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Individuals often face the dilemma of deciding the right investment option to invest their hard-earned money in. Two of the most common types of investments are Mutual funds and stocks. Investors are often torn between deciding to make a choice between the two. This article aims to serve as a mutual fund investment guide and solving this dilemma.

Key differences between mutual funds and stocks

The following are the key differences between mutual funds and stocks:

  • Mutual fund investments makes it easier for anyone with money to take part in it. For direct investment in stocks, you need more dedication and time.
  • You can invest in mutual funds online through a fixed monthly plan – Systematic Investment Plan (SIP). However, no such option is offered in stocks as the prices of a stock fluctuate constantly and they need prompt trade decision and personal attention.
  • As mutual funds offer a diversified portfolio, any negative returns that may arise are cushioned by the other investments that perform well. On the other hand, direct investment in stocks does not offer investors this protection, making stocks quite volatile.
  • Mutual funds have a longer-term growth trajectory as compared to stocks. These investments are expected to provide good returns only after 5 to 7 years. On the other hand, shares might provide quick returns if you time the market well and choose high-growth stocks.
  • Investments in mutual funds require you to pay a front-end load upon initial purchase, fund management charges early redemption charges, back-end load upon sale, etc. Conversely, direct investment in shares requires you to pay brokerage to the stock broker.
  • You can easily diversify your portfolio using mutual funds. You can invest in hybrid funds. Direct investments in stocks may not allow you to juggle with a large portfolio yourself.

Mutual funds vs stocks

Here’s a table that provides a comparative analysis between mutual funds vs stocks

Basis of comparison Mutual funds Stocks
Meaning A financial vehicle that pools money of several investors and invests it in a portfolio of assets A bunch of shares held by an individual that represents ownership of a company
Managed by A professional fund manager Individually
Ownership Shares of a fund Shares of a company
Risk involved Relatively low due to professional management and diversification of assets High
Trading Only once usually at the end of a day Throughout the day at a prevailing price
Final investment In the fund through which investment is directed Directly in the stock market
Value determination Net Asset Value (NAV) of the fund Price of share on the exchange
Paid up value Mutual funds can be partially paid up or fully paid up Stocks are always fully paid up
Average returns Have a lower risk vs return ratio as compared to stocks Have the potential to generate exceptional returns

Where should I invest?

Mutual funds or stocks? Which one is the ideal investment option for your portfolio? There is no direct answer. Whether you choose to invest in mutual funds or stocks completely depends on your expertise and knowledge of the market and the amount of efforts and time you are willing to spare.

Mutual fund investments can prove to be a great investment instrument if you are new to the investing world and aim for steady growth returns. However, if you are a market guru with ample time on your hands, investing in stocks is a better choice. Mutual funds provide investors with peace of mind than stocks. However, stocks have the potential to generate exceptionally higher returns as compared to mutual funds.

Lastly, it goes without saying that best returns are generated when investors stick to their investments for the long run. The choice is yours. Happy Investing!

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