Benefits and Disadvantages of Equity Shares Investment

Benefits of equity share investment are dividend entitlement, capital gains, limited liability, control, claim over income and assets, right shares, bonus shares, liquidity etc. Disadvantages are dividend uncertainty, high risk, fluctuation in market price, limited control, residual claim etc.

Equity share is looked at from different perspectives by different stakeholders. Broadly, there are two major angles of looking at it – Company and Investor Angle. So, any statement about equity capital would have a different meaning for a company and an investor. We will look at the investor angle of equity share investment.

Advantages and Disadvantages of Investmetn in Equity Share Capital



An investor is entitled to receive a dividend from the company. It is one of the two main sources of return on his investment.

Capital Gain

The other source of return on investment apart from dividend is the capital gains. Gains which arise due to rise in market price of the share.

Benefits and Disadvantages of Equity Shares Investment
Benefits and Disadvantages of Equity Shares Investment

Limited liability

Liability of shareholder or investor is limited to the extent of the investment made. If the company goes into losses, the share of loss over and above the capital investment would not be borne by the investor.

Exercise control

By investing in the company, the shareholder gets ownership in the company and thereby he can exercise control. In official terms, he gets voting rights in the company.

Claim over Assets and Income

An investor of equity share is the owner of the company and so is the owner of the assets of that company. He enjoys a share of the incomes of the company. He will receive some part of that income in cash in the form of dividend and remaining capital is reinvested in the company.

Rights Shares

Whenever companies require further capital for expansion etc, they tend to issue ‘rights shares’. By issuing such shares, ownership and control of existing shareholders are preserved and the investor receives investment priority over other general investors. Right Shares are issued at a price lower than current market price of the equity share. So, existing investor can take that advantage or otherwise can renounce right in some one’s favor to get value of right.

Bonus Shares

At times, companies decide to issue bonus shares to its shareholders. It is also a type of dividend. Bonus shares are free shares given to existing shareholders and many times they are given in lieu of dividends.


The shares of the company which is listed on stock exchanges have the benefit of any time liquidity. The shares can very easily transfer ownership.

Stock Split

Stock split means splitting a share into parts. How should an investor be benefited by this? By splitting of share, the per-share price reduces in the market which eventually increases the readability of share. At the end, stock split results in higher volumes with a number of investors leading to high liquidity of the share.

Equity Share Investment



The dividend which a shareholder receives is neither fixed nor controllable by investor. The management of the company decides how much dividend should be given. If there is a loss, there is no question of dividend. If there is a profit, unless Board of Directors propose dividend, investors will not receive dividend.

High Risk

Equity share investment is a risky investment as compared to any other investment like debts etc. The money is invested based on the faith an investor has in the company. There is no collateral security attached with it.

Fluctuation in Market Price

The market price of any equity share has a wide variation. It is always very difficult to book profits from the market. On the contrary, there are equal chances of losses.

Limited Control

An equity investor is a small investor in the company, therefore, it is hardly possible to impact the decision of the company using the voting rights.

Residual Claim

An equity shareholder has a residual claim over both the assets and the income. Income which is available to equity shareholders is after the payment of all other stakeholders’ viz. debenture holders etc.

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Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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4 thoughts on “Benefits and Disadvantages of Equity Shares Investment”

  1. I have shares with equity but, I left the postal address I was using to receive my dividend check. I don’t have postal address for now how can I receive my check?


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