Hi reader, in this article, will some differentiation between Stocks vs Mutual Funds
We always get confused between stocks and mutual funds. Should I invest in stocks or Mutual funds?
The stocks is having a higher potential of getting more return than mutual funds and also have a lot of risks attached to particular stocks. It will get difficult to understand or learn about fundamental or technical analysis of a particular stock.
On another side, selecting one good mutual fund is also a difficult job. Mutual funds are safer than stocks but the expense ratio is also involved in that.
What is Stocks?
The stocks will provide you ownership of the company like Infosys, TCS etc. if you purchase any stock then you will be a partner or shareholder of the company. You are the part-owner of the company.
If a company is growing and earning also increasing in this sense you will get direct benefits as a shareholder. The company will provide more dividends or bonuses from time to time. The best part is the stock price is always increasing if the company is doing well. You can create wealth out of it in a long run.
What are Mutual Funds?
Mutual funds, it’s a pooled investment where the investor will pay or invest in mutual funds which are maintained by my fund manager. The fund manager will change the stocks according to their analysis.
The stocks will be changed according to the cycle. The professional analyst will be working to understand the stock or technical analysis. There are many types of mutual funds like equity-based, debt-based Mutual funds.
Pros and Cons of the Direct Stock Investment
Easy to use: Nowadays all the Demat account creation is done online and you can create within a couple of hours by submitting all the documents. You can buy or sell any share within a sec.
High-Profit Potential: If you know to identify the right stock then there is a high possibility to have more profits and make good money.
Trading Cost: Now it’s a minimum trading cost in retail stockbrokers like Zerodha, stock etc.
High Loss: There are high changes like you may lose your capital or consistently make losses from the market. If you consider Covid Crash, you would have been facing lots of stress of making huge losses.
Research on the stock: People really doesn’t have time to spend so much on fundamental or technical analysis. As for myself, I am working in an IT firm, I don’t really get much time. But there are many useful tools available to make this process bit simpler.
Volatility: Nowadays market will face higher volatility where if you set a stop loss and target in 1:2 ratio there is a higher possibility that it hits stop loss and make you more stressed.
Pros and cons of the Mutal Funds investment
Low Cost If you invest indirect or passive mutual funds the cost will be very less.
Diversification You can make high diversified portfolio where you can manage your risk as well.
Less stress The entire stock selection or analysis is done by the fund manager so you no need to worry about those.
High Cost There are many mutual funds that cost more expense ratio. which will decrease your wealth.
Underperformance There are many possibilities where the mutual funds will go underperformance than the index funds.
Tax Saving You will get other benefits like tax benefits up to 1,50,000 by investing in equity-linked saving scheme funds.
If you are a beginner then you must go for mutual funds to understand investment or growth and a lot more. If you have time to search then stocks are the best tool. Go with blue stock companies initially.