Equity Delivery Investments: Understanding Long-Term Stock Market Strategies

Equity delivery is a type of trading strategy where investors buy and hold shares for more than one trading day. This strategy is also known as delivery trading or delivery-based trading. It involves the actual transfer of shares to the investor's DEMAT account, giving them full ownership. Unlike intraday trading, where shares are bought and sold within the same day, equity delivery allows investors to hold shares for an extended period, aiming for long-term capital appreciation and potential dividends. This approach is popular among investors seeking long-term investment and wealth creation.

Equity delivery vs intraday trading

Equity delivery investments refer to buying and holding shares in a DEMAT account. The shares are delivered after the settlement period (Trading Day + 2 Working days), and investors can then hold or sell them. There is no time restriction on how long an investor can hold the shares for.

Intraday trading, on the other hand, involves buying and selling shares within the same trading day. The transaction is completed on the same day, and there is no delivery to a DEMAT account.

Equity delivery trading is considered a core method for long-term wealth creation. Investors can hold shares for as long as they like, with no time restriction, and sell when the price is favourable. This long-term approach can be less stressful and requires less active monitoring of the markets. It also allows investors to benefit from dividends and bonuses.

Intraday trading, however, is a short-term strategy that can be riskier due to market volatility. It requires constant attention during trading hours and can be stressful as investors need to monitor the markets continuously. Intraday trading does, though, allow investors to buy shares without paying the full price upfront, and it can also result in rapid returns within a single day.

Both strategies have advantages and disadvantages, and the choice between them depends on an individual's risk tolerance, financial goals, time availability, and expertise in trading or investing.

Advantages of equity delivery

Equity delivery is a traditional method of trading stocks on the stock exchange, where investors buy and hold shares for the long term. Here are some advantages of equity delivery:

• Long-Term Growth Potential: Equity delivery allows investors to benefit from the long-term growth potential of the companies they invest in. By retaining ownership for an extended period, investors can realise the gains from the company's growth and performance over time.
• Dividends and Voting Rights: Equity shareholders are entitled to receive dividends declared by the company and have voting rights in corporate decisions. This provides an additional source of income and gives shareholders a say in the company's future direction.
• Less Stressful Trading: Unlike intraday trading, equity delivery involves lower stress levels as investors are not pressured to make quick, split-second decisions. It suits investors who prefer a more patient and enduring investment strategy.
• Wealth Creation: Equity delivery is considered the core of long-term wealth creation. Equities typically create wealth over time, and holding shares for the long term can lead to significant gains.
• Borrowing Against Shares: Equity delivery allows investors to borrow money against the shares held in their Demat account. This provides flexibility and liquidity, as investors can leverage their holdings to access funds when needed.
• Playing Attractive Stocks and Sectoral Themes: Equity delivery enables investors to invest in major attractive stocks and sectoral themes that may not be possible with short-term intraday trading. This provides access to a wider range of investment opportunities.
• Shareholder Benefits: By accepting delivery of shares, investors become part-owners of the company and can benefit from various shareholder perks. In addition to dividends, investors can gain from bonus shares, rights issues, and other privileges offered by the company.

Equity delivery charges

When you buy stocks or shares through a brokerage or digital trading platform, you will encounter various fees and charges. One of these is the Equity Delivery Charge, a crucial concept to understand for effective financial planning.

The brokerage fee is typically charged as a percentage of the total trade value and is levied when an order/trade is placed. This fee is usually deducted from your portfolio.

In addition to brokerage, there are other charges to consider when trading in shares, such as service tax, stamp duty, and charges of the depository participant.

• Mix and match: Diversify your portfolio by investing in different companies from a variety of sectors. This strategy reduces risk and increases your chances of profit.
• Be patient: The share market is volatile, and share prices fluctuate. Equity delivery trading offers the advantage of holding shares for the long term, allowing you to wait for opportune moments to sell at a good profit.
• Do your research: Understand the companies whose shares you plan to buy. Try to buy shares when prices are below their fair value to increase your chances of making a profit.

Free Equity Delivery

It is worth noting that some brokerages offer free equity delivery, which means you can purchase and hold shares in your DEMAT account without paying brokerage fees. This is often a promotional benefit offered by certain brokers. However, it is important to carefully review the terms and conditions, as there may be other applicable fees or requirements to qualify for this benefit.

Equity delivery time

In equity trading, once a buyer places an order to purchase shares and the trade is executed, the delivery time starts. Under the T+2 settlement cycle, the actual transfer of ownership takes place two business days after the trade date. For example, if a trade occurs on a Monday, the shares will be delivered by Wednesday. This timeframe allows for the necessary verification and processing of the transaction, including the clearing of funds and the transfer of securities.

The T+2 settlement cycle is widely used in major global markets, including India and the United States. It applies to various securities, such as stocks and bonds, and ensures timely settlement, reducing credit risk and enhancing market liquidity.

The equity delivery time of two business days is an essential aspect of equity trading, providing a clear timeframe for the transfer of ownership and helping to maintain a stable financial market environment.

Tips for Equity Delivery Trading

• Mix and match: Diversify your portfolio by investing in different companies across various sectors. This strategy reduces risk and increases the chances of profits when specific sectors perform well.
• Be patient: The share market is volatile, and share prices fluctuate. Equity delivery trading offers the advantage of holding shares for the long term, so remain calm during market downturns and sell when the prices are favourable.
• Do your research: Analyse company fundamentals, industry trends, and market conditions before purchasing shares. Utilise financial news, stock analysis tools, and expert opinions to make informed investment decisions.
• Monitor your investments: Continuously track the performance of your stocks, market trends, and company news. This helps you make timely decisions, such as holding for the long term or selling based on changing conditions.

Equity delivery and settlement

Equity delivery refers to the process of buying and holding shares in a DEMAT account. It is one of the ways to trade in the share market, allowing investors to hold shares for an extended period before selling them at a profit. This is in contrast to intraday trading, where shares are bought and sold within a single trading day.

When an investor buys shares through a broker or digital platform, they are delivered to the investor's DEMAT account after the settlement cycle is complete. In the past, this settlement cycle was T+2, meaning that the transaction would be completed two working days after the trade date. For example, shares bought on a Monday would be delivered to the investor's DEMAT account on Wednesday. However, since 2023, India has implemented a T+1 settlement cycle, reducing the time to just one day. Now, shares bought on Monday will be deposited in the investor's DEMAT account on Tuesday.

During the settlement period, the investor cannot sell the shares as they are not yet delivered and owned by the investor. Once the settlement is complete and the shares are in the DEMAT account, the investor has complete ownership and can hold or sell them without any restrictions on the time period.

There are various fees and charges associated with equity delivery, including equity delivery charges, which are fees deducted by a brokerage firm when an investor purchases and holds shares in their DEMAT account. These charges are applied when investors buy and hold stocks beyond the trading day. Additionally, brokerages may deduct a certain commission after the settlement period when shares are delivered to the DEMAT account.

Understanding the settlement process is crucial for investors to know how long it will take for their broker to remit the shares to their DEMAT account. It also helps investors comprehend the movement of money and funds between their account and the stock market.

Tips for Equity Delivery Investments

• Mix and match: Diversify your portfolio by investing in different companies from a variety of sectors. This reduces risk and increases the chances of profits.
• Be patient: The share market is volatile, and share prices fluctuate. Avoid selling your shares in a panic when prices dip. Equity delivery offers the advantage of holding shares for the long term, waiting for an opportune moment to sell.
• Do your research: Before buying shares, conduct thorough research into the companies to increase your chances of making profits. Knowing when to buy and sell is a valuable skill for investors.

Frequently asked questions