Stocks and shares are different things. If you buy stocks, you buy a part of the company which has the stocks. You make money by earning dividends. Dividends are the amount of money given by the companies. This money is part of the profit the company is making and it wants to share a portion of it with the shareholders.
If you are an owner of stocks, you are a shareholder too. But all that you earn this way is taxable. There is yet another way of making money. You may sell the stocks you own and get cash in exchange. Selling your stock means gaining capital. It comes under the purview of capital gains.
In the stock trading cycle, the trading is done every minute through the day. You can withdraw from the market in case there is a crash or an impending crash.
Mutual fund investment allows you to invest in many sectors and your money is managed by professional fund managers. You don’t have to do much. Things are managed by other people who charge some fees off you.
What are the terminologies associated with Mutual funds and Stocks?
There are Index funds in India which are key to investment by many investors who have become either experienced or assisted by the professional brokers. For investing in the market, one of the key elements is diversification. Diversification makes sure the risk of investing in a volatile market is evenly balanced and the bulk of your asset remains intact. Diversification minimizes risks.
An equity investment is fraught with risk, so an organized investor diversifies the investment across various sectors and different capitalizations. We should know what index funds are and why they exist. An investment in the index fund means investing in shares or stocks which are prototypes of national stock indexes. These funds are also known as passive funds because the fund managers don’t change the portfolio in any form. The return on investment from these funds are like that of NSEs. The index fund invests in stocks that are the mirror images of the investment proportion of the National Stock Indices.
You should know what is capital gains tax and what are its implications. It is a tax that is imposed on the profit gained on the selling of the assets. These assets are also known as capital assets. In India, we have capital gains tax, but many countries don’t have these taxes. The government treasury of India is always thirsty for more gains from taxes, both direct and indirect.
The government’s need for tax collection is never satiated because the government has to spend on social causes of a country teeming with millions. The taxes come from a few pockets who are the industrialists or the entrepreneurs.
Most of the citizens don’t pay up their taxes on account of various reasons. So, capital gains tax is imposed on a few people who are in the higher income bracket. Rest of the population is either abysmally poverty-stricken or unwilling to pay the taxes. They resort to the unhealthy practice of tax evasion.
If you buy a home for yourself that is not your first, you are a candidate for the capital gains tax. If your income from selling your assets is lower than a limit set by the government, you are not paying any capital gains tax. You are fortunate to find yourself in the tax-free bracket. The amount of tax you have to pay as capital gains tax depends on the quantum of profit you are making. These taxes are charged by the government. The government agencies or departments like the Income Tax assesses and charges the taxes on the citizens. There are different slabs of income set by the government on which various rates of taxes are imposed.
The rates of tax and also the slabs do differ from country to country. The richer you are, the more transaction of property you make, the higher will be your capital gains tax. People in the middle class usually don’t pay capital gains tax because their income is limited and doesn’t reach the limit set by the government.
If you have disposable income, you want to invest it wisely. If you have retirement plans of spending the swansong of your life in comfort and ease, you think of building a fund corpus. Sometimes, you come by a windfall and you wish to make your gratuitous gains work in your favour.
Your investment is determined by how much risk you can take, what reward you look for, what’s in your kitty and what and how you want to spend your earnings. For a greater return, you have to take a greater risk.
Time available makes a lot of sense. You have to determine which investment is better for you, so you need to give yourself some time to ponder, assess, write, consult and exercise your option. There are taxes to pay or maybe there are options where you don’t have to pay for anything. If you wish to go for tax-saving ways, you will lose another dimension of the portfolio. You can’t eat the cake and have it too.
Conclusion
You can make your money work and gain income. There are mutual funds and stocks, and the choice is yours. You may concentrate on any one of them or you may involve both these ways to get you the profits you want to make. As mentioned, stock trading is done frequently and daily. It is a share of a company whose stocks you buy. Mutual fund investment makes your money work towards gains in different sectors and fund managers are helping you in your endeavour.