Trading on Equity Concept


Just imagine the scenario to understand the concept.

I know a good investment oppourtunity where i can fetch considerably good returns. But the twist is that i have only Rs.100/- to invest in. I am very well convinced with the situation that i will surely get 20% return on the investments.
so what all shall i do to increase my investments and consequently the returns?

I borrow Rs.1000/- from a source which has cost of 10% interest. so now i invest overall Rs.1100/- into the market. When the investment matures i get 20% returns i.e., Rs.1320 (1100+1100*20%). I repay the loan Rs.1000/- along with interest Rs.100/-. What i have left is Rs.220 (1320-1100).
What if had i invested only Rs.100/-, i would have got on Rs.20/- as net returns but now i have utilised the borrowed funds and increased the rate of return on my investments(which is as high as 120%).
This is what called as Trading on Equity.

Mostly the corporate houses, in the period of good return project oppourtunity Trade on their Equity. This way they maximize the returns for the Equity share holders.