InvestmentFinancial Glossary
Equity
Definition
Ownership stake in a company, represented by shares or stock. When you buy equity shares of a company, you become a part-owner proportional to the shares you hold. Equity investors earn returns through capital appreciation (share price increase) and dividends. Equity represents the residual claim on assets after all debts are paid.
Why It Matters
Equity has historically been the highest-returning asset class over long periods. Indian equity markets (Sensex) have delivered approximately 14% CAGR over 30 years. However, equity is also the most volatile in the short term — markets can drop 30-40% in a year. This risk-return trade-off makes equity essential for long-term goals but unsuitable for short-term needs.