Comparte Capital Investment

11 Difference between stocks and mutual fund

Mutual funds usually give decent consistent returns to their shareholders

Investors in stocks have to keep a close eye on the stock market themselves

Many of you are confused about whether you should directly invest in stocks or make indirect investments in mutual funds. Here are 11 fundamental differences between Stocks and Mutual Funds to make it clear for you.

1. Stability

Stocks could be quite volatile as the value of stocks changes many times in a day. The range of fluctuation sometimes goes to extremes. One day you could make a return of 25%, but on other days it could get you to say a 15% loss.

 Mutual funds are quite stable than stocks. They consist of a diversified portfolio with investment in different securities like stocks, bonds, fixed deposits, etc. which make them less volatile.

2. Return potential

The stock market has a very high return potential. At times it gives unbelievable returns, but the risk is also on the higher side. For short-term gains, stocks may provide excellent results if there is a certain amount of research. However, many made losses.

 Mutual funds usually give decent consistent returns to their shareholders, but not the high performance as stock. However, the return from a mutual fund is also enough to build massive wealth for an average person to secure the future.

3. Tax savings

Dealing in stock usually calls for buying and selling, and if they are sold within one year, you have to pay a tax. No tax benefits received for investing in the stock market as a 15% tax on short-term capital gains and 10% on the long-term capital gains are must pay.

Mutual funds are, in fact, all about tax savings. If you invest in Equity Linked Saving Schemes (ELSS) under mutual funds, you can enjoy an annual tax deduction of up to Rs 1.5 lakhs under section 80c of the Income Tax Act.

4. Monitoring

Investors in stocks have to keep a close eye on the stock market themselves because investing here is a personal thing where you have to monitor your stocks. The frequency of the monitoring should be done quarterly or half-yearly due to the high volatility of the share market.

In mutual funds, investors do not need to monitor funds much frequently. Once they invested, the fund manager will take care of the fund and also the fluctuations of the market. You still can check half-yearly to confirm that your fund’s performance is in line with your goals.

5. SIP Investment

Mutual funds are known for their Systematic Investment Plan or SIP, which is nothing but usually investing monthly. People who are unable to spend a huge amount in one go, mutual funds are perfect for them. 

The option of SIP is not available in stock market investing. Stocks don’t work with SIPs since there is no diversification of funds.

6. Asset class restriction

The only asset which you can pick in the stock market is stocks of the company, and they are limited. Whatever stock you select, it is ultimately going to be an equity asset class.

However, the mutual fund provides an opportunity to invest in a diversified portfolio. A variety of asset classes such as equity-based mutual funds, debt mutual funds, gold funds, hybrid funds, balanced funds etc. is available. 

7. The involvement of time

Direct investment in the stock market needs many studies and efforts. Thus it involves more time than in mutual funds. You have to do your research to find the best possible stock for investing.

For a mutual fund, you need to devote less time as the fund manager takes responsibility to manage the fund on your behalf.

8. Ease of investment

The stock market investment needs the opening of a brokerage account with the help of a stockbroker. You need to open your Demat and trading account to start investing in stocks.

It just needs 10 minutes to start your mutual fund. At present, several free platforms are available online to register within a few minutes to start investing in mutual funds.

9. Time Horizon of investment

You can invest in stocks for long-term or short term and can even keep the stock for a week and get good returns. The investment time horizon in mutual funds should be for the long-term for 5 to 7 years to make money by capital appreciation and fulfill your life goals.

10. Control on investment

The stock market means direct investment, where you do not have to depend on anyone. You will have a lot of power and control, and you can make your own decision to buy/sell whichever stock you want.

In the mutual fund investments, you do not have much control over your investments. It’s your fund manager who makes the decisions regarding buy and sells etc. 

11. Cost of investing

In the investment in stocks, the most significant burden is only the brokerage. Some other charges are there, but they are still lower than mutual funds.

While investing in mutual funds, you have to pay different charges such as management fee, loads (entry load, exit load), administration and operational charges etc. 

Stocks are for those who are willing to take the risk and want to know what luck and the market have in store for them! Someone who is looking for investing in the long term and wants fixed returns to fulfill their goals, mutual funds are ideal for them. They can consult financial advisors for guidance.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh / Enquire