Shares are the physical representation of a small portion of a company's value that are traded in the stock market. When a company goes public and issues shares, the combined value of the shares of the company in the stock market and/or owned by persons, constitutes the total value of the company. Being a shareholder is in effect owning a small part of the company and means that one can take part in the annual shareholder meets.
Mutual funds are a collection of stocks and bonds that are managed by fund managers in an Asset Management Company (AMC). If it is an equity mutual fund, it will contain stocks, while debt mutual funds will contain government bonds and securities. A mutual fund is like a huge basket with shares from several companies. For example, DSP BlackRock Micro Cap Fund consists of stocks of 62 companies from diverse sectors, including Finolex Cables, DCB Bank, Manappuram Finance, Somany Ceramics, JK Lakshmi Cement, Siyaram Silk Mills, Ashiana Housing and Sun Pharma.
Investment in mutual funds are a form of investment in stocks and bonds that is managed by an AMC or investment house, while direct investment in stocks and shares is an active form of investment, where you are handling the purchase and sale of the products yourself. The institutionalisation offered by mutual funds is good for a new investor, while direct investment in shares is good for those who know the market and can handle it themselves.
The following are the key differences between investment in mutual funds and shares:
Whether you must invest in mutual funds or shares depends on your knowledge and experience of the market and the amount of time you have. Mutual funds are a great investing instrument if you are a dilettante and aim for a steady growth of wealth. But if you are a stock market virtuoso and have enough time in hand, direct investment in shares is a better choice.
GST rate of 18% applicable for all financial services effective July 1, 2017.
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