In the context of stock market investments, equity refers to the shares in a company’s ownership. In simpler terms, it is the total amount of money that a shareholder is eligible to receive if all of a company’s debts are paid off and its assets liquidated. When an individual invests in a company’s equities, he/she becomes its partial owner.

On investment in a company’s stocks, he/she can earn profit via capital gains or stock price appreciation. Further, investing in a company’s shares also bestows an individual with a right to vote in matters pertaining to the Board of Directors.

Investing in equity shares is popular among individuals because they are high-return investment options. However, despite their potential to bear high returns, they also expose an individual’s investment portfolio to a certain degree of risk. For this reason, it is pertinent for individuals to gauge their risk appetite before deciding to invest in equity stock.

Equities are market-linked investments that do not come with an assurance of bearing fixed returns. Returns on equity thus depend on the underlying asset’s performance.

Equity investments can be broadly divided into several categories, each bearing its own set of risks and rewards.

Following is a broad categorization of equity investments –

• Shares

The units of partial ownership in a company are commonly known as shares. They are traded via designated stock exchanges like the Bombay Stock Exchange or National Stock Exchange (provided that they are BSE or NSE equity shares of a listed company).The potential returns from investing in shares can be quite substantial, with their risks being equally high.

• Equity Mutual Fund Investments

Mutual funds are investment options wherein capital from various investors is collected, pooled in and invested in various equity and debt instruments. Equity mutual funds are those options whereby at least 60% of the total assets are invested in the equity shares of different companies.

Based on their market capitalization, equity mutual funds can be divided into the following categories:

i. Large-cap equity funds: These are funds with investment only in well-established large-cap companies and have the potential to provide stable returns at comparatively low risk.
ii. Mid-cap equity funds These equity mutual funds are invested in the stocks of mid-cap companies. They make for the most beneficial investment options as the risk-reward ratio is well balanced with these funds. iii. Small-cap equity funds These are mutual funds invested in the shares of companies that have small market capitalization and are comparatively more volatile than other categories of diversified funds.
iv. Multi-cap funds These mutual funds come with the liberty to invest in different sectors and market-capitalization market capitalizations.

• Equity Futures

These are investment instruments where the investors have an obligation of purchasing or selling the underlying assets at a predetermined price and a predetermined rate. Equity futures generally come with an expiry period of three months and the settlement day is usually the last Thursday of the 3rd month.

• Equity Options

Equity options are akin to the futures where parties involved are not legally obliged to follow up on their agreement.

• Arbitrage Schemes

Arbitrage, with regards to the stock market, refers to the process of buying and selling securities in different exchanges simultaneously to profit from the difference in market price. Individuals can invest in arbitrage funds which are equity-oriented funds with primary investment in equities, debt or money market instruments and equity derivatives.

• Alternative Investment Funds

Individuals can choose to invest in equity instruments through alternative funds which comprise different pooled in investment funds that primarily invest in hedge funds, venture capital, managed future, private equity, etc.