Difference Between Stocks and Mutual Fund: We can earn money through Stock Market as well as Mutual Funds also, But have you ever tried to understand what the Stock Market is and what exactly a mutual fund is? In the previous few blogs, we have learned what is Stock Market and how it works. Now let us learn what is the difference between Stock Market and Mutual Funds. So if you are interested in learning about the distinction between the Stock Market and Mutual Funds, you have come to the right place.
What is Share ?
In simple language ,Shares basically is the ownership of the company, lets suppose there is a company and it has a capital of 1,00,000 Rupee. then the company can issue 10,000 total shares. it means 1,00,00 multiply by 10 means 1,00,000 here 10 is the share price of that company and this is called share.
What is Mutual fund ?
Every one doesn’t know the knowledge of trading and investing. But there are banks and some financial institutes who have the knowledge, basically they launch the mutual funds, they have their complete research about the stocks, so they pull in money from many people, and that money invest in a different stock and gives the returns that is mutual fund.
Stocks And Mutual Funds.
There is commonly question in everyone’s mind that for wealth creation what is better option Stocks or Mutual Funds.
Stock is the investment vehicle where we can be a partner by investing money, on other hand Mutual Fund is not a investment vehicle it is the Fund who invest the money in investment vehicle according to Mutual Fund Scheme’s goals and objective.
For eg. If you are investing in equity mutual funds, your money is being invested in the stock market. and if you are investing a money in debt Mutual Fund then your money is being invested in debt investment, like government securities, debentures etc. Similarly you are investing a money in real estate Mutual Fund then your money is being invested in Real Estate.
When you directly invest in stocks, the shares you buy are registered in your name, meaning you directly own those shares.
Also, if you invest your money in the stock market through a mutual fund, you are indirectly investing in stocks. Because when you invest in the share market through a mutual fund, you do not have direct ownership rights over those shares. You are indirect owner of that shares.
| Stocks | Mutual Funds |
| To invest directly in stocks Demat Account is compulsory | Not compulsory Demat Account to invest in Mutual Funds |
| You can invest through your Demat Account | You can invest through mutual funds website. |
| Decisions are your own which stocks to buy when to buy | Decisions are taken by Mutual Fund Scheme’s Manager. |
| All the research and analysis are your own | All the research and analysis are done by Fund Manager. |
So, as we have seen, mutual funds manage our money and in return, they charge you some fees. And this fees are include in Mutual Funds expense ratio. This Expense Ratio is applied annually. Means if you are invest 1,00,00 Rupee in some Mutual Fund Scheme and their Expense Ration is 2 % then it means you are paying 2000 Rupee annual to that Mutual Fund.
Difference between stocks and Mutual Fund
Stocks
Ownership : In Stocks ownership is completely yours, If you buy a Particular Company Stock then you are the fractional owner of the company.
Management : As a stock investor All research and decisions are your own. You are the responsible for managing your portfolio.
Diversification : While investing in a stock or small number of stocks. Can be little harder it can be harmful for your portfolio if companies are underperforming. It can lead the higher risk so diversification is important while investing in companies in various sectors.
Risk and Return : investing in Stock is risky than the investing in Mutual Funds. but it also offer the higher return. Stocks are volatile due to varies factor, company news, industry news etc.
Cost : For investing stocks you should pay the Brokerage or Commission fees while buying or selling a stock.
Liquidity : In stock market public traded stocks have high liquidity. Means they can be bought and sold easily on stock market.
Control : In stock market all control is in your hand to manage you portfolio, which stock to buy when to buy. You are independent for decision making.
Mutual Funds
Ownership : In Mutual Fund you cannot be direct owner, Because you buy a particular unit of that Mutual fund like Real Estate Mutual Fund. You are the indirect owner of that Unit.
Management : Mutual Funds Managed By Fund Managers, they make investment in various sector of the stock market they have the complete research and analysis of the companies.
Diversification : In Mutual Fund they diversify the fund as they invest in various sector of the Market. And that is why they can manage fund without risk or lower risk. That is the plus point to invest in Mutual Fund.
Risk And Return : Basically Mutual Funds are lesser risky than Stocks. But Return in Mutual Funds are totally depends on their investment type. What they hold. Because Equity Mutual Funds have higher risk and return capability than Debt Mutual Fund.
Cost : As we see above Mutual Funds have an expense ratio, they charge you some fees. And this fees are include in Mutual Funds expense ratio. This Expense Ratio is applied annually.
Liquidity : Some open ended Mutual Funds have high liquidity, they allows investor to redeem their unit at any time at current asset value.
Control: In Mutual funds investor have less direct control over the specific investments within the fund, as these decisions are made by the fund manager.
Conclusion
We see above the difference between the Stocks and Mutual Funds Step by step. What is Stocks or Share? What is Mutual Fund ? with some Examples. There are some important difference we tried to show you in above content. At the conclusion if you wants to safe your investment and you do not have that much knowledge about stock market then you should invest your money in Mutual Fund and grow your wealth.
Hope you liked the above information and it helped you in your investing journey.
