Difference between Mutual Fund and Stock Market Investment

There are plenty of preferences for investment is open in the market for the investors. All among these, mutual fund and stock market investors are swiftly turning out to be an excellent and quite intelligent source of income, especially for this generation of people.

But investors, moreover the newbies sometimes become confused that whether they should invest their hard earned money in mutual funds or go for the individual stock market.

So, we are presenting the fundamental difference between mutual fund and stock market investment in this article. However, before we start discussing the differences, let’s first define what the mutual fund and stock market investing are.

What is the Mutual Fund?

A mutual fund is a professionally managed investment vehicle that pools money from investors for the purpose of investing in securities such as stock, bonds, commodities and other assets.

Investments in mutual funds giving retail investors the advantage of having professional financial control over their money even if it is a few thousand rupees.

Investors invested their money in different asset classes in accordance with the fund’s investment objective and under the guidance of professional fund managers. These fund managers allocate the funds for investments and attempt to produce capital gains and income for the fund’s investors.

What is the Stock Market?

A stock market is a place where shares of publicly registered companies are traded. This is also termed as the equity market or share market or share bazaar. This is the aggregation of buyers and sellers of stocks or shares. Actually, the stock is just a class of asset that provides ownership interest to the investor in the selected company.

Share trading in India now regulates in a paperless manner. It is done by Depository service which is a mechanism that makes possible the online trading in shares. Hence, the depository is a link between the shares of listed companies and shareholders.

The Securities and Exchange Board of India (SEBI) monitor the registration, regulation, and inspection of the depository in India.

Read also:Depositories in Indian Stock Market

National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are two primary stock exchanges of the country where the shares of the different companies are listed.

Read also:Which is better BSE or NSE?

Key differences between the mutual fund and stock market investment

So, now have a look at the vital differences between mutual fund and stock market investment.

1. Key Concept

A mutual fund managed by the investment company that acts for pooling money from various investors. Then these funds utilized to invest in the basket of assets like equity, commodity, debt, and other money market instrument.

The collection of shares, which are owned by an investor represents his/her proportion of ownership, is called stock.

2. Investment Cost

For mutual funds, investors have to pay different charges like expense ratio, load fee (entry load, exit load), etc. For example, in the case of the top mutual funds, the expense ratio can be as high as 2.5-3%.

On the other hand, before start investment in stock market investors have to open a trading account and Demat account. Opening charge for different broking houses is separate.  Good Discount brokerage firms are also available in the market. Discount brokers provide flat free brokerage as well as very minimal account opening charges. Additionally, investors need to pay some annual maintenance charges and there also different costs for the stock transaction like brokerage, STT etc.

3. Concept of ownership

Mutual funds offer fractional ownership of basket of assets.

Stock market investment offers an ownership stake to the investor in a company.

4. Scope of Investment

In the case of the stock market, trading is done throughout the day whenever the market is open. So, for stock market investors has the opportunity to utilize the whole trading session.

But, in the case of mutual funds, trading is done only once in a day by the fund manager.

5. Risk & Return Potential

Mutual funds are an indirect investment. Every good ranked mutual fund has given decent consistent returns to their investors. Mostly, the returns are not as much as high as what many successful investors can make from stocks directly. But, the return is enough to build a handsome wealth for a secured future.

On the other hand, Stocks are a form of direct investment from the investors. As well as, stock market investing has a very high return potential. However, the risk is also higher.

6. Asset class restriction

Mutual Funds are comparatively less risky than stocks, as because of the presence of diversification. To invest in a stock market, you can choose a large-cap stock, mid-cap stock or small-cap stock, but finally, it will be equity asset class. But mutual funds can invest in a mix of asset classes. For example, equity funds, debt funds, gold funds, a mix of equity and debt also.

7. Necessary time for investing

Required time for investment for directly investing in stock is a lot more than mutual fund investment. This is because a fund manager manages a mutual fund investment for an investor.

On the other hand, investors have to do their own research for direct investment in the stock market. Stock market investment always requires a lot of study, time and continues efforts.

8. Frequency of Monitoring

For the mutual fund, there are fund managers who take care of the investments and make the buy/sell decision on behalf of investors. So, when you invest in a mutual fund, you do not need to monitor your fund much frequently.

On the other hand, stock market investment always required continues research and involvement. Therefore, the stock market needs routine monitoring. Because of the high volatility of the stock market, the regularity of the monitoring is compulsory.

9. Control on investment

Performance of mutual fund depends on the efficiency of the fund manager. While investing in the mutual fund, an investor does not have much control over the investments. Once an investor spent money, everything will be taken care of by the fund manager. If the fund manager is efficient, an investor can get high returns.

Conversely, the management and administration in the stock market are done either by the broking houses or by the investor himself. So, investors can make critical decisions like- when to buy or sell and what to buy or sell.

10. Investment horizon

The mutual fund has a longer-term growth trajectory. When investing in mutual funds, an investor will have to give the funds at least 5-7 years to generate good returns. In the case of stocks, an investor can get quick and good returns if they choose the right stocks and sell them at the right time.

Bottom Line

Mutual fund and stock market both of the investment vehicle have their pros and cons. So, we always recommended for consulting your financial advisor prior to investing. Please remember, investing in any of these involves risks and possible loss of principal. Now, if you are a small investor with little or no experience in the financial markets then the mutual fund is the best option for you. In another way, if you can invest a good amount of money and have required knowledge and interest in the share market investment, then stocks are a more preferable option for you than mutual funds.

Please leave your queries in the comment section and let us know your views regarding this article.

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