Money multiplies when invested and this is the underlying principle behind any form of investment. If you are an aggressive investor, you must already be familiar with the terms ‘mutual funds’ and ‘stocks’. However, if you are new to the world of investing, let us help you understand about mutual funds and stocks.
What are mutual funds?
An investment product that pools the investments of many investors and invests them in various securities such as equity, debt, money market instruments, bonds, etc., to generate capital gains is known as a mutual fund. Mutual funds are managed professionally by capital market experts who are known as fund managers.
Mutual funds are gaining popularity among retail investors due to their ability to yield better returns than other conventional investment products such as bank deposits, gold, real estate, etc. One can choose a mutual fund scheme based on their individual financial goals and start investing in it to attain the goals. It is the responsibility of the fund manager to allocate the investments accordingly to ensure that the fund generates optimal returns and meets its investment objectives.
What are stocks?
Stocks are equity investments that are a representation of the ownership in a company. When someone purchases stocks of a company, he/she is entitled to certain rights that include voting in the shareholder meetings, receiving a certain portion of the firm’s profits as dividends, and the right of selling their shares to somebody else.
Stocks are also known as ‘shares’ or ‘equities’ and are issued by firms to raise capital. The firm uses the capital to either expand the business or fund new projects which would result in the firm’s growth and generate returns for its investors. A firm can move from private to public through an IPO (Initial Public Offering) and the price of the stock of the firm that goes public is the firm’s valuation in the market.
Investments in stocks are usually made by savvy investors as these instruments offer the highest possible returns. However, on the downside, these are also the most volatile instruments. Stocks and offer no guarantee that investors will achieve positive returns.
Mutual Funds Vs Stocks: Comparative Analysis
| Mutual Funds | Stocks |
| Mutual funds are less risky as they invest in stocks of various companies | Investment in stocks is quite risky as they are securities of a single company |
| A professional fund manager will manage the capital of investors | When investors invest in stocks they themselves are responsible for the investments |
| Ideal for novice investors who have limited knowledge of capital markets | Investments in stocks should be done only by investors who have sound knowledge about them |
| The volatility in the capital market has a lesser impact on mutual funds | Volatility in the market can impact stocks to a great extent |
| Since the fund manager tracks the performance of the fund regularly, investors need not worry too much about tracking the performance of the fund | Here, the investor is responsible for picking and trading their investments |
| Tax liability on mutual funds is lower as there is no tax on the capital gains on the stocks that the fund sells | Stock investments require investors to pay 15% tax on the short-term capital gains if the stocks are sold within 1 year |
| The costs involved in mutual fund investments are lower | If investors buy individual stocks, the costs involved are higher as they have to pay demat and brokerage charges |
| Mutual funds allow diversification as they invest in a variety of stocks | Stocks do not offer diversification |
| Investors need not spend their time and effort on managing the funds as this job is performed by the fund manager | The investor has to spend a lot of the time tracking the market and the performance of the stocks |
| To achieve optimal capital appreciation, investors should at least invest for 7 to 10 years | While trading in stocks, desirable and quick returns can be achieved by choosing the right stocks and selling them at the right time |
Should you invest in mutual funds or stocks?
Whether you decide to invest in mutual funds or stocks will depend on a lot of factors such as your knowledge of the stock markets, financial goals, investment horizon, and risk appetite. Going through the above comparative analysis between stocks and mutual funds should give you a fair idea on which investment route to opt for.
If mutual funds are your pick, you will be glad to know that investing in mutual funds has been made easy, quick, and hassle-free by BankBazaar. You can make your way to wealth creation by following the below-given steps:
- Visit the official website of BankBazaar at www.bankbazaar.com.
- Under the ‘Investments’ tab, click on the ‘Mutual Funds’ button.
- You will be redirected to the ‘Choose your portfolio’ section where you will be requested to enter some basic information such as your age, net annual income, your primary bank account, etc.
- You can pick a mutual fund scheme from the list displayed to you according to your investment goals.
- You will also get an option to receive a call back from a financial advisor who can guide you on the overall mutual fund application procedure.
- You can visit the ‘Know more about MF’ section if you wish to know more about mutual funds.
