In this article, we will discuss the difference between Share and Equity in a simple and easy way and understand its basic concept, then definitely read till the end,
We usually understand shares, but whether equity is also called the same or there is some difference in it, it will be known in this article.
Note – If you want to understand the basics of share market from zero level then you should start with Part 1. – Share Market and Related
| difference between shares and equities
Well, generally the terms share and equity are used interchangeably, there is no mistake in this because share also means share and equity also means share.
That is why both are and can be used interchangeably. But that does not mean that there is no difference between the two. Let us understand this with an example.
⚫ Suppose you bought a bike on installment. You paid 10 percent of the total price of that bike as down payment and the rest 90 percent you have to pay has been made an installment every month.
So since now you have paid only 10% of the price of that bike, so your stake on that bike is only 10%. That is, your equity in that bike is 10 percent. Here the share is not used because the company has not given you the bike share nor have you bought any share.
You have bought that bike ownership. But since you have not paid the full amount, so your equity in it is only 10 percent.
Your equity on that bike will increase as you pay off the rest. The day you will pay the full price of that bike. You will become the owner of that bike i.e. 100% equity will come to you.
⚫ To put it in other words, the amount of money you have invested is called equity, when the same equity is broken and divided into many pieces, then we call it share.
Just like you gave your bike to someone to drive it does not mean that you have given the ownership of the bike to him. You only shared your bike with him, you still have 100% equity of that bike.
You may have shared your bike, you would get thanks in return, whereas if a company had given its share to someone, it would have got some money in return.
Overall, equity is a broader term whereas stock is a less broad term. So you see that we can differentiate on the basis of usage. However, now both the words are used interchangeably.
There is no type of Equity but there are generally 2 types when it comes to Shares. There is a separate article available on this if you want to read then click on the link below.
| Basic Concept Series (BCS)