Difference Between Stock Market & Mutual Fund – Best Investment

BUSINESS

Introduction

When trying to increase your wealth, there is no better option than Investment. While investing, the two most popular investment ideas appear, marking, stock investment, and mutual fund investment. Unfortunately, investors often find it hard to choose between these two investment options.

So, it becomes crucial that they learn the difference between mutual funds and stock market investment. 

The share market investment means that you are directly investing your money in stock market equities. But mutual fund investment means that a professional fund manager manages the Investment for you by investing in equity or debt funds. 

This article consists of the difference between the stock market and mutual funds investment. Following these differences, you can decide whether it will be good for you to invest in the stock market or you should invest in mutual funds. 

But first, let us know the definitions of these two investment options.  

What Is the Stock Market?

The stock market shares represent the value of a part of a company. A company offers an Initial Public Offering (IPO) when trading its shares in the stock market. The ones who own a stock market share become part-owner of the company. Primary industries sell their stocks when they start to grow as a company. 

There are two options for any company to raise funds for their business-

  • Borrowing money from the bank. 
  • It can offer IPO and go public by selling stocks in the share market.

What Are Mutual Funds?

Mutual funds are a mix of both stocks and bonds. Professional fund managers who are part of any Asset Management Company and Investment House manage these funds. Thus, mutual funds are of two types. 

  • Equity Mutual Funds: These funds usually consist of shares of a company. 
  • Debt Mutual Funds: These funds consist of government bonds and securities. 

Difference: Stock Market Vs. Mutual Funds

Here are the differences between the stock market and mutual funds. These differences should help you invest in either of these investment choices. 

Professional Management

Mutual fund investors love to leverage the knowledge of professional fund management.

Investing in shares can be deadly if there is no previous experience in the financial market. Investment experts advise investors to invest in mutual funds to keep their capital safe while also gaining some profits.

Save Tax

Mutual funds investment lets you save tax. The Income Tax Act of 1961 offers a tax deduction on investments below 1.5 lakh in ELSS mutual funds. HUF and individuals can reduce their liabilities using this deduction.  

By investing in ELSS mutual funds, you can save up to Rs.46800. So, if you want to save tax, you should invest in mutual funds. 

Disciplined Investment

Financial discipline is one of the major advantages of investing in mutual funds. By investing through SIP, the investors get to learn about financial discipline. In a SIP, an investor has to invest a fixed amount periodically. 

The investor needs to decide the quantum of payment and the frequency of Investment when starting a SIP tenure. On the other hand, stock investment can be tricky as it requires the investors to time and initiate each transaction by themselves. 

Cost Investing

You can buy the stocks individually. But when you are investing in mutual funds, you need to pay a small fee to the fund manager for managing the stocks actively. So investors need to pay an extra amount for the active management of their investment funds. 

But the mutual funds only charge a fraction of the brokerage charge from the individual shareholders. This is an important thing to consider before you choose any of these investment ideas. 

Investment Tenure

If you want to generate a considerate return from mutual funds, you must stay invested for more than 5 or 7 years. The reason behind t6his tenure is that the mutual fund investments have long-term growth. 

But when you are investing in the stock market, you can expect a quick and substantial return within a short time. For the stock share to work in your favor, you need to select the right stock and the time of selling and buying property. 

Last Words

The most important thing here is that you must have considerable knowledge of the stock market and mutual funds before blindly investing in them.

Don’t let the 100 billion dollars stock fraud kind of rumours demotivate you into not investing in the stock market. With proper knowledge and experience, you can invest in the stock market.

For a new investor, iot is always best for investors to invest in mutual funds because they pose less risk and offer a sizable return. 

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