Understanding the meaning of stock and ETF is essential to be able to distinguish between them.
If a publicly traded company wants to raise funds for its venture it will issue shares on stock exchanges like the Bombay Stock Exchange. You have a percentage ownership depending on the number of stocks you own. You can't vote but you get preference over common stock holders when it comes time to receive dividends. You can invest in stock of thousands of companies listed on the market.
Stocks are only one type of investment. An ETF, however, is a collection of securities that includes stocks, commodities, bonds and other securities. These funds are known as holdings. Fund managers then sell the shares from these holdings to investors. ETFs were first introduced to India in 2001. There are many ETFs available in India today.
Be aware that there are significant similarities between stock and ETF .
1. Both are taxable
2. Provide an income stream
3. Many options available
4. Can be bought with a margin and short-sold
5. Both can be traded on stock markets during the trading day.
1. An ETF has a lower risk because it is diversified. It is unlikely that any of the entities in your portfolio will lose value. However, individual stock investments can be more risky, especially if all your eggs are in one basket. Your stock will lose its value if the company goes under. There is no other investment option to offset that loss.
2. ETFs need to be managed by a professional, while stocks don't necessarily require a broker. You can research the market and create a solid portfolio.
3. ETFs have a higher transaction cost than individual stocks, but it is still cheaper. However, ETFs usually have a lower expense ratio and higher broker fees.
4. A professional manages your ETF, saving you the hassle of deciding which parts to sell or keep. Individual stocks will require you to monitor the market for when you should buy, sell or hold. However, ETFs are not your control. Stocks have full control of stock selection.
Like any other important part of your life investment depends on your research and personal preferences as well as the guidance of an experienced advisor. It will take some effort to determine your financial goals and your risk tolerance. To ensure your financial future, you can seek professional guidance from a broker or advisor.