Asset Management Tutorial
- Mutual Funds
- What is Mutual Fund?
- Balanced Funds
- Alpha Formula
- Types of Mutual Funds
- Open Ended vs Closed Ended Mutual Funds
- Dividends vs Growth
- Mutual Fund Analyst
- Exchange Traded Funds (ETF)
- Mutual Funds vs ETFs
- Index Funds vs Mutual Funds
- Shares vs Mutual Funds
- Net Asset Value Formula
- Mutual Fund vs Hedge Fund | Top 7 Differences You Must Know
- Term vs Whole Life Insurance
- Actual Cash Value vs Replacement Cost
- Top 10 Best Mutual Fund Books
Differences Between Shares vs Mutual Funds
“Don’t put all your eggs in the same basket.” Whenever we start investing in shares, experienced investors offer this advice. Why?
It’s because if we put all of our eggs in the same basket, the risk factor would double, triple, quadruple and as a result, we may lose a lot of money. Instead, they suggest, we should put our eggs in different baskets so that if one basket doesn’t do well, another one will suffice. And that’s exactly the difference between shares and mutual funds.
When we invest in individual share, the risk is higher. We expect the share to do well in the near future, but if unfortunately, it doesn’t, we lose a handsome amount of money. Now, what if as an investor, we invest the same amount of money in the mutual funds instead of individual share, it will be beneficial for us. If one share doesn’t yield better returns, another will. The diversification will help us pare down the risk as much as we can.
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Plus, investing in mutual funds is much more convenient. You don’t need to pick up top 20 high-performing shares. The experts are hired by mutual fund companies to help you select. As a result, you just pay a monthly amount and at the end of a few years, you earn the great return on your investments. At the same time, when you trade shares, you need to sell out the shares that aren’t doing well. For individual investors, the trading cost is quite high. But for mutual funds, you don’t need to worry about the trading cost. The expenses for running the fund would be charged against the money investors invest in the mutual funds.
Mutual Funds vs Shares Infographics
Here we provide you with the top 6 differences between Mutual Funds vs Shares
Shares vs Mutual Funds Key differences
Here are the key differences between shares or mutual funds –
- One of the key differences between shares vs mutual funds is the level of risk. When you invest in shares, you have more risk than when you invest in mutual funds. Why? A mutual fund includes many shares in the portfolio and if one share does poorly due to the poor manager/strategy/misfortune, other shares can back it up.
- Investing in share isn’t a good idea for a newbie. It takes a lot of study, practice, and understanding of the share market to make good money. On the other hand, in mutual funds, anybody can make money since the mutual funds are managed by qualified fund managers.
- Share investing isn’t very convenient. You should do your due diligence before finding the right shares. Investing in mutual funds, on the other hand, is so easy. Just do some research, look through the stocks that are included in the funds, look at the past records, and you’re done.
- If you want to diversify your investments, you need to pick right shares as per your needs (more return-more risk, medium return-medium risk etc.). For every mutual fund, diversifications come as a feature. You just need to pick the right mutual fund.
Shares vs Mutual Funds Head to head differences
Let’s have a look at the head to head differences between the Shares vs mutual funds.
|Basis for comparison||Shares||Mutual Funds|
|Reason for investment||Return is higher as well as risk.||Return is somewhat lower as the risk is lower than investing in shares.|
|Risk||Riskier than mutual funds.||Less risky.|
|Convenience||There’s almost no convenience in investing in shares. You need to study hard to know what shares to pick and what to sell out.||Mutual funds are very convenient as mutual fund managers are there to think for your best interest.|
|Research||To pick the right shares, you need to do your research.||Even for mutual funds, you need to do your research, but mutual funds don’t take much time.|
|Diversification||To diversify, you need to find out right shares or invest in them.||To diversify, simply invest in the right mutual funds.|
|Trading costs||To buy and sell shares, you need to pay a lumpsum trading cost. Usually, trading cost remains on the higher side.||There’s also an expense for mutual funds. The expense is recouped against the money investors pay for mutual funds.|
Shares vs Mutual Funds – Conclusion
Shares and mutual funds are different types of investments. And as per the need and the risk appetite of the individual, one should pick the investment. If one is confident that she can take a huge risk (and want to generate a better return on investment as a result), investing in individual shares is a good option. On the other hand, if one wants to pare down the risk but want to generate better returns than fixed deposits, mutual funds are the best bet.
You can also do both i.e shares or mutual funds and see for yourself what works for you.
This has a been a guide to Shares vs Mutual Funds. Here we also discuss the differences between Shares or Mutual Funds along with infographics, and comparison table. You may also have a look at the following articles-