Equity

Investments

Equity refers to ownership stake in a company. When you buy shares you become a part-owner entitled to a share of profits and assets. As an asset class, equity refers to investing in company shares through stocks or equity mutual funds -- the highest-return asset class over long periods.

In detail

Equity is the highest-return asset class over long periods but also the most volatile. Nifty 50 has delivered approximately 12-13% CAGR over 20 years but has also seen 50%+ drawdowns (2008, 2020). Short-term volatility is the price paid for long-term outperformance.nnFor retail investors equity exposure is best taken through mutual funds because: instant diversification across 50-500 companies reduces individual stock risk, professional management, and SIP enforces discipline through market cycles.

Formula

Equity return = Capital gains + Dividends Return on Equity (ROE) = Net profit / Shareholders equity x 100 LTCG tax: 12.5% on gains above Rs 1.25 lakh per year (held over 12 months) STCG tax: 20% (held under 12 months)

Real-life example

🇮🇳 India example

Suresh invested Rs 5 lakh in a diversified equity fund in 2010. By 2024 it is worth Rs 32 lakh -- 6.4x multiple and approximately 14% CAGR. During this period the portfolio fell 30-40% in 2011 and 2020 but Suresh stayed invested. The outcome is entirely a result of time in the market, not timing.

Frequently asked questions

How much of my portfolio should be in equity? ▼

Depends on time horizon. Under 30 with 25+ years to retirement: 80-90% equity. Age 40-50: 60-70% equity. Age 55-60: 30-50% equity shifting toward debt. Within equity: large-cap index 60%, mid-cap 25%, international 15%.

What is the tax on equity returns? ▼

STCG (held under 12 months): 20%. LTCG (held over 12 months): 12.5% on gains above Rs 1.25L per year, tax-free below. Dividends: taxable as income at slab rate.