple stories of people becoming millionaires and billionaires just by sitting on the stock for years.
- Equity investments, if held for years, in a pleasant environment, could provide capital appreciation return along with other short-term and financial benefits such as dividendsDividendsDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company., stock rights, bonuses, etc.
- It is an excellent source of passive income; if the person knows business and equity markets, devote a short time weekly, a hefty return could be earned over a period of time. Also, the additional benefits such as dividends, and other resources are in addition to the capital appreciationCapital AppreciationCapital appreciation refers to an increase in the market value of assets relative to their purchase price over a specified time period. Stocks, land, buildings, fixed assets, and other types of owned property are examples of assets..
Overall, the equity investor faces substantial challenges over holding a period of security, but even one successful stock pick over the years could give the investor a healthy return and history has shown many such examples of these returns.
This has been a guide to What is Equity Investor & its Meaning. Here we discuss the risk of equity investor and its responsibilities along with benefits and equity investor vs shareholder. You can learn more about from the following articles –