Equity Meaning – What is Equity? Definition, Examples

what is equity
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Equity Meaning – Are you looking to learn more about equity and how it works? Understanding equity can be a complex and intimidating topic, but it doesn’t have to be. This guide will provide you with a comprehensive overview of Equity Meaning, including what it is, how it works, and why it is important. With this knowledge, you will be able to make informed decisions about equity investments and better understand the stock market.

Table of Content

What is Equity? – Equity Meaning

Equity Meaning – Equity is a term that is used to refer to ownership in a company or asset. It is the difference between the value of a company’s assets and its liabilities. Equity is an important concept in finance and economics because it is a measure of the value of a company or asset and can be used to determine the value of a company’s stock or the value of a company’s assets.

Equity is created when a business or investor purchases an ownership stake in a company. The amount of equity is determined by the amount of money invested and the value of the business. Equity can be used to purchase additional shares of the company, or it can be used to finance business operations.

For investors, equity can provide a way to diversify their portfolios and reduce risk. By investing in a variety of companies, investors can spread their risk across multiple businesses and reduce the chance of losing their entire investment. Equity also provides investors with the potential to earn higher returns than they would receive from other investments.

For business owners, equity can be a source of capital for business operations. Equity can be used to purchase additional shares of the company, finance the purchase of new equipment, or hire additional employees. Equity can also be used to finance growth and expansion.

Different Types of Equity (Equity Meaning)

Types of Equity Meaning – Equity is a type of investment that can provide a number of benefits to investors. Equity investments can be divided into two main categories: common equity and preferred equity.

Common Equity

Common equity refers to the ownership of a company?s stock. When you buy common equity, you become a shareholder in the company. This gives you a claim on the company?s assets and profits. As a shareholder, you are entitled to a portion of the company?s profits, as well as voting rights in certain matters. Common equity also provides potential for capital appreciation, as the value of the stock may increase over time.

Preferred Equity

Preferred equity is a type of investment that provides investors with a higher degree of security than common equity. these Preferred equity holders are entitled to receive a fixed dividend, which is paid before any dividends are paid to common shareholders.

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In addition, preferred equity holders have priority over common shareholders in the event of a liquidation. However, preferred equity holders do not have voting rights, and their returns are limited to fixed dividend payments.

Both common and preferred equity can provide investors with a number of benefits.

The list of Types and Categories of Equity

Type of EquityDescription
Common stockThe most basic type of equity represents ownership in a company and provides the right to vote and receive dividends.
Preferred stockA type of equity that provides shareholders with preferential treatment over common shareholders, such as a fixed dividend payment.
Treasury stockStock that has been bought back by the company and is held in its treasury, reduces the number of outstanding shares.
Restricted stockStock that has certain restrictions placed on its sale or transfer, often granted as part of executive compensation packages.
Stock optionsContracts that give the holder the right to buy or sell shares of stock at a certain price, are often granted as part of employee compensation packages.
WarrantsSimilar to options, warrants give the holder the right to buy or sell shares of stock at a certain price, but are typically longer-term and issued directly by the company.
Convertible bondsBonds can be converted into shares of stock at a predetermined price and time, providing a hybrid between debt and equity financing.
Equity crowdfundingA method of raising capital by selling shares of stock or other equity instruments to a large number of investors, often through online platforms.

The Differences Between Equity and Equality –

DefinitionThe fair distribution of resources, opportunities, and benefits based on the needs and circumstances of each individual.The equal distribution of resources, opportunities, and benefits to all individuals regardless of their needs or circumstances.
FocusAddresses individual needs and circumstances to ensure fair outcomes.Treats all individuals the same regardless of their needs or circumstances.
ExampleProviding extra resources and support to students from disadvantaged backgrounds to ensure they have an equal opportunity to succeed.Giving all students the same textbook and teaching materials, regardless of their different learning needs or abilities.
GoalAims to promote fairness and reduce disparities by accounting for individual differences.Aims to promote equal treatment and avoid discrimination by treating everyone the same.

Equity Examples in India (Equity Meaning)

Examples of EquityDescription
Home equityThe portion of a homeowner’s property value that is not owed to a mortgage lender, represents ownership of the property. Can be accessed through a home equity loan or line of credit.
Shareholders’ equityThe portion of a company’s value that is owned by its shareholders, represents the residual value of assets after deducting liabilities. Can be calculated by subtracting total liabilities from total assets.
Equity mutual fundsMutual funds that invest in stocks and other equity securities, provide investors with a diversified portfolio of equity investments.
Equity crowdfundingA method of raising capital by selling shares of stock or other equity instruments to a large number of investors, often through online platforms.
Equity compensationStock-based compensation is offered to employees as part of their compensation packages, such as stock options, restricted stock units, or performance shares.
Private EquityAn asset class consisting of investments in private companies or publicly-traded companies that are taken private, often through leveraged buyouts.
Social equityThe fair distribution of social resources and benefits often addresses issues of inequality and discrimination based on race, gender, or other factors.
Environmental equityThe fair distribution of environmental risks and benefits often addresses issues of environmental justice and ensures that all individuals have access to clean air, water, and other natural resources.

Top Equity Companies in India

Top Equity Companies in IndiaMarket Capitalization (in INR crores)Sector
Reliance Industries16,25,000Conglomerate
Tata Consultancy Services13,20,000Information Technology
HDFC Bank8,40,000Banking and Financial Services
Infosys6,25,000Information Technology
ICICI Bank5,35,000Banking and Financial Services
Housing Development Finance Corporation4,80,000Real Estate
Bharti Airtel3,90,000Telecommunications
Kotak Mahindra Bank3,75,000Banking and Financial Services
Hindustan Unilever3,20,000Consumer Goods
State Bank of India2,95,000Banking and Financial Services

Equity Meaning FAQs

What are Equity Shares?

Equity shares, also known as common stock, are a type of security that represents ownership in a company. Equity shares are the most common type of security traded on the stock exchange, and they are the foundation of the stock market. Equity shares can be bought and sold on the stock exchange, and they give the shareholder a portion of the company?s profits and assets.

More Definitions like Equity Meaning

What is Liability? – Definition, Types, Liabilities examplesf you?re looking to understand what liability is and how it works, you?ve come to the right place.
What is an Asset? Management, Definition, Types, Best AssetsAre you looking for a helpful guide to understanding the meaning of assets? 

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