Shares and mutual funds are two popular investment vehicles that allow individuals to invest in a diverse portfolio of securities. While both options offer potential for earning returns on investment, they differ in a number of key ways. In this article, we will explore the differences between shares and mutual funds in detail.
Shares / Stocks / Equities
Shares, also known as equities or stocks, represent ownership in a particular company. When you purchase shares of a company, you become a shareholder and are entitled to a portion of the company’s profits and assets. The value of your shares is determined by the performance of the company, as well as economic and market conditions.
Advantage & Risks of investing in Shares
- One of the main advantages of investing in shares is the potential for high returns. If the company performs well and its share price increases, you may be able to sell your shares for a profit. However, there is also a significant level of risk involved in investing in shares, as the value of your investment can go down as well as up.
What is Mutual Fund?
Mutual Funds are investment vehicles that pool together the money of multiple investors and use it to purchase a diversified portfolio of securities. This can include shares, bonds, and other assets. The value of a mutual fund is determined by the performance of the underlying securities in the portfolio.
Advantages & Risks of investing in Mutual Funds
- Mutual funds offer diversification, as the fund’s portfolio is typically made up of a wide range of securities. This helps to spread risk and potentially reduce volatility compared to investing in individual shares. Mutual funds also offer professional management, as a team of investment managers selects and monitors the securities in the fund’s portfolio.
- Mutual funds are typically more accessible for small investors, as they allow individuals to invest with a relatively small amount of money.
- An investor has choice to select its investments from a number of different types of mutual funds as per the investment style and risk appetite that includes index funds, which track the performance of a particular market index such as the Nifty 50, and actively managed funds, in which the fund’s managers select securities based on their own research and analysis.
Disadvantage if investing in Mutual Funds
One potential disadvantage of mutual funds is that they may have higher fees compared to investing in individual shares. This is because mutual funds typically charge an annual management fee, as well as other expenses such as trading fees. These fees can eat into the fund’s returns and reduce the overall profitability of the investment.
In summary, shares and mutual funds are both popular investment options that offer the potential for earning returns on investment. Shares represent ownership in a particular company and offer the potential for high returns, but also carry a significant level of risk. Mutual funds offer diversification and professional management, but may have higher fees compared to investing in individual shares.