What is private equity and how does it work | Motilal Oswal

Learn how private equity took over the world and how it works

A Private Equity is a pool of investors who make direct investments in private enterprises. This share equity capital is not traded on a stock market India and is often used to invest in a variety of sectors or to follow industry-specific criteria. Private equity capital is generated from institutional and individual investors who can afford to invest huge quantities of money for extended periods of time due to the lengthy holding periods of private equity funds. This cash may also be used for large-scale reasons. The investment duration for these funds may range from ten to thirteen years, after which the fund is closed and the monies returned to the partners.

  • Venture Money - Private Equity capital may be used to support businesses that are still in the early phases of development and lack access to conventional funding or financial markets.
    • Growth Capital – Private Equity Funds may be used to fund expansion operations of a well-known private firm that is short on needed assets and therefore unable to leverage its current assets to get traditional growth financing.
  • Leveraged Buyouts — Private Equity Funds are employed in conjunction with extra leverage applied to the firm so that current management may work toward the goal.
  • Distress Situations – When a company is unable to pay off its debt, private equity capital can be a valuable source of funding. In this situation, the fund money, in conjunction with management's turnaround measures, might be utilized to stabilize the company's balance sheet.
  • What motivates private equity?

  • Raising money - For a variety of reasons, a business or a corporation decides to sell part of its shares to private equity companies. One reason is that the company's long-term operations may need a large infusion of money. As a result, rather than waiting a lengthy time to raise sufficient funds, it may choose to sell a portion of its stock.
  • Increasing regulation of public markets - Because public shareholdings are subject to many rules, corporations prefer to use private equity to fund their operations.
  • Funding the private equity boom - Private equity has been one of the most successful developments in recent years, and financial businesses that shape private equity agreements are helping to grow this market. To guarantee that the private equity sector stays lucrative, these financial firms rely on underwriters such as investment banks.
  • India's Private Equity

Private equity has invested over $100 billion in India during the last 13 years. Many businesses have been able to benefit from this important source of capital. Many small and medium-sized businesses have benefited from the private equity segment's expansion and development. It has also increased job possibilities and promoted the development of strategic competencies in the nation. Private equity investments poured in at a rate of roughly $26.5 billion in 2017, and the trend is projected to continue in the coming years.

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