Equity

Potential for Profit: The potential for profit is greater in equity share than in any other investment security. Current dividend yield may be low but potential capital gain is great. The total yield or yields to maturity may be substantial over a period of time.

Limited Liability : In the corporate form of an organisation, its owners have, generally, limited liability. Equity Share is usually fully paid. Shareholders may lose their investment, but no more. They are not further liable for any failure on the part of the corporation to meet its obligation.

Hedge against Inflation : The equity share is a good hedge against inflation though it does not fully compensate for the declining purchasing power as it is subject to the money-rate risk. But, when interest rates are high, shares tend to be less attractive, and prices tend to be depressed.

Free Transferability : The owner of shares has the right to transfer his interest to someone else. The buyer should ensure that the issuing corporation transfers the ownership on its books so that dividends, voting rights, and other privileges will accrue to the new owner. Although the individual has the right to sell his shares, there is little or no trading in the shares of many corporations due to the lack of interested buyers. For this reason, equity shares of many small businesses are nonliquid and difficult to market.

Share in the Growth : The major advantage of investment in equity shares is its ability to increase in value by sharing in the growth of company profits over the long run.

Tax Advantages : Equity shares also offer tax advantages to the investor. The larger yield on equity shares results from an increase in principal or capital gains, which are taxed at lower rate than other incomes in most of the countries.