What is the Difference Between the Equity Market and the Stock Market?
The equity market and the stock market are two terms that are often used interchangeably in the media and the investment circles. However, these two terms have different meanings, and investors should understand the distinction between them before entering these markets. In this article, we’ll explore the differences between the equity market and the stock market in detail.
What is the Equity Market?
The equity market is a segment of the financial market where companies raise capital by issuing shares to investors. When you invest in the equity market, you become a part-owner of the company and can participate in the company’s growth and success. The equity market is also known as the stock market or the share market, and it plays a vital role in the global economy. The equity market can be divided into two types- primary market and secondary market.
Primary Market
The primary market is where companies issue new shares to raise capital for their business operations. In this market, companies sell their shares through an initial public offering (IPO) to the general public and institutional investors. The primary market is regulated by the Securities and Exchange Board of India (SEBI) to protect investors’ interests and maintain transparency in the market.
Secondary Market
The secondary market is where investors buy and sell shares with other investors in a secondary market. The secondary market includes stock exchanges such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. The secondary market is highly volatile and can be unpredictable, making it important to do thorough research before investing.
What is the Stock Market?
The stock market is an integral part of the equity market and refers to the buying and selling of shares of publicly listed companies. When a company decides to go public and issues shares, it gets listed on a stock exchange. Investors can then buy and sell these shares on stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ in the United States and BSE and NSE in India. The stock market is considered a secondary market where existing shares are traded between investors.
Key Differences between the Equity Market and Stock Market
- Meaning: The equity market is a broader term that refers to the overall market where companies raise capital through the issuance of shares, while the stock market is a part of the equity market where the trading of listed shares takes place.
- Issuing Shares: In the equity market, companies issue new shares to investors to raise capital, while in the stock market, investors trade existing shares with other investors.
- Regulation: The primary market of the equity market is regulated by the Securities and Exchange Board of India (SEBI), while the stock market is regulated by the stock exchanges and other entities such as SEBI and the Securities and Exchange Commission (SEC) in the United States.
- Risk and Return: The equity market is generally considered riskier than the stock market as the primary market involves investing in new companies without an established track record. On the other hand, the stock market involves buying and selling shares of existing companies with an established history.
Benefits of Investing in the Stock and Equity Market
- Diversification: Investing in the stock and equity market allows investors to diversify their portfolio and mitigate risk by spreading their investments across various assets.
- Capital Appreciation: Investing in the equity market and stock market can provide investors with the opportunity to earn capital appreciation over the long term.
- Dividends: Listed companies in the equity market often pay dividends to their shareholders as a reward for their investment.
- Liquidity: The equity market and stock market are highly liquid, making it easy for investors to buy and sell shares quickly.
- Transparency: The equity market and stock market are transparent, and investors can access publicly available information about the companies in which they invest.
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By Astrobulls research pvt ltd