Mutual Fund Vs. Share Market

Mutual funds and shares are extremely popular investment options in the financial market. But both forms of investment come with different advantages and disadvantages. Explore this detailed mutual fund vs. share market comparison to learn which one would be a better investment option. 

What is a Mutual Fund?

Mutual funds combine stocks and bonds together and are managed by professional fund managers. You will usually come across two primary types of mutual funds:

●    Equity mutual funds: Includes company shares
●    Debt mutual funds: Includes government bonds and securities
 

What is the Share Market?

Shares are representative of the value of a company. When a company wants to trade its shares, it has to offer an Initial Public Offering (IPO). If you own a share of a company, it means you have a part in the company’s ownership. 
The price of a company’s shares in the market varies according to different factors. For instance, when a company performs well and indicates signs of growth, you will notice an upward trend in its share price. 
 

Difference Between Mutual Funds and Stocks Investment

Look at this tabular representation of mutual fund vs. share market investments:

Mutual Funds Vs Stocks Investment

Let us now compare mutual fund vs. share market investments on the basis of the following factors:

1. Risk and Return 

Individual stock purchases are risky, which results in high returns. However, stock market investments are also associated with negative returns. 
Mutual fund schemes also have a high risk due to their asset class. But the risk is reduced to a great extent due to the diversification factor. Therefore, negative returns from one get balanced out by positive mutual fund returns from another. 

2. Management 

You will have to rely on your knowledge, skills, and research while making share market investments. But your knowledge might not be enough for share market trading in different scenarios. 
In the case of mutual fund investment, you won’t face any drawbacks in terms of knowledge and skills. Investing in mutual funds offers you access to fund managers with adequate experience to take care of your investments. 

3. Diversification 

The difference between mutual fund and share market investments is also evident in terms of diversification. Diversification in the stock market involves investing in at least 15 to 20 different types of stocks. It means a huge investment for most individual investors. 
But investors with little funds can also invest in mutual funds and get a diversified portfolio. Mutual fund investors can purchase fund units and invest in different stocks without having to spend a huge amount. 

4. Cost 

If you compare mutual fund vs share market investments, the cost of the former is lower. Mutual funds attract lower transaction costs, which means you will have to pay lower brokerages. 
But for share market investments, you will have to pay the annual maintenance charges on your Demat account. Therefore, the costs for share market investment are naturally higher. 

5. Investment Style 

If you compare mutual fund vs. share market investments, your knowledge will be necessary for timing the market. You will be solely responsible for purchasing or selling the stocks. Therefore, you will have to be an active investor and optimize your returns. 
But in the case of mutual funds, a fund manager will be responsible for tracking and management, and you will be a passive investor. Therefore, mutual funds are the best option when you don’t have the time or knowledge to actively monitor your investments. 

6. Investing / Trading Time

If you compare mutual fund vs. share market investments, you will notice some differences in terms of trading time. The hours of stock trading range from 9:15 am to 3:30 pm. But you can purchase mutual funds at any time of the day.

7. Tax Benefits 

A major mutual fund and share market difference is evident in terms of tax savings. If you invest in ELSS mutual funds, you will be able to save taxes of up to Rs 1.5 lakhs. However, share market investments do not offer any kind of tax benefits. 
 

Why Some Prefer Mutual Funds Over Individual Stocks

Check out why some investors opt for mutual fund investment over stock investments. 

1. Professional Management 

When you are investing in mutual funds, you won’t have to analyze, track, or time them. An experienced fund manager will look after all this on your behalf. A major mutual fund and share market difference is that mutual fund investments are well-suited for passive investors. 

2. Diversification

If you want to diversify your stock market investment, you will have to invest in a minimum of 15 to 20 stocks. Therefore, the upfront investment amount will be quite high. If you compare mutual fund vs share market investments, mutual funds will help with diversification even when you are investing only ₹1,000. 

3. Lower Cost 

While buying or selling mutual funds, you can negotiate with brokers to get better rates. It will lower your costs of mutual fund investment. But when you are buying shares, you won’t be able to negotiate. Moreover, investing in the stock market requires you to maintain a demat account. 
 

Conclusion

Hopefully, the difference between mutual fund and share market investments is not clear to you. Remember that mutual funds can help you reap the benefits of equity returns without the cons of direct equity investing. Moreover, you will get professional expertise while investing in mutual funds.