Understanding the Principle of Equity

When you put money in a bank, you take a small risk, and the bank pays you a little interest. Banks then lend that money to others at a higher interest rate, taking on more risk. They use the money they earn from these loans to pay your interest.

When you buy shares in a company, you're essentially giving the company money to use. In return, you become a part-owner of the company. This means you're taking on more risk, as you're relying on the company to manage your investment wisely. You're trusting them to make good decisions that will grow your investment.

In short, investing in equities means becoming a part-owner of a company and sharing in its risks and rewards.

Bank Deposits vs Equity Investments

When you deposit money in a nationalized bank, the risk is relatively low because the government backs those deposits. This means that your money is generally safe, and you can feel secure knowing that the government has your back.

However, when you invest in equities (company shares), you don't have this same level of security. The government doesn't guarantee your investment, so you take on more risk. This means that the value of your investment can fluctuate, and there's a chance you might not get back the full amount you invested.

In short, bank deposits are generally considered safer than equity investments because of government backing, but equities offer the potential for higher returns if you're willing to take on more risk.

Choosing a Business to Invest In

When considering investing in a business, ask yourself:

• Will it earn more than a bank interest rate?

• What factors will determine its returns?

• Is it secure and sustainable in the long term?

• Does it have a solid business plan that considers external factors like market trends and competition?

• What do financial statements and customer feedback say about its profitability and operations?

Look for a business that meets these criteria, with a strong potential for returns, security, and sustainability. Evaluate its financial health, market position, and growth prospects before making an informed investment decision.

Researching a Company as a Shareholder

As a shareholder, you can learn about a company's performance from its annual report. This report provides:

• An overview of the company's operations

• Insights from the directors on the company's achievements and challenges

• Information on how external factors affected the business

By digging a bit deeper, you can also:

• Understand the company's market position and product reputation

• Assess the company's operational stability

• Track the company's progress through quarterly financial statements, which are mandatory and publicly available.

This research helps you make informed decisions as a shareholder and stay up-to-date on the company's performance.

Limited Control as a Shareholder

As a shareholder, you may wonder how you can influence a company's decisions when you have no direct say in its management.

Delegation in Business

Just like how you can't manage all aspects of your own business alone, a large company can't be managed by one person either. As a business grows, it's essential to delegate tasks to qualified professionals, such as marketing, finance, and purchasing experts. This ensures that each function is handled efficiently and effectively.

In the same way, as a shareholder, you rely on the company's management team and board of directors to make informed decisions and run the business successfully. While you may not have direct control, you can still exercise your ownership rights by voting on important matters and attending shareholder meetings.

Shareholder's Role

As a shareholder, you're essentially delegating the day-to-day management of the company to the management team. However, they're still accountable to you and other shareholders. The management keeps you informed through annual reports, balance sheets, and annual general meetings, where you can share your thoughts on the company's performance.

As a joint owner of the company, you have the right to provide constructive feedback on its operations. This way, you can contribute to the company's growth and development, even if you're not directly involved in its daily management.

Invest with Confidence using Sharekhan

You don't have to worry about choosing the right company to invest in, thanks to Sharekhan's expert guidance. Their research team works tirelessly to identify promising investment opportunities. With Sharekhan's recommendations, you can invest in fundamentally strong companies with bright futures. Their expertise helps you make informed investment decisions, making it easier to achieve your financial goals.