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Investments

Stocks vs Mutual Funds: Which is a Better Option to Invest?

Stocks and Mutual Funds have their own set of hiccups, which are better to know before making your investments
Stocks vs Mutual Funds: Which is a Better Option to Invest?
Image credit: Shutterstock
Senior Correspondent, Entrepreneur India
3 min read
Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

A financially secured future is what everyone long for and in this regard investment options like mutual funds and stocks come to the fore. Be it a newbie or be it an individual with years of experience in the domain, it is always viable to extensively access and compares the investment options before actually making an investment in the forum.

While investing in stocks refers to a direct investment in a company’s stocks, in case of mutual funds, investors invest in dividend stocks. By fetching investments from a group of investors for securities like stocks, FDs, bonds, etc. fund managers take care of mutual funds.

The assessment needs to be done in terms of the risks, costs involved and returns.

Risk factor

Stocks involve tons of risks and instabilities that always compel investors to become apprehensive of investing in them. They are always at the mercy of the market’s bullish and bearish conditions.

“Mutual Funds are subjected to market risks. Please read the offer documents carefully before investing.” – Indians have grown up listening and watching Mutual Funds advertisements with such disclaimers. Thereby, Mutual Funds also couldn’t paint a picture that is any better than investing in stocks.

However, there is a difference between the two in terms of risk involvement.

Mutual Funds involve lesser risks than stock markets. This is a reason why Mutual Funds become a better investment option for many, especially for the ones who are new to the investment space. Individuals who want to enter the stock market space needs to own intricate know-how and decision-making skills in the risky market, and only then they can handle the risks it involves.

 

Costs Involved

As stated, stocks demand thorough attention and intricate knowledge for skilful handling. If you are standing in such a promising state, you will feel a milder pocket pinch. Promising state or not, you will have to constantly invest a lot of your time in studying the market and stay updated.

Mutual funds come with annual management fees, but that varies depending on its kind. A professional fund manager manages mutual funds.

 

Returns

Returns can be good for both. However, the big difference in the timeline to get the returns is quite much. Mutual Funds need at least half a decade to give you good returns. Staying invested for a longer period of time helps in case of Mutual Funds. However, the scenario is different when it comes to stocks, which depends on the market’s state. Stocks, unlike Mutual Funds, can give you handsome returns even in a short span of time.

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