INVESTING IN EQUITY
Investing in Equity is like investing into ownership of a company which no other
investment instrument can give you. Unlike any other investment instrument which
either give you fixed income or meager returns and no owned share in the same, equity
investment gives you an opportunity to become a part of the company ownership and
also gives you regular returns on your investment as dividend income or through
price changes.
Investing in equity also allows you to enjoy the flexibility of staying invested
as long as you wish to, take advantage of the price movements and thus utilize the
liquidity.
INVESTING IN DERIVATIVES
Investing in derivatives includes trading of security whose value derived from underlying
assets like share, loan, and debt instrument whether secured or unsecured, risk
instrument or contract for differences or any other form of security.
The underlying asset can be securities, commodities, bullion, currency, livestock,
etc. In other words, Derivative means a forward, future, option or any other hybrid
contract of pre-determined duration, which is linked for the purpose of contract
fulfillment to the value of a specified real or financial asset.
- Future contract
Futures Contract means a legally binding agreement to buy or sell the underlying
security on a future date. Future contracts are the organized/standardized contracts
in terms of quantity, quality (in case of commodities), delivery time and place
for settlement on any date in future. The contract expires on a pre-specified date
which is called the expiry date of the contract. On expiry, futures can be settled
by delivery of the underlying asset or cash.
- Option contract
Option Contract is a type of Derivatives Contract which gives the buyer/holder of
the contract the right (but not the obligation) to buy/sell the underlying asset
at a predetermined price within or at end of a specified period. The buyer/holder
of the option purchases the right from the seller/writer for a consideration which
is called the premium. The seller/writer of an option is obligated to settle the
option as per the terms of the contract when the buyer/holder exercises his right.
- Regular return
Investor can get regular return through equity investment at the cost of risk tolerance
capacity of an Investor.Higher the risk, higher the return and vice versa.
- Ownership
Investor can enjoy the benefits of ownership of particular company till he is having
shares of that company in his demat account.
- Tax benefits
Investor gets certain relief in Tax payment while investing in Equity and Derivative
market.
- Control over financial goal
Investor can diversify his risk and return profile to control and achieve his financial
goal and to manage his financial planning.
- Capital appreciation
Investor can avail such investment in financial market to increase capital and get
benefits of capital appreciation.
- No counter party risk
Investor is free from counter party risk as broker and stock exchange plays a role
of Intermediary to assure the investment security.
In order to invest in Equity & Derivative market, you need to first become a client
of one of the stock market members who are commonly known as stock brokers. But
before you sign up with a stock broker you need to understand the importance and
sensitivity of the relationship between the stock broker and yourself so that you
are familiar with the rules and regulations abiding in the relationship. Once you
have chosen your stock broker, you need to open an account with the same and get
service and guidance for the investment that you wish to do in Equity.