There are two distinct reactions whenever ‘equities’ are discussed : excitement and fear. Lucky for you, we’re here to demystify the subject so you no longer have to fear it.
What Are Equities?
Equities are also known as stocks, securities or shares. When an investor buys the equities of a company, she has an ownership interest of a company after the company pays off its liabilities. Equities are considered as the easiest way to invest in listed companies.
How Does It Work?
Companies, in order to raise capital for their business expansions, issue their stocks as Initial Public Offering (IPOs) in the primary market. Investors can bid for the stocks offered by the company. The stocks are allotted to the successful bidders and is subsequently listed on the secondary market, commonly referred as the stock exchange.
The price of the stocks in influenced by various factors, namely economic, fundamental, technical and political activities.
Why Do People Invest In Equities?
People invest in Equities for various financial goals. Most investors primarily focus to generate profit from the capital gains, either in the short or long term. Some of the common considerations for investors are liquidity, tax benefits, income growth, and bonus stocks.
Singapore Stock Exchange (SGX) has consistently encouraged participation of investors into stocks, especially, blue-chip stocks, as they have become affordable, more attractive, and less risky. The economy of Singapore is growing at a faster pace than any of the major Western economies. This develops confidence among investors that encourages them to actively participate and invest in the stocks listed on its exchanges.
How Can It Benefit You?
Investing in stocks is the most preferred form of investments due to the possibility of price appreciation and higher liquidity. If invested correctly, the stocks offer higher returns than an interest rate on bank deposits. It can offer capital growth in the long run, aligning with the economy. Some companies often award the investors in dividends, either by offering their stocks at a lower price or a percentage in cash. It offers the choice of diversification among multiple sectors in a single portfolio and also it is easy to buy, hold or sell stocks, as it provides easy liquidity and transparency.
What Are The Things To Look Out For Before Investing?
You need to make sure your stockbroker is registered with the Singapore Regulatory Body; follows rules and regulations framed by SGX, Monetary Authority of Singapore (MAS), and Commercial Affairs Department (CAD). You should also learn about the stock market functions. You have to update yourself with the latest news about the market, economic and political activities, news updates about the companies, etc. In order to pick the right stocks, you need to be prudent in monitoring the movement of the markets, analyse the technical and fundamental factors of the stock.
What Are The Common Risks?
Risks are involved in any type of transaction. In the world of investment, the thing to remember is – the higher the risk, the higher the returns and vice versa. In order to safeguard your investment, you should assess various common risks involved in it such as Volatility Risk, Interest Rate Risk, Geopolitical Risk, Taxability Risk, Business Risk, etc. As an investor, you should always be wary of the risks involved in it before investing.
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