Difference between equity and mutual fund

Difference between equity and mutual funds

The difference and the comparison between the investments instruments of equity/stock and mutual funds can be helpful to analyze the advantages and disadvantages while choosing the respective options. These comparisons may be summarized as under.

  • The shares make you a partial owner of a company whereas mutual fund is an investment instrument for the individual.
  • Mutual fund company appoints fund managers who take all the funding decision on behalf of the investors, Such decisions include where to invest when to invest and how much to be invested. It is the ideal option for new investors. You do not need good ground working knowledge and study of market fluctuation and internal operation of the companies where investment is made.
  • The investment is share market is an active involvement needing time and dedication, whereas mutual fund investment is passive participation without much need of investment decision.
  • For trading in the share market, you have to open a Demat account without which buying and selling of shares are not possible but in case of a mutual fund, no such requirement is needed.
  • In a mutual fund, you can choose SIP (systemic Investment plan). The investment you do every month is handled by the fund manager. On the other hand, while in the share market, you require personal attention and prompt trade decisions on a regular basis.
  • In mutual funds, you have to pay fund management changes, early redemption charges, front end load upon initial purchase and back end load on sale. In the share market, you have to pay the brokerage charges on your sale and purchase of shares to a stockbroker.
  • In mutual fund investment, diversified portfolio is the best option for earning maximum profit with minimum risk. The diversified portfolio is a way of spreading your risk by investing in a number of companies having a different area of operation and the net profit come out of the average of collective performance of the companies in which the investment is made.
  • The mutual funds have tax benefits. If you invest in ELSS (equity linked saving scheme) you can save tax up to Rs. 1.5 lac under section 80CCG and 80 C. whereas the profit earned in shares is taxable.
  • The profit earned by the mutual fund company is shared among the investors in proportional to units held by them. In the share market, whatever profit is earned is owned by individual investors.
  • The market risk factors are inherited parts of investments in any financial market. But in mutual funds, such risks are cushioned by the diversification. In a mutual fund, a mixed portfolio can be created by the fund manager to ensure maximum profit and minimum loss. The direct investment in stocks is a riskier option due to the volatility of the stocks. If you invest in a single stock, you either earn a high profit or a capital loss.

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