Stocks and Shares: Know the difference between stock and share

20 Oct 2020  Read 721 Views

Globally, there are a lot of things in which India has always been the leader or pioneer of. Whether it's a list of richest personalities, doctors, engineers, scientists, top position holders of MNCs, movie celebrities, or YouTubers, Indians can be seen on the top. 

But when it comes to investments or share markets, India seems to be lagging behind in comparison to the other big nations of the world. India has not received much susceptibility when it comes to financial literacy or stock markets. This has been the reason that only 2% of the country's population invests in stock markets. 

While investing in stock markets has become more prominent in recent times, the overall penetration continues to stay low- only 2.78 crores of Indians invest in stock markets. However, when it comes to the Indian counterpart USA, over 50% of the population owns stocks. 

The situation in India is so bad that people don't even possess the basic knowledge regarding stock markets, and sometimes, even the terms stocks and shares tend to get them confused. They often see both the terms as synonymous or interchangeable terms, like ping pong or table tennis. 

But that is not the case; there's a difference between the two. In fact, there are a lot of differences. Wondering what those differences are? Just read the full article and find the answer to your question. 

What are Stocks?

When a company wishes to lift its capital and raise funds to help in the operations and expansion of the company, it can issue stocks to potential investors, which after being bought by them, can provide them with ownership in the company. Companies can also borrow money from investors.

Stocks are said to be those securities which represent part-ownership in the company. There is also a stock certificate, which acts as proof of ownership in a company, or multiple companies. The certificate of stocks, which is issued to the investor, also represents the number of stocks that the investor holds. 

There are several stocks that pay monthly, quarterly, or annual dividends. Of course, the amount of dividend is based on the number of stocks that the investor owns. In a variety of companies, investors can hold stocks.

What are Shares?

The term "share" indicates a portion of shares in a specific company. The interesting thing is that the stocks are broken into shares. A share is the smallest denomination of a company's stock. 

In a company, each unit of stock is a share. Therefore, each share of stock is equal to a piece of one particular company's ownership. That might seem confusing, right? 

Let's take an example. A principal stockholder is distinguished by the Securities and Exchange Commission as a person or entity holding 10% or more of the company's stock. Therefore, regardless of the amount of stocks (confirmed by certificates) or shares someone owns in a company, they are considered a principal stockholder, if they hold 10% or more stocks in the company.

So, whenever you hear someone saying that they hold stocks in a company, they could be talking about the portion of stocks from a specific company or multiple companies. 

Also, if you hear someone saying that they hold shares in a company, then they would mean that they own stock that amounts to a certain percentage of the total stock of the company. 

Stock vs Share: What's the difference between the two?

According to Section 61, Companies Act 2013, the shares which are fully paid up can be converted into stocks, when the shares are transformed into stock, the status of shareholder changes to a stockholder. Concerning the dividend, the rights of the stockholder are the same as that of a shareholder

The denomination of stocks differs; however, the shares are of equal denomination. If you are someone who is planning to invest in the share markets or purchase shares soon, you must be aware of the head-to-head difference between the terms. So, given below is a comparison table of stock vs share

The basis for Comparison Between Shares vs Stocks

Shares

Stocks

1. Meaning

Shares give the ownership of one particular company.

Stocks give the ownership of the company and companies.

2. Denomination

Two different shares of a company can have the equal or same value.

Two different stocks of a company may or may not have equal value.

3. Possibilities of original issue

Yes

No

4. Nominal Value

There is some nominal value associated with the share.

No nominal value associated with stocks.

5. Numeric Value

A share has a definite number known as a distinctive number.

Stocks do not have any such number.

6. Paid Up Value

Shares are either fully paid up or partially paid up.

Stocks are by nature always fully paid up.

7. How much is it preferred?

The preference is lower in terms of transfer as they can’t be infractions.

The preference is higher in terms of transfer as they can be infractions.

Conclusion

Both the terms "Stock" and "Share" are important in their own ways. The understanding of both helps in getting a clear exposure to the stock markets and investment world. They both help in discerning the ownership in the company or companies in their respective cases.

Stock and share, both could be used interchangeably when it comes to the company ownership and stock markets. Though the difference in these terms is minute, it makes a big difference when you go on investing. 

So, next time when you come across someone who's having trouble understanding these terms, you can explain to them the values of these words and tell them that there's a lot more to 'stocks' and 'shares'. They are the fundamental units of stock markets.

Understandings of basics will not only enhance an individual's financial literacy but will also gradually help in uplifting the percentage of people investing in stock markets in India. 

Happy Investing!

About the Author: Aditi Sagar | 26 Post(s)

Aditi is born and brought up in New Delhi. Right now she is in the 2nd year of her college. She is pursuing graduation from Deen Dayal Upadhaya College, Delhi University with Bachelor's In Management Studies degree. 

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