Many retail traders are confused about where to invest in the stock market. Some think that stocks can give hefty returns in a long term. On the contrary, others can think that mutual funds can give steady returns. However, both of them have their advantages and disadvantages. Let’s make it clear in this article.
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What is a Mutual Fund?
A mutual fund refers to collecting money from a pool of investors and investing them in the securities such as Stocks, Bonds, Commodities, etc. Additionally, there will be a fund manager who manages the invested fund effectively. Click here to know more about mutual funds.
Equity or Individual Stock Investing
Individual stock investing or Equity Investing is a type of investment in which the funds are invested in selected stocks. Moreover, the selection of stocks can be of an individual’s choice. For example, one can be interested in investing in the banking sector whereas the other can be interested in tech stocks. Further, some of the people will be selecting stocks in all sectors. Click here to read more about Equity Investing.
Difference between Mutual Funds and Stock investment
The collected sum from the individual is invested in stocks or other securities. However, there are some differences between Mutual funds and Stock investments.
| Mutual Fund | Individual Stock |
|---|---|
| A sum of money in different kind of instruments such as equity, debt, etc. | A sum of money is invested in specific Equity or Stocks as per individuals’ choice. |
| A fund manager is available to manage the invested funds. | The investor has to take care of his/her investments. |
| The price of a Mutual fund (NAV) is averaged every day. As a result, Volatility is very less. | The price of stocks depends on every day’s market conditions and volatility is high compared to MF. |
| Doesn’t need any financial knowledge or Analytical skills for investors. | Requires some basic understanding of Fundamental and technical analysis of the Stock market. |
| Stock Portfolio is fixed as per AMC. Example: If an investor wants to invest in a company that is out of the AMC’s portfolio, it’s not possible | Stock portfolios can be made as per individuals’ choice. |
| The long-term reliability of returns is high. | Long-term reliability of returns varies from medium to very high depending on selection of stocks. |
| Charges: Total Expense Ratio (TER) ~0.1% to 2% might be applicable | Charges: Brokerage charges and other charges as per brokerages. |
Finding your Choice🤔
You might be confused or overthought about what to choose. Don’t worry, just ask yourself the below questions and select the right path.
For understanding purposes, Let’s take two comic characters named Tom and Jerry.
- Do you think you have good knowledge of the share market?
- Are you ready to watch market movements at least twice a week?
- Do you have time to check the financial results or latest news of the invested companies?
- Are you willing to take the risk?
- Do you need assistance with your investments?
- Do you want to invest risk-free?
- Are you the person who doesn’t have time for watching the market?
- Are you the person who is not interested in learning finance?
To Wrap Things Up!
Which character you are? Tom😼 or Jerry🐀? It’s purely an individual’s choice. The mutual fund gives no thrill whereas stock investing is fun. Whatever you do, make sure you have analyzed it well.
To Make it simple, Both Tom and Jerry are loved by millions. However, Jerry is always wiser than Tom!
Still confused? Let me know your queries in the comment section. So Simple!
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