The term equity refers to the residual interest in the assets of the company after deducting all its liabilities such as long-term borrowings. The company issues equity shares for a fair price and these shares represent ownership in the company. These shares give the owner the right to have a share in the profits of the firm. When there is no difference in the class of the shares, then all the shares of the company are considered as equity shares. These shares can be purchased from a stock market and a portion of profits can be earned. They can even be sold to receive a capital gain. However, there is also a risk of making capital loss if the shares are sold at a price below the buying price.

It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case one’s investment is worth nothing.