Should I invest in stocks or mutual funds?
Investments of any kind require proper planning as well as adequate knowledge of the current financial market trends. Mutual funds like HDFC midcap opportunities fund or stock market allows the people to plan out their respective investment plans for the maximum returns.
However, it becomes tricky when you have to choose between the two for the maximum financial benefits. Although you need to be ready to take risks while investing in both the sectors, yet there lays distinctive differences between the two markets when it comes down to investments.
However confusing it might seem, but both the sectors provide lucrative deals and offer for the people to invest their money for future endeavors. So to avoid the significant confusion about choosing the appropriate industry for investments here is a friendly comparison between both the mutual funds investments as well as a stock market for your reference:
- Concept of mutual funds and the stock market
Before we take a look into which option holds good as a future investment plan, let us check out the conceptual differences that lie between mutual funds and the stock market. So, when one buys a stock, it means to own a share of a corporation or an organization.
In this case, you can make profits in two possible ways. If the stocks offer dividends, then you would get the payments every quarter or annually. That amount would sum up to the taxable annual income of the investor.. Don't use plagiarised sources.Get your custom essay just from $11/page
On the other hand, one can also earn the respective profits by selling off their stocks in the market. The profit is the amount that you receive by deducting the fees and the cost price of the stocks from the final selling price. However, the trick here is to wait for that part of the day, when the prices of the shares are highest as these prices fluctuate continuously throughout the day.
In case of the mutual funds investment, one gets to own a share of the total funds of the corporation. The rates or the prices of each of the mutual fund share is known as its net asset value, which happens to be the overall value of the securities divided by the total number of the shares. Unlike the stock market, the prices, in this case, are adjusted only at the end of each business day.
- The difference in the risks
If we make a fair comparison between the risks in investing in stocks and the mutual funds, then the former one possesses more significant threats to the investors than the latter one. That is because, in case of investments in the stock market, one needs to research thoroughly before actually investing in it. This would be more critical if the investor happens to be a novice in this field.
However, in the case of mutual funds, the scenario is slightly different as it is spread across, and the pooling of the various stocks reduces the risks. Unlike the stock market, in case of the mutual funds, the entire research is being conducted by the experts as well as professional fund managers who deal and manage the whole pool of the investment funds. However, as these jobs are done by officials here, hence one needs to pay an annual management fee to the fund house for the same.
- Availability of time
Time is another aspect that lays a foundation of differences between mutual funds vs. stocks. That is because; you are required to invest a lot of time in research about each individual company when you plan to go for the stock market.
You need to have a thorough, clear idea of the financial reports of the company and also other details of the company’s economic growth in the market. You need to always keep an eye on the progress of the company and its regular financial records. Such thorough research takes a lot of time but would definitely provide you an ample amount of information about how to invest in stocks with the maximum benefits.
However, this isn’t the exact case if you decide to invest in mutual funds. That is because, in case of the mutual funds, all the research work is already done for you by the respective manager of the organization. You just need to take a clear look at the comparison provided to you by the expert and hence choose the suitable one for your future investments. However, irrespective of the kind of mutual funds, you always need to keep a check on the economy of the company to avoid any mishaps later.
- Charges
In the case of the stock market, you need to pay a certain amount as the charges of the brokers who would help you to buy or sell your stocks in the market. However, these charges vary considerably depending on the company as well as the broker. But, you can waive off this charge if you are equipped with adequate knowledge of the stock market and can select your stocks independently.
In case you want to outperform in the market and require complete advice, you need to hire a full-service broker who might charge a hefty amount per session. But remember that till you sell your stocks, the broker won’t be able to charge you with any fees.
In the case of mutual funds, you need to pay an annual management charge for the investments. Some companies might charge you while you buy the shares or when you sell them in the market. In many cases, individual companies might not charge you at all in case if you can hold on to the shares for a considerable period.
Most of the funds, like L&T midcap fund and other leading ones in the market, sell and buy shares periodically throughout the year. In case the companies incur some profits on those shares, then you might have to pay additional taxes for the same.
However, apart from these differences, both the sectors offer you attractive investment returns, but the profits, as well as risks, are much higher in the case of stocks as compared to the mutual funds market.
Hence, to gain the maximum profits in such investments, make sure to study the market trends thoroughly and keep yourself always updated with the latest news and the changes in the market. In case, if you are a novice and want to know more about how to invest in mutual funds or the stock market, then feel free to seek the professional advice of the experts in the market.