What is the Difference Between Having Equity and Stocks

The terms "equity" and "stocks" are often used interchangeably in the world of investing. While they are closely related and sometimes refer to the same underlying concept, there are subtle but important differences between the two. Understanding these differences can help investors make more informed decisions, especially when navigating financial documents, market news, or portfolio statements. In this article, we break down what each term means, how they are used in the context of financial markets, and what investors need to keep in mind.

Equity refers to the ownership value in a company or asset after all debts and liabilities have been deducted. It represents a claim on the company’s net assets and can be held by individuals, institutions, or insiders such as founders and employees.

In financial terms, equity can include:

• Share capital (money invested by shareholders)
  

• Retained earnings (profits reinvested into the company)
  

• Reserves (funds set aside for future use)
  

Equity can take different forms depending on the context:

• In businesses: Equity represents the owner’s share in a company.
  

• In real estate: It refers to the difference between the value of the property and outstanding mortgage liabilities.
  

• In investments: It broadly signifies ownership in an asset with residual value.
  

Stocks are financial instruments that represent a portion of ownership in a company. When you own stocks, you hold a piece of the issuing corporation, also known as a share or equity share.

There are different types of stocks:

• Common stocks: Give shareholders voting rights and potential dividends
  

• Preferred stocks: Offer fixed dividends but generally lack voting rights
  

• Restricted stocks: Issued to employees with conditions on sale or transfer
  

• Convertible stocks: Can be converted into a different form, such as bonds
  

When someone talks about “buying stocks,” they are referring to purchasing units of ownership in publicly traded companies through stock exchanges.

While all stocks are equity, not all equity is in the form of stocks. For example:

• A company may issue equity to a founder in exchange for contribution but not list it as a stock.
  

• Private companies may have equity shares that are not publicly traded.
  

• Mutual fund investors can have equity exposure without directly owning individual stocks.

In essence, stocks are one way of holding equity in a company.

The concept of equity remains the same for both private and public companies, but how it is accessed and valued differs:

• Private companies: Equity may be held by founders, employees, or private investors. There is no public trading, and valuation is often based on internal metrics.
  

• Public companies: Equity is divided into shares that are traded on stock exchanges, allowing easy transferability and market-based valuation.
  

Understanding this distinction helps investors differentiate between venture capital investments (private equity) and regular stock market investments (public equity).

When you invest in a company by buying stocks, you become an equity holder. This comes with both rights and risks:

• Rights: Voting on company matters, receiving dividends, and capital appreciation
  

• Risks: Exposure to market volatility, business performance, and macroeconomic conditions
  

For long-term investors, recognising whether you're holding equity directly (via ownership or ESOPs) or through listed stocks (via a brokerage account) helps with planning and taxation.

Both equity and stocks are subject to taxation in India, but the structure may vary:

• Equity held in the form of stocks: Subject to capital gains tax (short-term or long-term depending on holding period)
  

• Unlisted equity shares: May attract different tax rules if sold, especially in private arrangements
  

Understanding the nature of the holding is key for accurate tax reporting and financial planning.

Equity and stocks are interconnected concepts representing ownership in a business. While equity refers to the broader stake in a company's value, stocks are specific units of that equity that are publicly tradable. Recognising the nuances between the two can help investors navigate market conversations, make informed decisions, and better understand financial disclosures. Whether you’re investing directly in stocks or holding equity in a startup, clarity on these terms is fundamental to your financial literacy.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.