Mutual funds vs stocks – Which is better?

When you decide to jump into the stock market, you will be stuck with one classic question. Should I invest in Mutual funds or Stocks? Yes, this is a very common dilemma for first-time investors and young investors. In the market, we don’t have a single investment to fit every customer’s needs. That’s why investment coaches are always available to help you decide on your perfect investment instrument. This blog will explain in detail the similarities and differences between mutual funds and stocks to help you understand the products and the market better.

What is a mutual fund?

Mutual funds are funds pooled from a lot of different sources. The pooled amount is then invested in a variety of stocks, bonds, and securities. Mutual funds are usually managed by experienced professionals and any changes in the fund are duly communicated to the investors. You can start your Mutual fund investment as a lump sum investor or a SIP investor. A lumpsum investor is someone who makes a bulk investment at one time and waits till the investments offer returns. A SIP investor is a person someone who makes regular investments periodically in their selected funds and gradually increases their wealth.

What is a stock?

Stocks or equities are shares of the ownership of the company. When you buy stocks from a certain company, you own a certain share of the ownership of the company. Unlike mutual funds, stocks are not managed by professionals. You choose your stock based on the company’s past performance, current performance, and other market factors. You can buy any number of stocks from a company based on your cash flow. Market study and understanding is very essential when you decide to invest in stocks. To summarise, you are responsible for your stock picks.

Major differences between Mutual funds and Stocks

Mutual funds Stocks
Professional management Managed by investors themselves
Diversification is done based on your goals Can diversify your stocks based on your goals
Variety of funds matching your goals are available You can choose the stocks matching your goals and risk appetite

 

Suitable for everyone even for first-time investors Suitable for experienced investors with market experience

 

1.   Professional management:

Mutual funds are carefully curated and managed by very well-experienced professionals. Each mutual fund is curated to meet the goals and risk potential of the investors. Not everyone can be very well educated about the market. Therefore, the management of mutual funds makes it one of the most preferred investment tools among first-time investors.

On the other hand, stocks are completely selected and managed by the investor itself. As long as you have required exposure to the market, you are good to do stock trading. For investors with long term experience in market, stocks seems to be the best fit

2.   Diversification:

One of the top reasons to invest in mutual funds is they provide a lot of diversification to your portfolio. The funds are put in a way that the small market changes don’t affect your portfolio majorly. As the stocks and securities in the mutual funds are taken from different sectors and different industries. Hence, changes in one sector can be managed by the profits of another sector. In this way, the investor can safeguard themselves from major changes.

However, in stock investment, the investor themselves select the stock. With good understanding about the company and sectors, investors can diversify the portfolio according to their needs.

3.   Convenience in choosing the right stocks:

In Mutual fund investments, you are given with a set of predetermined set of stocks and securities that are present in a fund. However, in stock trading, you can handpick your stocks and build your portfolio according to your liking. With longer exposure in the market, you can easily understand the performance of stocks. Hence, this allows you to stock up your portfolio with equities of different sectors and industries.

Final thoughts:

We have tried to distinguish stocks and mutual funds for investments and explained advantages and drawbacks of both the investment options. To gain inflation beating, all season returns, it is always better to invest in mutual funds. But if you are an experienced trader with deep knowledge about the market, go for stock trading as the returns you wish to get are always on the upscale.

For further queries, you can always contact experienced investment coaches to guide you in your investment journey.

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