Explained: Basic Difference Between Stock Index, Stock Market & Stock Exchange

Nutan Gupta

05 May 2017

New Page 1

A person who has been investing the stock market for a long time may know the difference between a stock index, a stock market and a stock exchange. However, for a person who is new to investing, it may be difficult for him to understand the difference between these three terms. A lot of people often confuse these terms for one another.

Stock Index: An index is a basket of stocks that are bought and sold as a group. BSE and NSE both have a number of indexes, which consist of a combination of various stocks. If an individual buys shares according to the S&P BSE 100 index, he will own a small portion of each of the 100 companies that are in the index.

Stock Market: Stock market is a place where equity shares of a company are traded. Bonds and other types of equities are also traded and exchanged in the stock market. The stock market is divided into two sections - primary market and secondary market. The primary market is where the companies sell new issues through initial public offerings (IPO). The secondary market is where the companies gets listed on the exchanges after IPOs.

Stock Exchange: Stock exchange is a place where all the securities are listed. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. The most popular exchanges where securities are traded in huge volumes are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). One can also know the live prices at which the securities are trading on BSE and NSE.

Some facts and information about the stock market:

  • Approximately 6000 companies are listed on the BSE.
  • Reliance Capital to set up an international commodity exchange (ICEX) in the Special Economic Zone within GIFT city.
  • The first stock to be traded on BSE was that of the Dutch East India Company.
  • The record low Sensex has ever touched is 113.28 points in December, 1979.
  • The NSE has the second largest volumes in the derivatives market. It ranks second in Index Options, and third when it comes to the Stock Index Futures.

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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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Explained: Basic Difference Between Stock Index, Stock Market & Stock Exchange

Nutan Gupta

05 May 2017

New Page 1

A person who has been investing the stock market for a long time may know the difference between a stock index, a stock market and a stock exchange. However, for a person who is new to investing, it may be difficult for him to understand the difference between these three terms. A lot of people often confuse these terms for one another.

Stock Index: An index is a basket of stocks that are bought and sold as a group. BSE and NSE both have a number of indexes, which consist of a combination of various stocks. If an individual buys shares according to the S&P BSE 100 index, he will own a small portion of each of the 100 companies that are in the index.

Stock Market: Stock market is a place where equity shares of a company are traded. Bonds and other types of equities are also traded and exchanged in the stock market. The stock market is divided into two sections - primary market and secondary market. The primary market is where the companies sell new issues through initial public offerings (IPO). The secondary market is where the companies gets listed on the exchanges after IPOs.

Stock Exchange: Stock exchange is a place where all the securities are listed. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. The most popular exchanges where securities are traded in huge volumes are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). One can also know the live prices at which the securities are trading on BSE and NSE.

Some facts and information about the stock market:

  • Approximately 6000 companies are listed on the BSE.
  • Reliance Capital to set up an international commodity exchange (ICEX) in the Special Economic Zone within GIFT city.
  • The first stock to be traded on BSE was that of the Dutch East India Company.
  • The record low Sensex has ever touched is 113.28 points in December, 1979.
  • The NSE has the second largest volumes in the derivatives market. It ranks second in Index Options, and third when it comes to the Stock Index Futures.

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