Mutual Funds vs. Stocks – Which Is Better?
Imagine that there was a simple way where you could double or triple your investments within a few months, and after that boom!! It doubles its value. Wow, that would be amazing! If such things happen in real life, it could just make everyone rich, and the importance of things would not be there. Nevertheless, investments are still one way to get wealthy, provided you know what you are doing and where your money is going.
Fortunately, you can explore several options right now. Choose real estate, fixed deposits, stock market investments, mutual funds, savings accounts, and so many such opportunities. Out of these, the most attractive ones are mutual funds and the stock market. No doubt, you have plenty of stock trading and mutual fund apps and platforms to help you out.
Both investing avenues are equally popular. Some investors might prefer mutual funds for their safety, while others prefer stocks for their short-term money-making schemes. Which one should you choose? Firstly, let us find out details on these financial terminologies and what they mean.
What are Mutual Funds and Stocks?
While they seem to be similar investments, their return is quite variable, and the waiting period is also different.
Mutual Funds
Investors pool in a ton of cash to buy plenty of shares and allow others to invest in them. That is a mutual fund. When you buy a mutual fund, you are entitled to a fragment of the many shares/securities investors would have decided to purchase.
It’s more like you’re indirectly investing in the stock market, but then someone is doing it for you. The returns on mutual funds are quite flexible, but it’s perfect for the long term and gives you higher returns than any bank interest. The risk is low, but you may have to wait longer for higher returns.
Benefits of Mutual Funds
Here are some advantages of investing in mutual funds:
1.Diversification
You’ll find a culmination of segments under one mutual fund. You can expect several shares and securities to exchange in the stock market, which provides a broad portfolio and better returns to compensate for any losses incurred.
2.Professional Management of Assets
Professional fund managers manage mutual funds, and they are experts who know what they’re doing. They are well versed in operating assets and span decades of experience in handling them sensibly.
3.Convenience
Investing in mutual funds is quite simple. Choose the mutual funds from any site and invest in the amount. You may not have to bear a fee unless you go through an entity or broker to do it for you.
4.Benefits on Tax Savings
For those investing in equity-linked savings, the scheme offers tax benefits as well. So, this could be an added advantage of investing in mutual funds.
Disadvantages of Mutual Funds
Few drawbacks of investing in mutual funds are:
1.Variable Turnover
Any mutual fund won’t guarantee you superior returns. Only towards the end of the mutual fund investment would you get an amount similar to the projected amount. However, these can be tentative to change significantly depending on the investors handling the mutual fund.
2.Waiting Period
Investing in mutual funds has a long waiting period. You will have to show patience and wait substantially longer to get the desired amount. Even then, there is not any guarantee that you will get rewarded with the estimated figure.
3.Not Much Control
As an investor, there is no control over the money invested. It’s all dependent upon the mutual fund manager and their instinct of trading. Consequently, any false move could see your investment tank considerably.
Stocks
Stocks are nothing but portions of the company that people trade to make money. If you own some stock in a company, you have that much or that percent of the company.
For making money from stock investing, there are two ways that companies pay. One is through dividends, where the profits are distributed based on the number of stocks you own in the company. Another way is the trading part, where you sell the company’s shares to earn profits.
It’s a high-risk and high-reward scheme where companies performing excellently on one day can go bankrupt the next day, making your shares worthless.
Benefits of Investing in Stocks
Here are some benefits of investing in stocks:
1.Take Advantage of the Growing Economy
If the company you invested in grows, you can earn handsomely given the number of stocks you own. You could reap a small chunk of the benefits of the expanding economy.
2.User-friendly Process
The entire stock investing process has been well-organized. You can use a user-friendly trading platform, mobile application to open a trading account that hardly takes a couple of minutes.
3.Easy to Sell
You can sell stocks at any given point in time. There is no particular period for selling it. Getting instant money credited to your bank account is a possibility. There is no waiting time involved in getting your returns.
4.Money Made Two Ways
Owning stocks for an extended period can either get you dividends, or you could sell them and make a profit. These two ways are through which investors usually make money from the stock market.
Disadvantages of Stocks
Here are some disadvantages of investing in stocks:
1.The Risk Associated if Too High
Investing in stocks is exceptionally volatile. If the company doesn’t perform well, then you could look at all your investments within a blink of an eye. However, you have to pay several service charges and other taxes before getting the final profit from selling stocks.
2.Detailed Homework on Investing cannot Guarantee Your Results
There is no surety that your calculated investment will give you any rewards. It’s an emotional roller-coaster where you could see some profits, but then getting your targeted returns might take decades of experience to reach a profit-making strategy.
3.Addiction
The stock market is more like gambling than anything else. You may incur losses. To cope with it and breakeven with your investment, you pour in more money. But if nothing works out, you could keep putting in funds and keep losing it.
Mutual Funds or Stocks – What to Choose?
The answer to this question lies in your preference and requirements. If you want to have steady returns but are looking for long-term gains, the mutual funds are for you. However, it would help if you kept in mind that your mutual fund investment will not massively improve your returns.
It all comes down to the amount invested and the type of mutual fund you choose, which would determine your gains.
But for those looking for short term goals and want to take the plunge in creating chances of making money, stocks are the option for you. There is a lot of money that you can earn through the stock market, and owning stocks is just a part of what it has to offer.
There are long term stocks and dividends through which income could be steady. Select the best Demat and trading account, and then go ahead to achieve your stock investing and trading dreams.
No matter how much money you make, the chances of losing the same stand at 50%-50%. So, think twice before you put money in the stock market.
Conclusion
Mutual funds and stocks are great options to invest therein, managed by a group of professionals well-versed in investing. However, the risk factor still prevails.
Whereas the investor owns stocks, and there is nobody to mediate the process. And yes, huge risks attached here also. Both have their ups and downs. So, choose the best investment alternative as per your priorities and goals.
