Whether you are just starting or a seasoned investor, the difference between stocks and shares has likely perplexed you at some point in your investing career. Investors frequently struggle with common questions such as “Are stocks and shares the same?” and “Which is better, stock or share?”
So, to clear up any confusion, we’ve compiled this comprehensive article covering everything about stocks vs shares.
What are Stocks?
Stock vs. share is a common question among investors who want to dive into the deep waters of the Indian stock market.
Stocks are financial instruments that represent ownership in one or more companies. When you buy a stock, you become a part-owner of the company and have a claim on its assets and profits. You can buy stocks of different companies and diversify your portfolio.
Stocks are traded on stock exchanges, such as the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), where their prices are determined by supply and demand. The BSE is India’s oldest and largest stock exchange, with over 5,000 listed companies.
The NSE is India’s most modern and technologically advanced stock exchange, with over 1,600 listed companies. Both exchanges have their own indices that track the performance of the market.
What are Shares?
A share is a specific term that refers to a unit of ownership in a single company. When you want to buy a stock, that is, owning a part of a company, you must purchase a certain number of shares. For example, if a stock (company) has 100,000 shares and you own 1,000 shares, you own 1% of the company.
Stocks Vs. Shares: Key Differences
Many people use stocks and shares interchangeably, but they are different. Stocks and shares are both forms of ownership in a company, but they have some subtle differences.
Here are some of the key differences between stocks and shares:
- Stocks are a broader term that refers to any type of ownership in one or more companies. Shares are a subset of a stock that refers to a specific unit of ownership in a single company.
For example, you can buy stocks like Tata Motors, HDFC Bank, Kotak Mahindra, etc. In this case, you have 3 or more stocks. However, if you have 100 shares of this company, it will be said you own 100 shares of Tata Motors.
2. Stocks can have different denominations, while shares have a fixed nominal value. For example, you can buy stocks of other values, such as Rs. 10, Rs. 100, or Rs. 1000.
However, shares have a fixed face value, such as Rs. 10 per share. The market value of stocks and shares can vary depending on the demand and supply of the company’s stock.
Let’s take the same example of investing in Tata Motors, HDFC Bank, and Kotak Mahindra. Here, you can buy Tata Motors for Rs. 10, HDFC Bank at Rs. 100 & Kotak Mahindra at Rs. 1000. However, in the case of shares, you can buy 100 shares of Tata Motors at Rs. 10 per share, 10 shares of HDFC bank at Rs. 100 per share and 1 share of Kotak Mahindra at Rs. 1000 per share.
3. Stocks can only be fully paid up, while shares can be partly or wholly paid up. This means the investor pays for stocks in total, while shares can be paid in installments.
Say the face value of a share of Company A is Rs. 10; the investor can pay Rs. 5 initially and the remaining Rs. 5 later. However, if a stock has a value of Rs. 10, the investor has to pay the total amount at once.
4. Stocks can be transferred in fractions, while shares can only be transferred in whole units. It means that stocks are more flexible and divisible than shares.
For example, if you have 3 stocks – Tata Motors, HDFC Bank, Kotak Mahindra. You can transfer Tata Motors and HDFC to one person and Kotak Mahindra to another. However, 100 shares of Tata Motors can be transferred to one person only.
Types of Stocks
Common stocks
These are the most basic and popular types of stocks. They give investors the right to vote on corporate matters and receive dividends. However, these stocks also have the lowest priority in case of liquidation and may not pay dividends regularly.
Preferred stocks
These stocks pay fixed dividends before common stocks and have a higher claim on the company’s assets. However, these stocks do not have voting rights and may have limited upside potential.
Growth stocks
These are stocks of companies that are expected to grow faster than the market average. They usually have high earnings growth, but they may not pay dividends. Such stocks suit investors seeking capital appreciation but have higher volatility and risk.
Value stocks
Value stocks have a value lower than the company’s true worth. They usually have low price-to-earnings ratios, high dividend yields, and stable earnings. Such stocks suit investors seeking income and safety but may have lower growth prospects.
Income stocks
These are stocks of companies that pay high and consistent dividends. They usually belong to mature and stable industries, such as utilities, telecom, and consumer staples. They suit investors seeking regular income but may have lower capital gains.
Blue-chip stocks
These are stocks of well-established and reputable companies with large market capitalization. They usually have a long profitability, growth, and dividend payments history. Such stocks suit investors seeking quality and reliability but may have lower growth rates.
ESG stocks
These companies emphasize environmental, social, and governance factors in their operations. These stocks positively impact society and the planet by reducing carbon emissions, promoting diversity, and ensuring ethical practices. ESG stocks are suitable if you wish to align their values with your investments, but they may have higher costs and lower returns.
Type Of Shares
Equity shares
These are the most common and basic forms of stock, also known as ordinary shares. Equity shareholders own the company and have voting rights on important issues. They also receive variable dividends based on the company’s profits. However, equity shareholders face the greatest risk because they are the last to be paid in the event of liquidation or bankruptcy.
Preference shares
These shares give shareholders preference over equity shareholders regarding dividend payments and capital repayment. Preference shareholders receive a fixed dividend rate and are paid before equity shareholders. They also have a priority claim on the company’s assets in the event of its liquidation.
Convertible preference shares
These preference shares can be converted into equity after a specified time or under certain conditions. Convertible preference shares combine the benefits of preference and equity shares, providing a fixed dividend and the opportunity to participate in the company’s growth.
Redeemable preference shares
These are preference shares that can be redeemed or repaid by the company after a set period or at the discretion of the company or shareholder. Redeemable preference shares serve as a source of long-term financing for the company and an exit strategy for shareholders.
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Deferred shares
These are shares issued to the company’s promoters or founders, who defer their right to dividends until the company becomes profitable or achieves a certain level of performance. Deferred shares are a way to reward the company’s initial risk-takers by allowing them to receive a higher dividend rate if the company succeeds. However, deferred shares do not have voting rights and are inferior to all other shares.
Stock vs. Share: The Bottom Line
Understanding the difference between stocks and shares is crucial for every investor. Investing in stocks and shares can be a rewarding way to generate income and wealth, but it also involves risks and challenges.
Therefore, investors should understand the key differences, types, and characteristics of stock vs share and their goals, needs, and preferences before investing. The secret sauce to earning good returns is diversifying your portfolios, researching the market, and investing in solid companies long-term.
Read More: Grey Market Premium
FAQs on Stocks versus Shares
How are stocks and shares taxed?
Both stocks and shares are subject to capital gains tax, which is calculated on the difference between the purchase and sale price of the securities. The tax rate is based on the holding period, income level, and type of security.
What are the advantages and disadvantages of investing in stocks vs shares?
Investing in stocks and shares has pros and cons. Investing in stocks has several advantages, including increased liquidity, lower transaction costs, greater diversification, and increased flexibility.
Disadvantages include increased volatility, less control, competition, and market uncertainties.Can I buy just 1 share of stock?
Yes, you can buy a single share of stock, but some factors must be considered. Buying a single share can be a low-cost way to gain exposure to the stock market and learn how it works. However, you may face higher transaction fees, less diversification, and increased volatility compared to buying multiple shares.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.