What is Equity Investment?

In the world of finance and accounting, equity may be defined as the residual claim or interest of the junior class of investors in assets, after all liabilities are taken care of. In other words, an investor buys a share of stock in a company, contributing to the the overall worth of the company. This entitles the investor to a portion of the profits, once other expenses are accounted for, enabling the investor to receive a return for the money.

Generally, equity investment references the purchase and holding of stock shares in the stock market by individuals and firms that hope to see income from capital gains or dividends as the stock value increases. It may also mean participation as an owner in a private or unlisted company or a start-up, a company that is about to be created or has just been created.

When the investment is in a new company, the term equity investment goes under a different name: venture capital investing. People understand that this type of investment is conducted at an increased risk than those investments which are placed in companies which have a track record and are already a going concern.

Equities which are in private hands, such as an individual owner, usually are held through mutual funds or another kind of pooled investment type. You’ll find listings for these in financial newspapers or magazines, quoting prices of the stock. Usually, these fund management firms handle mutual funds. Such companies include Schroders, the Vanguard Group, or Fidelity Investments, but are by no means limited to these groups. Holdings in groups like these enable private investors to have the advice of professional fund managers as well as to enjoy the diverse nature of the various funds.

If a private investor didn’t want to go through a fund management firm, then there are other choices. In the case of large private investors or pension funds, the shares may be held directly; in this case, clients own portfolios which will contain segregated funds instead of, or in addition to, pooled funds, such as a mutual fund alternative.