Mutual Funds Vs Stocks Difference – Comparison & Pros and Cons

Mutual Funds vs Stocks, Key Difference & Comparison 

Hello Investors

When you came across the terms like, the share market and the mutual funds, they feel like very complicated initially. Because both have the same target and almost the same process to earning, from the investor side and from the issuer side as well, to earn the maximum profit out of a few invested money.

But what makes me confused even more was that if both the share market and mutual funds are carried out to target the same goal, then why different terms are credited to their basic units? What are stocks and what are the mutual funds? What are the differences between the stock and the mutual fund?

This confusion was really necessary to fix and I think that this confusion might be migrating or migrates in the minds of many individual investors.

Although, I am able to scan the difference between the stock and the mutual fund I know that you must be also eager to know the difference.

So, I am here writing this article to deliver the best of my knowledge to you. At the end of the article, if you feel good, then please like and subscribe us to get the regular updates from this site.

Read this post to know about how the key difference between mutual funds and the stock.

Let’s begin.

What is a Share?

Every small or big thing holds a value and they have some value in the market. A company, which is operating in the market, also has a value. This overall value when breaks down into small-small values, they become a share.

Let’s suppose there is a manufacturing company which has a market value of Rs 2 lakh.

When this 2 lakh is broken down in 100 units, then each unit is termed the tag name as a “share” and the value of 1 share would be Rs2000.

i.e. 2 lakh/100=2000

So, what this company does is break the value of the company in units and issues in the public for some share value. Here, the company not necessarily can issue shares at their actual price which is Rs2000, rather, it can issue the shares at Rs 2500 or Rs3000 or any value.

You might be thinking that why the company will issue his company value to the public? Is it gonna mad?

No, the company is the well-player of the market and it knows how to maximize its wealth. So, there may be several reasons to issue shares to the public. It may be

  • The company may want to expand its units.
  • The company may want to repay its loans or liabilities.
  • The company may want to build infrastructure for it or any other.

The issue of shares helps the company to raise the funds from the public and in turn, the public gets their ownership in the company and some source of income through this company in the form of interests or dividends.

In a way, the public buys and sell their shares via the company, via many other investors and the place where they trade is known as the share market. I hope you got it.

What is a Mutual Fund?

A mutual fund is a collection of funds or shares from several companies. Same as the share market, the companies’ issues shares in the public and public buy those shares and earn income in exchange. So, there are many companies like this in the market who time to time issues some kind of securities in the market.

The collection of those securities becomes a fund and that fund is known as the “mutual fund”.

The mutual funds are handled by the MF houses that are well-versed about the stock market and they collect money form the interesting investors and invest them in the companies on their behalf. They can invest in stocks, debts, money market instruments or bonds etc.

Difference between Stock Vs Mutual Fund

Mutual Fund vs Stock

Basis for Difference Mutual Fund Stock
Responsibility Taker The mutual house or the AMC takes responsibility for taking care of the investors’ money and their capital growth in the market. The person or the investor is solely responsible for buying and selling his shares on his own and growing his capital.
Decision Makers Investment decisions are taken by the Mutual fund professionals. The investor himself takes all the decisions.
Interesting parties Mutual Fund allows beginners as well as the experts to invest in the stock market. As the stock market does not avail any professional support to the investors, so it generally restricts the beginners to enter this market. But, the decision to invest in the stock market totally depends upon the person’s risk, generally market experienced traders are seen much interested in the stock market investments.
Back-end support Professional support is provided. No professional support is availed here.
Suitability This is a good investment choice for new beginners. This is good for those who know the market and are experienced traders.
Demat Account There is no requirement to have a Demat Account. Demat Account is essential for trading in the stock market.
SIP Investment The investor has the choice to implement the Systematic Investment Plan (SIP) for earning on a regular basis. There is no such mechanism available for SIP in the stock market.
Investment diversification You can easily manage a large portfolio because a mutual fund is a fund collection from several companies and it has various kinds of funds in it.  You can diversify your portfolio. You yourself cannot manage a large portfolio because you alone have to take care of your shares with you.
Tax Benefits The tax benefits of the Mutual Fund are listed under Section 80CCG and also in Section 80C where the person is given benefits from Equity Linked Savings Scheme (ELSS). The tax benefits of share market are listed in Section 80CCG.
Volatility This is less volatile in nature because your investment is diversified across various stocks (maybe around 30-35 stocks) and this makes them less volatile to market losses in the long run. This is very volatile in nature because you invest in 2, 3 or 5 stocks and they have a large tendency to influence by the market fluctuations. In a single day, your stock can return you 20% profit or 10 % loss also. You cannot diversify your stocks across various destinations, so you cannot compensate the losses also.
Risk balancing The loss in one or 2,3 funds can be easily compensated with the profits generated from other funds. As diversification of portfolio cannot be done here, so the losses have no chance to get compensated with the returns from other sources.
Return Potential The Mutual Funds are known for delivering good returns and a safe method for earning secured money because the funds are diversified here. The stock market is known for delivering highest risk, making the person rich quickly but that is possible only when the person has a good risk-bearing capacity and he has a piece of very good knowledge about the share market.
Asset class restriction You can invest in equity, debts. Bonds, gold, a mix of equity and debt. You can invest in large cap, Mid-Cap, Small-Cap and that too in equity asset class only.
Management fees You are liable to pay annual management fees to your AMC or the MF house for their services. You have to pay only for the initial outlay.
Research demand To pick mutual funds, you need not research about the company, its manager’s details, and the related performances, because all these are the tasks meant for the mutual fund manager who will do all such things on behalf of you. Investing in stocks requires you to learn about the company, how to read financial reports to see how much money the company is making, and what strategies it is using to grow earnings. This is done to understand which company is doing best and will do best in future also.
Tax Liability You have to give taxes on your capital gains irrespective of the fact whether your fund is generating you profits or loses. Investing your money in the stock market gives you a comprehensive tax plan.
Customizing portfolio These are not customized. You cannot take actions on alteration and selection of trade stocks. You are free to do alterations in your stocks.

The choice for investment institution totally depends on your knowledge level and your experience in the market. If you are just a beginner then Mutual Fund should be your choice, but if you have no patience and you want to quickly earn the handsome money within a short span of time, then you may choose the stock market for investment.

So, your risk appetite, your time frame horizon, your capacity to invest etc. mainly influence your investment decisions.

Are Mutual Funds Better than Stocks?

Dear investors, it is to inform you that both the investment vehicles have their pros and cons. So, we cannot assume which is better, and which is not.

If you are a small investor or beginner then mutual funds are the best option for you.

Also, the risk associated with mutual funds is low as compared to the stocks.

For more clarity, I have displayed below the table so that comparison becomes easy for you.

Mutual Fund vs Stocks Comparison Chart

What is better stock or mutual fund? Let’s find out!

Meaning The stock is the collection of shares held by an investor, representing his/her proportion of ownership in the company. Mutual Fund implies a fund operated by the asset management company that pools money from numerous investors and invests them into the basket of assets.
Investment Direct Indirect
Ownership Shares in a company Shares in a fund
Trading Throughout the day. Once in a day
Managed by Investor Fund manager
Value Price per share Net Asset Value
Risk High Low

But if you are unsure about which investment is right for you, consult for assistance from a financial advisor — it is best to fully understand your investment factors and their limits before committing to mutual funds or stocks.

Final thought

Dear readers! Thanks for reading

Nowadays, a variety of avenues is available before investors. New investors or beginner often confront dilemma regarding whether they should invest the money in the mutual fund or go for stocks.

Always remember that

To be a successful business owner and investor; you have to be emotionally neutral to winning and losing. Winning and losing is just part of the game.”

If you have any doubts about mutual funds vs stocks then paste it in the comment box. We assure you to answer you within 24 hours.

It is suggested to perform the proper research initially and then take an informed decision.

I am grateful to share my knowledge on How mutual funds and stock are different from each other? with you. Hope you have appreciated it.

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