History has proven that equity as an asset class is one of the best investment avenues to grow your wealth and meet your financial goals. Yet many of us are scared of stock investment.

While the share market can be a little intimidating at first, the right guide and information can help you generate wealth through stocks. Our resources will help you:

  • understand how the share market works
  • Explore different investment classes
  • Develop an investment strategy.

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Wouldn't you love to be the owner of a prosperous business without actually working for the company? This situation might sound like a fancy dream, but it is all possible through making investment in equities or stocks.

When you purchase stocks(commonly referred to as shares or equities) you become a part owner of the business. This normally entitles you to vote at the shareholders' meeting and allows you to receive any profits (referred to as dividends) that the company allocates to its owners. So if you want to invest in a company, you can buy the shares of that particular company from the stock exchange at the current share price, provided that company is listed on the stock exchange.

Equities are a part, if not the cornerstone, of nearly every investment portfolio. Compared to bonds or fixed deposits, stocks can often provide the opportunity for relatively high potential returns but of course it comes at a price high risk.

When you start on your road to financial freedom, you need to have a solid understanding of equities and how they trade on the stock market. Read on to understand more about equities.

There are various reasons that call for making equity a part of your portfolio:


Returns: History has repeatedly demonstrated that stocks, as an asset class, have outperformed every other type of investment over long periods of time. Some companies also issue free or bonus shares to their shareholders as another way of passing on company profits or increase in their net worth.

Stock have outperformed every other type of investment over long period of time


In the last decade, even the average person's interest in the stock market has grown exponentially. What was once a toy of rich has now turned into a vehicle of choice for growing wealth. This coupled with the compelling growth story of India makes equity a must-have in every portfolio.


Ownership: Holding shares of any company entitles you to become one of the several owners who are called the shareholders of the company and also empowers you to have a claim on virtually everything the company owns. Now, isn't that such a great idea?


Limited Liability: Another very attractive part of owning shares in any company is the limited liability feature attached to it, which means that as one of the many owners, you are not personally liable in case the company becomes incapable of meeting its debts.


Tax Benefits: Not only the companies themselves but even the government promotes investment in the equity market and offers various tax incentives* on investment in shares.

  • Tax free dividends which means that the dividend income generated from shares of a company is completely tax-free in the hands of shareholders
  • Zero tax on long term capital gains made on selling shares. That would mean that if you invest in a company and keep the shares for 12 months, you don't need to pay any tax on the income that you earn on selling those shares after 12 months.
  • Short term capital gains tax on shares is also just a mere 10% as compared to investment in other asset classes that attract short term capital gains tax of 30%.

That surely is a blessing in a country like India where virtually everything is under the tax bracket.

(*Tax rate subject to amendment, this tax structure is applicable upto 31st March 2017, it may revise after that)


Flexibility and Liquidity: You can choose to buy or sell shares of any company whenever you want and from wherever you want through mobile or online trading. If you want to liquidate your money, all you have to do is - click a button, enter into a trade and you'll be able to fetch your money back on the very 2nd day (T+2 settlement regime).

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Shares are exciting!

Apart from the very real financial benefits of investing in shares, shares also appeal because individuals like to pit their wits against the market. They derive tremendous satisfaction from picking a winner and letting their friends know all about it.

Whatever said and done, equity is a must for any well-balanced portfolio. So, irrespective of whether you are a high net worth investor or a small retail investor and irrespective of whether you have a large or timid appetite for risk, you must hold some portion of your assets in equity. This is because it is the only instrument that has the ability to truly deliver a high return, when held over a long period of time.

The amount of equity that you hold in your portfolio is a very subjective decision and will depend upon various factors. These include your investment objectives, time horizon and risk appetite. But as a general guideline, there's a Rule of thumb which states that to decide upon the proportion of your assets that should go into equities, reduce your age from 100 and that proportion of your money which should be put in equities.

  • If you are 25 years old, you should invest an amount equal to 75 per cent of your total investment corpus in equity
  • If you are at the age of 70, your equity investment should be equal to 30 per cent.

The remaining can be invested in fixed income securities.The following chart shows how five asset mixes align with different approaches to investing, from relatively conservative to relatively aggressive.


Please note this is for illustrative purposes only and does not construe as an advice on investing in shares. Arihant Capital Markets Ltd is not liable for any loss that you may incur by investing in stocks. For finding out the right asset allocation for you contact our investment planner: SMS < Arihant Planner > to 56677

Now considering the vast benefits of owning equities and seeing the attractive returns that they fetch in hand, we're sure you might be getting several questions burgeoning in your mind. Continue reading for the answers and if you can't find what you're looking for our team would enlighten you at every step as you associate with us.

Your investment and your personal and economic circumstances will ultimately determine your attitude to risk and investment strategy. Before you invest in equities:

  • Assess your personal circumstances: Start with understanding your attitude to risk but note to make gains in the stock markets and to meet your financial goals, you may have to take some risks. Your age will also be a factor. Younger investors can perhaps afford to be more aggressive and take higher risks as they have a longer remaining working life to make up for setbacks.
    Obviously, whether you have dependants or not will affect your investment decision. You might personally have a strong risk tolerance but this may be tempered by the knowledge that your loved ones' future may be tied up with your investment decisions.
  • Assess your financial position: You will need to relate your financial position to your overall financial goals. You will also need to place a time horizon on those goals. For example, you may need to ask yourself whether it might be better to pay off personal debt rather than effectively funding your stock market investments through expensive borrowings. It is advisable to invest with money you have rather than money you owe.
  • Assess your financial objectives and your time horizon: See the following three investor profile to understand if share investment is right for you:
Sunil Sharma Shikhar Jindal Swapnil and Shikha Dua
Age 65 26 37 and 35
Occupation Retired Teacher Self-employed; run their saree boutique
Dependants Married but no dependants None Married with 2 children 11-13 years
Financial Profile Monthly pension and rent income provides him and his wife the lifestyle they desire. They have no financial commitments. Sunil has a lump-sum amount that he receives from pension scheme in a savings account and has no existing shares in his portfolio. But he has a keen interest in business and follows markets regularly in paper. His income is sufficient to meet his requirements and manages to save little every month. Has investment in a small amount in liquid funds but is not happy with the returns. Has no investments in equities, but is aware of the benefits of investing in equities. They have a moderate income that provides them with a comfortable lifestyle. They don't get much time from their own business and can't provide time for researching investment opportunities.
Investment objective To gift his granddaughter a lump-sum cash investment on her 18th birthday in 10 years time. He needs to buy a house of his own in two years and needs to build on his existing savings so can provide for the deposit for the house by that time. They want to ensure that they can provide for their children's college education in 5-7 years. Would like to explore the benefits of investing in equities but are concerned about the time required to research and manage their portfolio.
For Sunil investing in high risk an investment is a good proposition as he is saving for a long-term requirement. His short-term requirements are met by his pension income. He should consider investing directly in equities as he has time and understanding of the stock markets. Part of share investments can be put in ELSS (Tax saving mutual fund) to utilize his annual tax-allowance limit. A small percentage of his portfolio should also be invested in risk-free investments in case of an emergency requirement or an eventuality.
Shikhar should invest in lower risk investments as he plans to use his savings in 2 years time. A two-year's period is too short for considering investments in high-risk investments like equities. He should invest in safe asset class like debt funds or fixed deposits, he can consider a very small portion of his portfolio (about 5%) can be considered in a balanced scheme of a mutual fund.
Swapnil and Shikha can invest with a moderate degree of risk, as they are investing for a long-term. They should consider investing in a mutual fund given their busy lifestyle. Their portfolio should comprise of about 60-65% in shares and the rest allotted to bonds and guaranteed investments.

You need to ask yourself why you want to invest, what your financial objective is behind your investment and when you hope to realise it. If you are saving for your retirement, for example, you may feel you can afford to be more aggressive because of this longer-term investment horizon. On the other hand, if there is a possibility you may have a pressing requirement for funds in the short term, it doesn't make sense to invest in risky, volatile stocks. Indeed, the greater the possibility of short term funding needs, the less appropriate it is to invest in equities, particularly because of the costs involved.

Want to invest in equity? SMS < Arihant > to 56677 or Open an Account

Whether you want to invest independently, you need advice or you want someone else to invest for you, there are different avenues to get started to investing in the stock market. You have the choice to invest on your own (direct investment) or use professionals and experts to invest money on your behalf in return for a fee (indirect investment) through mutual funds.



You can directly invest in the shares of a company through Primary Markets or Secondary Market. Shares generally have two stages in their lifespan - Initial Public Offering or IPO (Primary Market) and Listing (Secondary Market).

1. Primary Market

Arihant provides complete transaction and research support to investors for investments in IPOs. You can invest in IPO online with Arihant or even offline if you prefer that.

2. Secondary Market

Once the Company has closed its IPO, its shares are available for trading for public on the stock exchanges. National Stock Exchange (NSE) and The Stock Exchange, Mumbai (BSE) are the two leading stock exchanges of India where most of the transactions take place.

Investors cannot directly buy the stocks on the stock exchange, they have to do it through a exchange and SEBI recognised stock broker. Arihant offers stock trading services to individuals, corporate and institutions. This is how it works:

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Online, Mobile, On the Phone, Trade the way you want, from where you want

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1. Investing through Mutual Funds

Investing in shares directly in the stock markets is certainly exciting but it may not be for everybody.Most investors donot have the time, inclination or expertise to devote to the task of choosing individual shares and monitoring the portfolio.

In this scenario investing in equity through a mutual fund via an equity fund is the best solution.

Mutual funds are designed to offer the individual investor professional money management and wide diversification, even with low investment amounts. For naive investors, it is a common practice to invest in the mutual funds.

You can buy mutual funds through your trading account without the hassle of any paperwork with Arihant. If you do not have a trading account, we also offer offline mutual fund service and also offer you support for choosing the best mutual fund scheme for you.

To invest in mutual funds SMS < Arihant > to 56677 or Learn more on Mutual Funds

So you might be wondering, which investment avenue is best for me to invest in the stock market?

If you have the skills and time available with you then 'direct' form of investing is ideal as it has the least of costs amongst all other vehicles. For investors -- who do not have the skills or the time -- mutual funds seem to be the best option. They offer the benefit of your money being managed by the expert fund managers.

Here are various risks involved in equity investment that affects your returns. These are:

  • Interest Rate Risk: Change in interest rate directly affects the security prices of the company. An increase in interest rate would lead to fall in share prices and vice-versa.
  • Inflation Risk: It arises when the cost of living index is higher than the rate earned on investment as a result of which the entire earnings are eroded by the increased inflation
  • Business Risk: i.e. the risk associated with the prosperity of a business that affects its earnings. Change in supply of raw materials, market demand for a product may have a direct bearing on the earnings of the company.
  • Financial Risk: The skill with which a company can maintain optimum capital structure with right mix of debt and equity affects its growth prospects.
  • Industry Risk: The changes in technology, regulations, fashions, etc. will affect the performance of an industry and hence the company directly.
  • Market Risk: Change in stock prices due to change in investor's attitudes and preferences, political and economic instability, exchange rate fluctuations are covered in market risk.

While investment in equities is not risk-free because of the risk factors above, being regulated by Securities and Exchange Board of India (SEBI) you can be sure that there is no counterparty risk against any purchases or sales of stocks done through the stock exchanges.

Most risks associated with investments in shares can be reduced by using the tool of diversification. You must have heard of the old adage of 'not putting all eggs in one basket'. This is what exactly diversification does. Your equity portfolio should not be concentrated to one particular investment style or a particular sector. The portfolio pyramid below is a way of looking at your equity portfolio to determine if it is well-diversified:

To reduce the risk,

  • make sure that your portfolio consists of shares across various sectors and industries like automotive, engineering, financial services, information technology.
  • the companies are all located in different regions.
  • the companies you have invested in belong to large-cap, mid-cap and small-cap clan.

Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. However, investing is done after thorough analysis and capital commitment with only a reasonable expectation of profit.

Speculation, on the other hand, is investing funds with an expectation of some return in the form of capital profit resulting from price change and sale of investment. Speculation would always be a relatively short-term investment. It is based on rumours and tips that might be heard from probably a gossip chain. It involves a higher quantum of risk as against investment. And returns are earned purely from price differentials.

The popular quote from legendary investor Benjamin Graham explains investing vs speculation:

"An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

Here is a list of key charges applicable when investing in shares through direct investment route*:

  • Brokerage - The stockbroker offers a service to the client and hence charges a commission on every transaction entered through the broker. The rate of charge of transaction differs with delivery-based or intra-day transaction. This commission varies from broker to broker and client-to-client.
  • Depository charges -Shares that are purchased or sold are transferred in electronic format by your depository participant (DP). So every time you buy or sell shares the transactions are being noted by your DP. In addition to a fixed charge on each transaction, the DP also charges an annual maintenance fees.
  • Service Tax (ST) and Swachh Bharat Cess (SBC) - Service Tax (ST) @14% and Swachh Bharat Cess (SBC) @0.50% are payable as a percentage of brokerage due to the broker. ST and SBC together are presently levied at the rate of 14.50%. This is payable to the government by the broker.
  • Capital Gains Tax - Long-term capital gain is not taxed in the case of shares, provided the sale transaction is through recognised stock exchange. As per Income Tax act, long-term capital gain arises when you sell the shares after 12 months from the date of purchase and make profit from the sale. However, short-term capital gain is taxed at 15% and arises if you sell the shares within 12 months from the date of purchase and make a profit.
  • Securities Transaction Tax - STT is levied by government on every transaction done on stock exchange (NSE or BSE). The STT is applicable at different rates on the value of the "taxable securities transaction". This tax amount is included in the amount you pay to your stockbroker for any purchases or sales you make. The stock broker collects this amount and pays to the stock exchange on your behalf.
Equity Delivery EQUITY Intraday Options Futures
STT 0.1% on both buy and sell 0.025% on sell side 0.017% on sell side 0.01% on sell side
Service Tax (including Swachh Bharat Cess (SBC)) 14.50% on brokerage & transaction charge 14.50% on brokerage & transaction charge 14.50% on brokerage & transaction charges 14.50% on brokerage & transaction charges
SEBI Turnover Charges Rs 20 per crore Rs 20 per crore Rs 20 per crore Rs 20 per crore

*Note: all the charges and taxes are subject to change. Details as on 30th April, 2016

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