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 inequities of a corporation for an extended period. Investment in a share is for a target which generally surpasses the yearly barriers. To earn a large amount of wealth from investing in equity, it 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 shareholders 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 investors, 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 market, 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 stockholder 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 issues, and stock appreciation. Further, in the case of liquidation of the company, 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 funds, 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 hold 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 dividends, 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 appreciation.
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 –