On what factors does the income made by investments in equity depend.

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justaguide eNotes educator| Certified Educator

The value of investments made in equity can increase or decrease based on many factors. These include macroeconomic factors like the present state of the economy, liquidity available in the system, expected future prospects of the economy, etc.

If investments are being made in the stock of individual companies their value changes based on present earnings, expected future earnings, rate of growth of the market that the company is catering to, the management of the company, etc.

Unless investors can analyze and accurately predict the performance of individual companies, which is a very difficult thing to do even for professionals in this field, the common advice is to buy stock of several companies or to diversify. This ensures that the downward movement in the price of one company's stock is taken care of by the upward movement in the price of the stock of others.

Equity investments are a relatively risky way of investment. Though the gains that can be made are very high, so are the losses.