The Difference Between Stock and Mutual Fund Investment

April 30, 2015 Posted by admin

Many consider investing in stocks and investing in mutual fund to be the same. But there is some difference between them. The confusion arises as both of them help to invest under the equities category. However, to make a better investment decision one should understand how they are different and under which situation do they differ.

Volatility –
Investing in a stock or a bunch of them is more volatile as compared to investing in a mutual fund. If you were to invest in a few stocks, the change in their value will be very high. In a given day, you could either earn 20% returns or lose equally. This is better for those who have a higher risk taking appetite as the highs can be very exiting but the lows can be equally intimidating. But mutual funds offer you diversity by investing 50-100 stocks at a time. By investing in different kinds of stocks from different sectors reduce the volatility of these funds.

Returns earned –
Returns are what an investor will normally look at when looking at an investment. You must have heard many stories of people making quick money by investing in stocks. But such happenings are rare and need a lot of analysis and patience to watch the investment grow. If you are looking to earn great returns by investing in the stock market yourself you will need to research well and be sure of the investments you make.

But with mutual funds you can be sure to get good returns as they are more diversified and handled by professionals. So you can be certain of the returns you get on the investment.

When you invest in stocks, you are solely managing it. It is your decision of what you want to sell or buy. If you plan for long term investments, you will have to be vigilant of the markets performance quarterly or yearly. Also, you’ll need to be updated with the new happenings and development of the sectors you’ve invested in.

In case of a mutual fund, not much monitoring is required as your investments are already being managed by a professional whose job profile entails filtering through the fluctuations. Your fund manager will constantly add or remove stocks from the portfolio.

SIP Investment
With a mutual fund you have the option of investing through SIPs. They work as a wonderful way for salaried people to invest in equities on a long term basis at an affordable cost. It is a good option also because investors will earn good returns even if they don’t understand much of the equity markets.

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