While buying something, if you are confused between two options, you tend to compare a lot of factors. The same goes for investments. Before making your choice between mutual funds and stocks, you must compare a few critical factors.
Here’s a quick reckoner that will help you pick between your shortlisted options:
||Mutual funds pool in money from different investors and invest the same across different securities. The profit from such investments is then distributed among investors proportionately.||Stocks are financial instruments issued by companies. Investments in stocks give you proportionate ownership of the concerned company.|
|Professional management||Mutual fund investments are professionally managed. Fund managers study the markets carefully and allocate your money to securities in a way that maximises your returns.||Stocks are individual investments. There are no fund managers to manage your money. You will have to pick, track and monitor stocks yourself or hire a broker by paying a certain sum as brokerage fees.|
|Risk diversification||Mutual funds spread your money across different asset classes such as equity, debt, gold, etc., each with a different risk-return profile. This helps you minimise investment risks.||Stocks only let you explore a single asset class – equity. Thus, there’s no diversification of risk.|
|Tax benefits||Equity Linked Savings Scheme (ELSS) is a tax-saving mutual fund that helps you reduce your taxable income by up to Rs 1.5 lakh annually. This is, however, possible only if you opt for the old tax regime.||You get no tax benefits if you invest in stocks.|
|Investing cost||Fund houses charge a management fee known as the expense ratio which usually ranges from 0.5% to 1%.||Stock investments involve multiple expenses such as the brokerage fee, SEBI transaction charges, etc.|
Clearly, mutual funds have the upper hand in all aspects. You can now make an informed and wise decision.
Are you wondering how to invest in mutual funds? It’s simple! You can visit the website of the fund house, register for KYC if you are investing for the first time, duly fill the investment form and make the payment.
To know more about mutual funds, you can read this article
` This answer should not be considered as ‘investment advice’. Kindly consult your financial/tax advisors to determine the financial implications with respect to investing in Mutual Funds. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.