What are Individual Stocks?
A stock is a small proportion of a company’s ownership.
- When an individual invests in a stock, he acquires a part of the company’s ownership.
- Most companies offer equity shares. They provide dividends to their investors in the proportion they hold stocks of the company.
- These stocks, listed or unlisted, can be held electronically only in a demat account. The listed shares of a company can be traded electronically between buyers and sellers on public exchanges, like National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and others, using an online trading account.
What is Exchange Traded Fund [ETF]
An ETF is a group of multiple assets, like stocks, commodities, or bonds. An ETF bears features of both stocks and mutual funds as it is a pooled investment diversified in several assets across industries. You can hold your ETFs in your demat account. Demat account meaning is an online repository to hold your financial securities electronically.
- An ETF can be a group of several stocks of one particular sector or across various sectors. The dividend income from ETFs depends upon the asset management of the concerned ETF company.
- An ETF can be an Equity ETF, Gold ETF, Debt ETF, or Currency ETF.
- The prices of the underlying assets impact the cost of an ETF. If the price of any of these assets goes up, the price of the ETF also increases in the same proportion.
- These funds are tradable on all major exchanges during trading hours. Since ETFs are traded like stocks, their expense ratio is lower than a mutual fund.
- It can be an active or passive investment. Fund managers in an asset management company (AMC) assess the stock market and undertake a calculated risk to manage active ETFs. Fund managers follow the trends of indexes and invest in the companies on the rising charts for passive ETFs.
You can open demat account online with a discount stockbroker to invest in stocks and ETFs with cost-effectiveness.
Benefits of investing in Individual Stocks and ETFs
Saving a portion of income is insufficient due to the rise in inflation. Therefore, most individuals consider different types of investments in the stock market to achieve their set financial goals and earn inflation-adjusted returns. Stocks and ETFs are among the most preferred investments that most individuals include in their portfolios. The key benefits of stocks and ETFs are as follows:
Technological growth has made the investing process convenient. Stock exchanges with several technical developments allow investors to trade stocks and ETFs conveniently and transparently. You can trade stocks and ETFs from the convenience of your home or office using your demat and trading accounts. Demat Accounts make tracking and monitoring your stocks and ETFs simpler.
Diversification and Risk Management
Diversification means the allocation of funds in mixed asset classes. It is based on the core philosophy to divide your risk across different instruments. Also, it helps investors to cut their losses arising out of market fluctuations in the long term. Investors are advised to gain portfolio exposure to different companies, sectors, or even countries. ETFs are already diversified investments, offering investors easy exposure to specific or desired market segments.
There is no expense ratio associated with stocks. You can directly buy or sell on a formal stock exchange. You just need to pay brokerage and demat account maintenance charges to your brokers as you use their trading platforms.
ETFs are also cheap from the expense ratio perspective as compared to mutual funds. However, there are operating costs that include distribution, custody, administrative, and portfolio management fees. You should consider the potential commissions and load fees while choosing a fund. Only a few ETFs are free of commissions.
ETFs provide significant tax advantages over mutual funds. Unlike mutual funds, which levy capital gains taxes to investors, capital gain tax on ETFs is only charged when the investor sells the ETF. It does not involve redeeming units each time you want to sell or issue new shares because the ETF holdings are adjusted by managers. Redeeming units of a fund trigger tax liability.
In the case of stocks also, you can take tax advantages. Prefer to hold the stock for more than 12 months to reduce taxes. If the stock holding period exceeds 12 months, the income is considered as long-term capital gains, and only a 10% tax is applicable. It is 15% for gains on short-term holdings.
Thus, ETFs offer greater flexibility and stocks can increase your profits with correct market analysis. Make stock and ETF investments online without any hassle.
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