Difference between investing in stocks and investing in mutual funds
A million dollar question is the one you ask yourself in relation to stocks and mutual fund investments - “What should I invest in?” Playing out in every investor’s mind, you should know that there’s no option of priority between equity and mutual funds. The decision to choose one over the other is a purely personal preference. Furthermore, stocks and mutual funds aren’t mutually exclusive.
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Comparing Apples to Oranges
It would be wrong to pitch stocks against mutual funds and vice versa. However, while there is no single one in the way of investments that’s better than the other, differences do exist. Simply put, if you invest in mutual funds, then you leave it to an expert, a fund manager, to pave the way to your investment destination. However, while directly investing in stocks, you are the one who drives the vehicle. This is one of the key differences between stocks and mutual funds.
The concepts of stocks and mutual funds are different, although one investment cannot do without the other, in a way. When you purchase a stock or a share, you are essentially investing your wealth in a portion of a company. You are then known as a shareholder. In a mutual fund, wealth from many investors is collected in a pool and this is invested in securities. While investing in stocks is an active process as you have to be on top of your game with strategies, directly investing, investing in mutual funds is done in a passive manner. Your fund manager looks after your portfolio, making sure of your gains, even if you forget about your investment. In stock investing, you can’t afford any lapses of memory, buying a stock and then just sitting on it. Something to note is that you can invest online in both stocks and mutual funds.
For those looking to invest regularly, mutual funds are ideal. The mutual fund pool can never be undervalued or overvalued, hence this is possible. In terms of stocks that you invest in directly, you can make purchases when you perceive that a specific share is low in value and it may rise. Contrastingly, you can sell stocks when you feel they’ve reached their potential. However, trading in stocks is not that simple, as you would need a great deal of study in technical analysis to buy and sell them. While investing in mutual funds, you have to just sit back and see your returns flow in, as fund managers do all the work. Moreover, systematic investment plans or SIPs work well where mutual fund investments are concerned.
The returns from stocks could be highly positive or negative for you. For instance, if you have a premium stock, like Infosys or TCS, you could see great returns, but if you’re stuck with a stock like Jet Airways, you may face some gloom. When good stocks go up, they really make you rich. However, with mutual funds, you may not be able to double returns, but you can make moderate gains that are aligned with broad trends in the market. Additionally, stocks can test your patience to a high level, and you may have to hold them for a while till you see rewards. This is not the case with mutual funds, in which rewards may not be excessive, but they come regularly.
With a valuable broker like Motilal Oswal, you can choose how you invest and what to invest in, according to your needs and wishes. You may have to assess your risk tolerance and pick between mutual funds and stocks.
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