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Equity instruments represent an ownership interest in a company as a shareholder. Investing in equity instruments generally involves a higher level of risk than investing in debt instruments because, in the event of bankruptcy, shareholders’ claims on the company’s assets rank behind those of creditors.
One of the key benefits of being an owner or shareholder is the opportunity to participate fully in the company’s profits through dividend payments when the company is profitable. Conversely, if the company incurs losses, shareholders may receive no return in the form of dividends, as the company may be unable to make dividend payments.
In addition, investors in equity instruments may realize capital gains or incur capital losses as a result of changes in the market prices of the shares they hold. Examples of equity instruments include ordinary shares, preference shares, and warrants to purchase shares.
