When it comes to investments, investors today have an array of options to choose from. Two most popular ones are mutual funds and shares/stocks.
What are mutual funds?
Mutual funds are a place that pools money from investors. The Asset Management Company (AMC) directed fund house, offers a fund manager who invests the collected money into bonds and stocks. The returns are then proportionally distributed amongst the investors. Simply put, a mutual fund is a basket that comprises of shares from several companies.
What are stocks?
Stocks are a small portion of the company's value that is made public through the stock market. When the company goes public by listing their shares, the combined value of the shares in the stock market and owned by the person, build the total value of the organisation.
So, what makes mutual funds and stocks different from each other?
- Stocks are meant for business growth, while mutual funds are meant for individual investment
- Investing in stocks requires you to hold a Demat Account whereas mutual funds do not need one. However, you can handle mutual funds via Demat Account
- Since fund managers handle mutual funds, you cannot pre-determine or alter the company stocks. You also cannot exit from 1 or 2 of the stocks from your portfolio
- Mutual funds are ideal for new investors who have zero knowledge of market conditions. So, fund managers handle such accounts. Shares are best suited for high-risk takers and well-versed with market volatility
You can use the Systematic Investment Plan (SIP) for investing in mutual funds. Stocks do not offer you such provisions