Stock vs Share - Key Differences

Investors need to know the difference between stock and share before they start investing. Both terms show ownership in a company, but there is a small difference. A share means ownership in one specific company, while stock means ownership in one or more companies. Knowing this difference helps investors make smarter investment choices.

What is a Stock?

You have probably heard of stocks before. They are a type of financial security that shows you own a small part of a company. When you buy stocks, you become a partial owner of that company and get certain rights. Instead of a paper certificate, this ownership is kept digitally in your demat account. People buy stocks because they hope the company’s value will go up, which makes the stock price rise, allowing them to sell the stock later for a profit. 

Table of Content

1. What is a Stock?
2. What is a Share?
3. What is the Difference Between Stock and Share?
4. What Are the Types of Stocks?
5. What Are the Types of Shares?
6. How Are Shares and Stocks Traded?
7. What are the benefits of investing in the stock market?
8. What are the risks involved while investing in the stock market?
9. What are the Misconceptions Surrounding Stocks and Shares?

What is a Share?

A share is a basic unit of ownership in a company, representing a small portion of its overall value. To explain this more clearly, imagine a company called ABC with 10,000 shares available in the market. If you own just one share, you essentially own 0.01% of the company. As the price of each share goes up, the value of your investment also increases. So, owning shares means you have a stake in the company, and as the company grows or becomes more valuable, your investment grows too.

What is the Difference Between Stock and Share?

Let us go through the comparison between stock vs share below:
 

What Are the Types of Stocks?

Stocks can be classified into various types, each with distinct characteristics that appeal to different types of investors. Below are the most commonly traded stock categories in the market:

Common Stock: Common stocks grant shareholders voting rights, allowing them to participate in key company decisions. Additionally, they may provide opportunities for dividend payments, depending on the company's financial performance.
 

Preferred Stock: Unlike common stocks, preferred stocks are issued by selected companies and offer a guaranteed dividend payment to shareholders. In the event of company liquidation, preferred stockholders are prioritized for compensation before common stockholders.

Large-Cap Stocks: These stocks belong to companies with a substantial market presence, typically possessing a market capitalization exceeding ₹20,000 crores. Large-cap stocks are generally considered a safer investment option due to their stability and market dominance.

Mid-Cap Stocks: Mid-cap stocks are characterized by a market capitalization ranging between ₹5,000 crores and ₹20,000 crores. While they offer greater growth potential compared to large-cap stocks, they are also more volatile and carry a higher level of risk.

Small-Cap Stocks: Small-cap stocks are typically associated with companies whose market capitalization is under ₹5,000 crores. These stocks are highly volatile and tend to exhibit significant price fluctuations, presenting both higher risks and potential rewards for investors.

Growth Stocks: Growth stocks represent companies that consistently outperform the market in terms of growth rates. These companies focus on reinvesting profits into expansion, which often results in lower dividend payouts but a higher potential for capital appreciation.
 

Blue-Chip Stocks: Blue-chip stocks are the top-tier among large-cap stocks, typically representing well-established companies with a long history of reliability, strong dividend yields, and solid returns on investment over time. 

What Are the Types of Shares?

Shares can be broadly classified into two primary categories: Equity (Common) Shares and Preference Shares.

Equity (Common) Shares: These represent the most fundamental form of ownership in a company. They are actively traded in financial markets and typically grant shareholders voting rights in corporate matters.
 

Preference Shares: As the name implies, preference shares are given priority over other types of shares. Shareholders of preference shares enjoy preferential treatment, particularly in terms of dividend payouts and during liquidation events, where they are paid before common shareholders. 

How Are Shares and Stocks Traded?

Here is a concise overview of how shares and stocks are traded in India:

Stock Exchanges: Shares are traded on Indian stock exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These are platforms where buyers and sellers meet to exchange shares.
 

Demat Account: To trade shares, investors need a Demat account, which holds the shares electronically. This account is opened with a Depository Participant (DP), such as a bank or stockbroker.
 

Trading Account: In addition to a Demat account, investors must have a trading account with a stockbroker. This account allows them to place buy and sell orders for shares in the market.
 

Brokerage Firms: Stockbrokers act as intermediaries, executing buy and sell orders on behalf of investors. Investors can choose between full-service brokers or discount brokers, depending on the services they require.
 

Order Types: Investors can place different types of orders, such as market orders (buy/sell at the current price) or limit orders (buy/sell at a specific price), to control the price at which they buy or sell shares.
 

Settlement Process: After a trade is executed, there’s a T+2 settlement cycle in India, meaning the shares are transferred and payment is settled within 2 working days after the trade date. 

What are the benefits of investing in the stock market?

Investing in the stock market can be a great way to build wealth. Below are the five key benefits:

Potential for High Returns: Historically, stocks have outperformed most other investment types, such as bonds and savings accounts, offering higher returns over the long term.
 

Dividend Income: Many companies pay dividends to shareholders, providing a source of passive income on top of any potential gains in the stock price.
 

Liquidity: Stocks are highly liquid assets, meaning they can be bought and sold quickly. This flexibility makes it easier to adjust your investment strategy as needed.
 

Ownership and Voting Rights: When you invest in stocks, you gain partial ownership of the company. This can sometimes come with voting rights on important company decisions, giving you a voice in its future.
 

Diversification: The stock market offers a wide variety of companies and sectors to invest in, allowing you to diversify your portfolio and reduce risk by spreading investments across different industries and geographic regions. 

What are the risks involved while investing in the stock market?

Investing in the stock market offers potential rewards but also carries risks. Here are five key risks involved:

Market Volatility: Stock prices can fluctuate widely in response to economic conditions, political events, or even company-specific issues. This can lead to significant short-term losses if the market moves against your investments.
 

Company-Specific Risk: If you invest in individual stocks, the performance of your investment is closely tied to the fortunes of the company. Poor earnings, management mistakes, or other internal factors can significantly impact stock prices.
 

Economic Risk: Broader economic factors, such as inflation, interest rates, or recessions, can negatively affect the stock market as a whole. This might lead to lower stock prices or reduced corporate profits.
 

Liquidity Risk: Some stocks, especially those of smaller companies or those traded on less liquid markets, may be difficult to buy or sell at desired prices. You may face delays or have to accept a lower price than expected when selling.
 

Emotional Decision-Making: Investors may be prone to making rash decisions based on emotions such as fear or greed, especially in times of market downturns or sudden rallies. This can lead to poor investment choices, like panic-selling or chasing trends. 

What are the Misconceptions Surrounding Stocks and Shares?

Below are five common misconceptions surrounding stocks and shares:

Stocks are a "Get Rich Quick" Investment: Many people believe investing in stocks will lead to instant wealth. While stocks can provide strong returns over time, they also come with risks and volatility. It's a long-term investment strategy rather than a short-term gamble.
 

Stock Market Always Goes Up: Some assume that the stock market is always on an upward trajectory. While it has historically grown over the long run, the market experiences significant dips and crashes, often due to unforeseen economic factors or global events.
 

Optimum Capital to Start Investing: There is a misconception that you need large amounts of money to invest in stocks. In reality, you can start with as little as a few rupees through fractional shares and low-cost index funds, making stock market investing more accessible than ever.
 

Dividends Mean Guaranteed Profit: Dividends are payments made by companies to shareholders, but they are not guaranteed. A company may reduce or eliminate dividends if it is facing financial difficulties, so relying solely on dividends as a consistent income source is risky.
 

Only Experts Can Succeed in the Stock Market: Many people think they need extensive knowledge and experience to invest successfully. While research is important, even beginner investors can use low-cost funds or diversified ETFs, which spread risk and often provide a stable return over time without needing deep expertise.

Conclusion
Understanding the difference between shares and stocks is important for making smart investment choices. Shares are units of ownership in a specific company, while stocks refer to ownership in one or more companies. Knowing these differences can help you navigate the stock market better and improve your investment strategies. Using a stock market app can also help you track your investments and make informed decisions.