Mutual fund vs stock market is the first comparison that every investor make while choosing mutual funds over share market.

If you are thinking of becoming rich just with your job compensations and your savings then tragically you are incorrect! Investment is the right way to go forward for multiplying your hard earned money and when you wish to invest in the market you will be probably stuck with mutual fund vs stock market comparison. 

As we have various lifetime dreams, to gain those, deliberate investment is essential. One has to follow the principles of diversification and invest money through a range of assets like mutual fund, retirement plans, insurance, pension plans and many more.

To make most out of your current earnings, you have to put your fund in the best suitable asset classes that are well aligned with your financial goals. Unfortunately this is the trap where majority of the investors get befuddled.

Picking the right asset class at the right time to put your fund is the trickiest thing where an investor gets confused. Many investors keep searching for terms like stock vs mutual funds, share market vs mutual funds, mutual funds vs LIC, mutual funds vs PPF on google so that they can get clear understanding on which asset class suits the best to their financial requirements.

There are ranges of asset classes where you can invest your money but most common asset classes are mutual funds and stock market where most investors are inclined to invest their money. So here is an article explaining why an investor should choose mutual fund over share.


What is Mutual Fund?

Investing in mutual funds is like investing your money on auto pilot mode where instead of your taking any investment decisions, a mutual fund company hires experienced fund managers who are responsible to take most significant decisions regarding investing your money.

They decide when to invest you money, where to invest and how much money should be invested in a specific financial asset class. So those who have very less knowledge of financial assets or who is an entry level investor, mutual funds are the best asset class to go with.

On the contrary if you choose to invest in share market, you need to go through rigorous research on various aspects of stock market. Undoubtedly, there are great chances of getting high returns by investing in stock market, but the risk percentage is also equally high. The speed and time at which you may lose your money in a stock market is absolutely unpredictable.

What is Stock Market?

Definition of stock market is very simple! If you are investing in stock market, you are becoming a share holder of a company and own a percentage of shares in the company. You can earn money from stock market in two ways; one is when you buy share at low price and sell on high price (minus the fees) and other is when you receive the dividends from the company (quarterly or yearly).

Shares are traded constantly on stock market (during official timings of stock market) and people book profit and loss through the trades and fluctuations in the prices of shares.

Difference between Stock Market and Share Market:

People often use both terms and out of stock market and share market, stock is more general term. The word “Stock” represents percentage of ownership of one or more corporations while word “share” specifically represent the ownership in a specific company.

So for example you can say that I have bought stocks of ABC and XYZ companies or I purchased shares in ABC. So if you are using stocks or shares, both are correct, but in financial vocabulary shares represent units of stocks precisely.

As you have now understood the basics of share or stock market and mutual funds, let’s try to comprehend why you should choose mutual funds over stock market.

Comparison between Mutual Fund vs Stock Market:

1) Cost associated with investment in mutual fund vs stock market:

The trading cost associated with stock market can have huge impact on your investments. As you are frequently buying and selling shares, you need to pay a certain trading fees during these transactions. On the other hand you can save a lot in terms of fees if you are investing in mutual funds when you compare between mutual fund vs stock market.

Even if you are planning to invest in equity related funds, you can save a lot in terms of fees as fund managers trade a bigger volume of shares as compared to individual investors hence reducing the cost per transaction.

Although you need to pay a certain fee to fund managers while investing in mutual funds, you get benefit from “economies of scale” which means getting price benefits for bulk orders or transactions. As fund managers place bigger orders, they only pay a fraction of brokerage collectively as compared to an individual investor who is paying higher fees through his or her Demat account.

2) Save Your Time:

It is one of the most important factors while considering investments in mutual funds. When you invest in stock market on your own, you need to do a thorough study on stock market which is very time consuming. You need to read technical charts, company fundamentals, various financial ratios and reports, past performance histories, future predictions, company annual reports and many more just to invest in a single stock.

Whereas the fund managers appointed by asset management companies (AMCs) do all these mathematics and magic on your behalf before making investment decision. So in mutual fund investments, fund manager is the one who manages your portfolio and puts time and efforts to do all this homework before investing.

Though mutual fund investments are also subjected to market risk but it is the best tool to bypass some of the most complicated processes associated with stock market investments. So unless you are ready to take bigger risk and put substantial amount of time as well as efforts in research, it is illogical to invest in stock market on your own.

3) Diversification benefits in mutual fund vs stock market:

If you want to reduce your risk in investments, diversification is the best technique to adopt. Diversification helps your portfolio to sustain throughout the frequent market fluctuations. As they say do not put all your eggs in one basket, diversification let you spread your portfolio across various asset classes instead of risking your money by putting it in limited asset classes. So here is where mutual funds come to save the world.

Mutual Funds offer amazing benefits from diversification so instead of putting your money in one industry or one sector or one stock, mutual funds spread your investment across, let’s say,  20 to 30 different securities, for example, hence the risk is spread across variety of assets.

On the other hand, just imagine the amount you will be required to invest in 20 to 30 securities in the stock market and even if you put so much money, your investment in apparently good company can hit a bottom at any time. Just take recent examples of companies like Yes Bank, Jet Airways, Vodafone idea (lost 79% in a single year), DHFL which are some of the biggest disasters on stock market recently.

4) Tax Savings:

This is another important advantage of mutual fund vs stock market. Income generated from stock market is taxable, both dividend and trading profits are taxable. On the contrary some of the long term (3 years plus) mutual fund schemes offer tax saving under section 80 (C) of IT Act. You can avail tax benefits up to 1.5 lakhs if you invest in schemes like Equity Linked Saving Schemes (ELSS).

5) Professional Fund management of portfolio in mutual fund vs stock market:

According to ETMoney, it is the most important parameter while choosing mutual fund over stock market. The extensive knowledge and years of experience of fund managers give mutual funds an upper hand in investment decisions as compared to individual investors. If you want to keep your money in safe hands, mutual fund investment is the best way to go forward.

An investor who has less technical or fundamental knowledge of market could end up as a big disaster on stock market. On the other hand, if you invest in mutual funds, your money will be managed by professional fund managers who are masters of their respective industries, sectors or domains as well as true experts in taking investment decision.

They can read complicated reports, analyze & interpret complex financial data and make investment allocations accordingly to optimize your portfolio which an individual investor cannot accomplish.

So to summarize, you can make good fortune out of both mutual funds and stock market however it depends on how much time and efforts you are ready to put in it. On top of it your risk taking capacity is also important while choosing these two investment options. If you have less knowledge about stock market and you are not able to figure out where & how to invest you money, it is best to go with mutual fund investment to get inflation beating returns.

Why Chitale CFS Pvt Ltd?

Chitale CFS Pvt Ltd offers wide variety of investment avenues for short as well as long term investment needs. With more than 30+ years of experience, we are one stop solution for a number of financial products like Mutual Funds, Insurance, Bonds, Fixed Deposits etc. We serve our clients with highest standard of transparency and integrity by putting investor’s interest first.

You can contact us by calling on +91 8999116127 or email us at [email protected] or [email protected]

Mutual fund investments are subject to market risks. Please read the offer document carefully before investing

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Mutual fund investment is subject to market risk, read scheme related document carefully before investing.