Difference between Cash Market and Future Market

Nutan Gupta

02 Sep 2017

In an economy, financial transactions hold an important place as it helps in assigning people’s savings and investments. Financial instruments like commodities, securities, currencies, etc. are made and traded by investors in the market. Financial markets are often classified depending on the time of delivery.

What is Cash Market?

Also known as the spot market, securities and commodities like shares and bonds ofprecious metals, agricultural produce, etc. are traded for immediate delivery. There are 2 sections in this market; debt and equities. The deal between the concerned parties is settled by T+2 or 3 days to the date when the trade happened. The cash market is regulated by SEBI. One can trade in the cash market through Bombay Stock Exchange, National Stock Exchange, Commodity Exchange or a Foreign Exchange Market. It’s a place where the buying and selling of commodities are mutual and is undertaken by government, the general public, other companies, etc. 

What is Future Market?

This refers to the market where future contracts are traded at an agreed date and price in the future. In the contract between the parties, one party decides to buy a certain commodity at an agreed price. This has to be delivered on a specific date mentioned by both the parties. The regulators for the future market are Securities Exchange Board of India and Forward Markets Commission. The future market exchanges in India are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).

Difference between cash & future market

Ownership: In the cash market, one remains the shareholder of the company as long as he/she holds the shares. Whereas, in the future market, one can never become a shareholder as he/she just holds positional stocks which have to be traded at the end of the agreement.

Payment: In the cash market, at the time of buying shares, the whole amount has to be paid. While initiating the future market trade, only a small amount of money has to be paid.

Size: A single share of the company can be brought in the cash market. A pre-defined amount or size has to be brought in case of the future market.

Tenure: You can hold the stock for a lifetime in the cash market. Sometimes the stocks can also be passed on or transferred to the future generations. In the future market, you can only hold it for a pre-determined period of time, i.e. the expiration, which usually means 3 months.

Dividends: You’ll receive dividends on the cash market stock as a shareholder of the company. In the case of future market stocks, you’ll not receive any dividend. This also stands true for other benefits like bonus, shares, etc.

Risk: There is a risk factor in both these markets, but it could be higher in the future market as you have to settle the contract in a specific time and also note down the losses. With cash market stocks, you can decide to sell it at your convenience or when it reaches a higher price.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Difference between Cash Market and Future Market

Nutan Gupta

02 Sep 2017

In an economy, financial transactions hold an important place as it helps in assigning people’s savings and investments. Financial instruments like commodities, securities, currencies, etc. are made and traded by investors in the market. Financial markets are often classified depending on the time of delivery.

What is Cash Market?

Also known as the spot market, securities and commodities like shares and bonds ofprecious metals, agricultural produce, etc. are traded for immediate delivery. There are 2 sections in this market; debt and equities. The deal between the concerned parties is settled by T+2 or 3 days to the date when the trade happened. The cash market is regulated by SEBI. One can trade in the cash market through Bombay Stock Exchange, National Stock Exchange, Commodity Exchange or a Foreign Exchange Market. It’s a place where the buying and selling of commodities are mutual and is undertaken by government, the general public, other companies, etc. 

What is Future Market?

This refers to the market where future contracts are traded at an agreed date and price in the future. In the contract between the parties, one party decides to buy a certain commodity at an agreed price. This has to be delivered on a specific date mentioned by both the parties. The regulators for the future market are Securities Exchange Board of India and Forward Markets Commission. The future market exchanges in India are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).

Difference between cash & future market

Ownership: In the cash market, one remains the shareholder of the company as long as he/she holds the shares. Whereas, in the future market, one can never become a shareholder as he/she just holds positional stocks which have to be traded at the end of the agreement.

Payment: In the cash market, at the time of buying shares, the whole amount has to be paid. While initiating the future market trade, only a small amount of money has to be paid.

Size: A single share of the company can be brought in the cash market. A pre-defined amount or size has to be brought in case of the future market.

Tenure: You can hold the stock for a lifetime in the cash market. Sometimes the stocks can also be passed on or transferred to the future generations. In the future market, you can only hold it for a pre-determined period of time, i.e. the expiration, which usually means 3 months.

Dividends: You’ll receive dividends on the cash market stock as a shareholder of the company. In the case of future market stocks, you’ll not receive any dividend. This also stands true for other benefits like bonus, shares, etc.

Risk: There is a risk factor in both these markets, but it could be higher in the future market as you have to settle the contract in a specific time and also note down the losses. With cash market stocks, you can decide to sell it at your convenience or when it reaches a higher price.

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