Equity Securities: Get to Know the Investment Tool That Provides Ownership

Building a diversified investment portfolio must start with understanding the types of assets available. Equity securities are one of the options for those willing to accept risk in exchange for the opportunity to achieve higher returns and to have a stake in ownership of the asset. This article will help you understand what equity securities are, their different types, and how they differ from debt securities and stocks to enable you to make more informed decisions.

What are Equity Securities? Basic Characteristics and Features

Equity Securities ( represent ownership in a business entity. When an investor purchases equity securities, it means they hold a part of the company. These documents carry higher risk compared to debt securities because, in the event of bankruptcy, the rights of equity holders come after creditors and preferred shareholders.

Before investing your money in any equity securities, you should study the issuing organization, verify whether the business has a solid foundation, assess its growth prospects, and determine if it is in a trustworthy position. Although sometimes investments may involve a small amount of money, the desire to see our business grow is always something to consider.

What types of equity securities are there? Different Types of Equity Securities

) Common Stock ###

Common Stock represents full ownership in a business. Common shareholders have several important rights: they can receive dividends from the company’s annual profits, have voting rights at shareholder meetings, with the number of votes proportional to the number of shares held, and in the event of liquidation, they are entitled to a return of capital after creditors and preferred shareholders are paid.

( Preferred Stock )

Preferred Stock grants ownership rights similar to equity but with the potential to receive dividends at a predetermined rate. Preferred shareholders generally do not have voting rights. However, in the event of liquidation, they are paid before common shareholders.

###Warrant (

Warrants are securities that give the holder the right to buy or sell an underlying asset at a specified price and date. Investors can profit from the difference in price when selling to other investors or receive dividends depending on the nature of the contract.

Equity Securities Market: Trading Venues and Fundraising

The equity securities market is a central platform where companies and governments can raise funds from investors interested in securities with maturities of one year or more. The market is divided into two main types:

) Primary Market ###

The primary market is where companies or governments create and offer new securities directly to the public for fundraising. The initial offering of securities is divided into:

• Private Placement (PP): Offering to a limited number of individuals not exceeding 35 within 12 months, or to financial institutions under the regulations of the SEC.

• Public Offering ###PO(: Offering to the general public, which requires approval from the SEC following the prescribed procedures.

) Secondary Market (

The secondary market is where securities already issued are bought and sold, overseen by the SEC and the Stock Exchange of Thailand (SET). The secondary market includes:

• The Stock Exchange of Thailand )SET(: For large companies with paid-up capital of at least 300 million baht.

• MAI Market )MAI###: For medium and small-sized businesses with growth potential, with paid-up capital starting from 20 million baht.

• Over-the-Counter (OTC): A market where buyers and sellers transact directly.

Equity Mutual Funds: Collective Investment

Equity Mutual Funds or Mutual Fund Securities involve pooling funds from many investors to create a diversified portfolio managed by professional fund managers. These managers are experts in investment management.

In mutual funds, investors’ contributions are combined and invested in various securities such as stocks, bonds, or other instruments according to the fund’s objectives. Each investor receives units (Unit) representing their share of the fund. The value of these units depends on the total assets of the fund.

The advantage of investing through mutual funds is that investors lacking expertise or time to monitor the market can benefit from professional management. This approach also helps reduce risk and increase the potential for better returns.

Benefits of Investing in Equity Securities

Investing in equity securities offers several rights and advantages:

1. Managed by Experts: Funds often employ skilled managers to select assets and build portfolios, allowing investors to benefit from their expertise without deep market knowledge.

2. Diversity of Securities: Equity securities encompass various types, including common stocks, preferred stocks, warrants, and derivatives like DW(.

3. Risk Reduction: Diversification helps lower risk and enhances the chance of obtaining favorable returns.

4. Convenience: Investors can easily buy and sell units without needing to analyze the market in detail.

5. Effective Risk Diversification: Investing in equities generally involves lower risk than direct investment in a single asset, as diversification mitigates asset-specific risks.

6. Dividend Income: Investors can earn returns from annual dividends or periodic dividend payments.

Risks and Precautions in Equity Investment

) Risks of Preferred Stock

The primary risk is price fluctuation — the value of preferred stock may move in the opposite direction of expectations.

( Risks of Common Stock

The risks associated with common stocks are more diverse and complex, including:

• Business operational risks
• Price volatility
• Dividend payment risks
• Debt level risks
• Legal and regulatory risks

Additionally, macroeconomic risks such as economic changes, political instability, or unpredictable events can impact the entire investment market.

Equity Securities, Debt Securities, and Stocks: Key Differences

) Ownership Characteristics

Equity Securities: Investors become owners of part of the business.

Debt Securities: Investors become creditors to the issuing entity or government.

Stocks: Investors own a part of the company.

( Risk and Return Levels

Equity Securities: Moderate to high risk, with potential for high returns.

Debt Securities: Low risk, with relatively low and stable returns.

Stocks: Moderate to high risk, with potential for high dividends and capital gains.

) Contract Characteristics

Equity Securities: No specific financial contract; relationship is based on business management.

Debt Securities: Have clear agreements regarding repayment, interest rates, and other conditions.

Stocks: Governed by rules concerning shareholders’ rights and responsibilities.

( Payment Methods

Equity Securities: No fixed payment; profits are distributed as dividends or reinvested as stock value.

Debt Securities: Holders are entitled to interest payments as per the contract.

Stocks: Shareholders receive dividends from the company’s profits.

) Comparison Table

Investment Selection Recommendations

Investors should choose securities aligned with their risk tolerance and return objectives to ensure their investments meet their goals.

If you seek higher returns while accepting moderate risk and wish to own part of the asset, equity securities are the most suitable choice.

Remember, reviewing your investment performance every 3-6 months is essential to adjust your portfolio effectively according to current circumstances.