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Mutual funds offer instant diversification, as you can invest in a diversified portfolio of stocks, bonds or other assets.
Mutual fund provides cost and tax benefits.
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For many investors, the big question is whether to put their money into mutual funds or individual stocks. Both are popular options for individuals to grow their wealth, but choosing the right one depends on an individual’s risk tolerance, financial goals and investment horizon. While mutual funds offer a degree of risk mitigation through diversification, direct stock investing carries a greater level of risk but potentially yields higher returns.
If you are also confused, then explore the differences between stocks and mutual funds and what makes the other better in this article.
What Are Mutual Funds And Stocks?
Mutual funds are a type of investment vehicle that pools money from different investors to create a diversified portfolio of stocks, bonds or other money market instruments. These funds, actively or passively managed by fund managers, are bought or sold at the end of the trading day at a price known as the fund’s Net Asset Value (NAV). Investors own the units allotted to them by the mutual fund and do not have ownership of the underlying assets.
Stocks (also known as equity), on the other hand, mean owning a piece of a company. These will entitle you to a proportionate claim on the company’s earnings and losses. If a company does well, your investment can grow quickly, but if it performs poorly, you could lose money.
Mutual Funds vs. Stocks: Which Is Better?
When deciding between these two, it is essential to understand their differences and consider your investment goals.
Diversification: Mutual funds offer instant diversification as you can invest in a diversified portfolio of stocks, bonds or other assets. But to achieve diversification with stocks, you need to invest in multiple companies (usually 15-20 stocks).
Risk And Return: Mutual funds carry risk, but it is lower than investing directly in stocks. The returns of the funds depend on the performance and market conditions. Investing in individual stocks, on the other hand, has higher risk, but they also offer higher returns.
Cost And Tax Benefits: Mutual funds have relatively low expenses, and some funds, like ELSS (Equity-Linked Savings Scheme), qualify for Section 80C deductions. But individual stocks can require you to invest in multiple companies, which don’t have guaranteed returns.
Mutual funds are better for beginners or those looking for steady growth. Stocks may be better for experienced investors who can handle market ups and downs. In a nutshell, mutual funds provide diversification and tax benefits, making them a better choice for investors.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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