What is the stock market and share market and How do they work?
What is the stock market?
Ownership of one or more companies is called stocks. If you buy some part of shares or a share in one or more companies and can be a part-owner of that company. For example, if a company has 2,000 shares of stock outstanding. And one person owns 200 shares. That person would own and have a claim to 20% of the company’s assets and earnings.
The stock is the larger form of the share. “Stocks” is the more general term and used to describe a slice of ownership of one or more companies. If, a person said he purchased 50 stocks. It means he would refer to 50 different companies from which he bought shares.
The stock is a macro-concept compared to the automobile industry. When we say stock, we cannot specify a particular investment. Stocks can only refer to corporate equities, securities traded on a stock exchange.
Corporate Equities: Refers to the amount of capital contributed by the owners or the difference between a company’s total assets and its total liabilities.
A shareholder may refer to as a stockholder. The terms “stock,”, “shares”, and “equity” can use interchangeably in modern financial language. The stock market comprises exchanges where investors can buy and sell individual shares of a company.
However, there are two types of stocks:
1. Common Stock: Common stocks are shares of ownership of a corporation. They allow you to own a portion of the company without taking possession.
2. Preferred Stock: Preferred stocks refers to the dividends paid by the corporation. Each year, the holders of the preferred stock are to receive their dividends before the common stockholders are to receive any dividend.
Most finance career paths will be directly involved with stocks either as an adviser, an issuer or a buyer.
Benefits of owning stocks
1. Ease of Access
Updates and innovations in Technology, particularly within the space of Fin-tech, is that the reason, one gets easy access to stock markets with goodish responsibilities. Input a touch data asked from you by the exchange and brokerage homes or fund homes, and you’re able to partner India’s growth story inside a few seconds.
2. Investment Gains
Over time, the securities market rises in worth, though the costs of individual stocks rise and fall daily. One of the first advantages of stocks within the securities market is the likelihood to grow your cash. One of the best investments is investing in stable corporations that square measures and ready to grow to form profits for investors. In the same way, investing in different stocks will also help you grow in different sectors of the economy that result in profits even if some of your stocks lose the value.
3. High Return
Stocks have the highest return of any investment asset over the long term. According to the Federal Reserve, the stock market has grown by an average of over 10 percent a year over the past 50 years.
4. Dividend Income
Distribution of earnings to shareholders that may be in the form of cash, stock, or property. They pay mutual fund dividends out of income, usually quarterly, from interest generated by the fund’s investments. Also known as a dividend distribution.
Technical development has influenced every aspect of modern living. The stock exchanges are also using various technological advancements to provide greater convenience to the investors. The trades are all executed on an electronic platform to ensure the best investment opportunities to investors in an open environment. Besides, booking service providers offer online share trading facilities that make investing convenient, because investors can place their orders through a computer from the comfort of their homes or offices. The Demat account makes it easier for investors to hold all the products within their investment portfolio electronically in a single location, which makes it easier to track and monitor the performance.
6. You can make money in two ways
One is Eventual profits that are your shares increasing, price over time and selling it.
The other way is collecting dividend money.
Purchasing stocks of companies operating in different sectors and segments are possible, which helps in optimizing the asset-allocation and provides diversification.
The stock market is a huge auction house. Every day, investors are buying and selling their shares. This makes stocks a liquid investment. When you want to cash out, it is quick and easy to find a buyer. Other assets are much more difficult to sell. If you invested in an investment property, it could take months to find a buyer and get your money out. With stocks, you can find a buyer the very next day.
The stock market offers different financial instruments, such as shares, bonds, mutual funds, and derivatives. This provides investors with a wide choice of products in which to invest their money. Besides providing investment choices, this flexibility is beneficial in mitigating the risks inherent to stock investing by enabling diversification of investment portfolios.
10. Invest in smaller amounts
With mutual fund industries picking up in the last decade, now investment is inequities with a very little amount via the Systematic Investment Plan of Mutual Funds.
11. They are easy to sell
The stock market allows you to sell your stock. Economists use the term “liquid” to describe the fact that you can turn your shares into cash quickly and with low transaction costs. That’s important if you suddenly need your money in a hurry. Since prices are volatile, you risk being forced to take a loss.
12. Partnering the Business, You Love
There are certain companies or business houses and sectors that we love to track and imagine if we ran that company or business. But being a retail investor with limited financial capacity, that might not be possible. However, we can partner the same business by buying the shares of the company and becoming a part-owner of the company we love.
13. Regulatory Environment and Framework
Indian Capital Markets regulated and monitored by the Ministry of Finance, the Securities and Exchange Board of India, and the Reserve Bank of India. The stock market and share market are very useful for investors. The division plans the policies related to the orderly growth and development of the securities markets (I.e. share, debt, and derivatives) and protecting the interest of the investors. These are the stock market and how it works. Now we will discuss the share market and how it works. This is information about the stock market and share market we will explain below.
What is the share market?
Ownership of a particular company called shares. Whenever a company issues stock, each of the units of a stock is considered as a share. Therefore, one share of stock is equal to one unit of ownership in a company.
Shares are a smaller unit of stocks. For example, if a person says he owns shares then some people would ask shares of which company? And what sort of investment? Similarly, an investor can tell his broker to buy him 50 shares of a particular company.
The share is a micro concept (which is compared to the car in a particular company). They can invest stocks in mutual funds, exchange-traded funds, limited partnerships, real estate investment trusts, etc.
However, we have two types of shares:
Equity share is a main source of finance for any company giving investors the right to vote, share profits and claim on assets. They allow equity share types to share capital, Issued share capital, Subscribed share capital, Paid-up capital, Rights shares, Bonus shares, and Sweat equity shares.
Preference shares represent ownership of a corporation. A claim on its assets and earnings. Preference share types are Callable shares, Convertible shares, Cumulative shares, and Participatory shares.
Here, the shares are issued in three ways:
1. At par value: The share is issued at a meager.
2. At a premium: The share is issued above the face value.
3. At a discount: The share is issued below the face value.
Benefits of owning shares:
1. Capital Growth
The rise in the share price, or the increase in the value of a stock over time, known as capital growth. Capital growth is calculated by comparing the current value, sometimes known as the market value of an asset or investment, to the amount paid when you originally bought it.
To calculate capital growth, we have to subtract the original price of the property with the market value of the property now. For example, if you buy farmland for Rs 1,00,000 ’10 years ago in Mumbai, and now the market value of the same property increased to 15,00,000.
Capital Growth = Market value of the property now – the original price paid.
So, here capital growth=15,00,000-1,00,000=14,00,000.
The dividend is a cash reward given out to shareholders as part of the profit made by the company at the end of each financial year. The larger the units of the shareholdings one possesses, the more money one receives.
By nature, they list shares as a very liquid product. That can buy and sell quickly over an exchange platform. No hassle of involving a broker or transfer and at a relatively low cost as compared to other financial products. Trading on an exchange also allows one to sell part of the share parcels other than the lot.
4. Shareholder Benefits
Some listed shareholder companies from different market sectors including entertainment, retail, hospitality, and financial services offer lavish discounts to shareholders when they buy goods or services from the companies or their affiliates. However, in most scenarios, many shares need to own to qualify for such benefits. Up to here we have learned about the stock market and share market benefits, etc.
The major differences between the stock market and share market are :
THE COMPARISON BETWEEN STOCKS AND SHARES STOCKS SHARES
Meaning Collection of shares form one or more companies is called stocks. Share is a particular unit of stock.
Denomination Two different stocks of the company may or may not have equal value. Two different shares of a company can have equal value or the same value.
Norminal value In is no nominal values associated in stocks. There is some nominal value associated with shares.
Numeric Value Stocks does not have any numeric value. A share has a particular pre-defined number called distinctive number.
Paid up value Stocks are fully paid up by nature. Shares are either partially paid up or fully paid up
Transferability It can be transferred in sums of any amount. It is transferable as a whole.
Relationship with the owner When the owner owns the shares of several companies, we say that the owner owns stocks. When the owner owns the shares of particular company, we say that the owner owns shares.
Issue Stocks cannot be issued directly. Shares can be issued directly to the shareholders.
Term The stock is a generic term.when an owner owns stocks.
We cant specify them as a shares of a particular company.
Share is a specific term.when the owner owns shares,we can ask about a particular company.
Macro or Micro Stocks can be compared to the automobile (industry) shares can be compared to the car(particular company).
Member The stockholder is not necessarily a member. A holder of the share is a member of the company.