Investing in mutual funds vs. stock market – which one to choose for higher returns?
Mutual funds and stocks can both offer significant benefits to investors. However, there lie some fundamental differences between these two as they serve unique investment purposes. This article can help you pick the right option.
What is the difference between investing in mutual funds and the stock market?
|Points of difference||Mutual funds||Stock market|
|Risk||Mutual funds may carry lower risk compared to the stock market. Mutual funds are diversified. So, your money is invested in different industries, sectors, and asset classes. This reduces risk and the chances of earning negative returns.||The risk quotient is a lot higher in the stock market. While the chances of earning high profits are intensified here, so are the chances of making negative returns.|
|Management||A fund manager manages mutual funds who takes all decisions of buying and selling, monitoring the investments, etc. This can be great for passive investors who do not have the time or knowledge to make crucial investment decisions themselves.||Investing in shares requires you to make all the buying and selling decisions yourself. This needs an intricate understanding of the stock market, knowing when to enter and exit the market at the right time, etc.|
|Diversification and budget||Mutual funds offer the benefit of diversification. Even with a bit of investment, you can get exposure to different stocks.||To diversify your portfolio in the stock market, you have to invest in different stocks. This may seem like a massive investment and may or may not suit everyone’s budget.|
|Tax benefits||Mutual funds offer tax benefits if you invest in equity-linked saving schemes, also known as ELSS. You can claim a tax benefit of up to Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961 by investing in this scheme.||There are no tax benefits of investing in the stock market.|
|Investment method||Mutual funds offer two modes of investing:||You can buy stocks in the stock market from your Demat account. As the name suggests, the stock market functions like any other market. The supplies you buy reflect in your account, and the money is credited to you upon redemption. Moreover, there is no option to invest through a SIP.|
Which one to choose?
Mutual funds can carry lower risk compared to stocks. So, if you want to avoid high risks, investing in them can be a better option. However, if you are open to risk and volatility, you can add some stocks to your investment portfolio and open the possibility of earning higher profits too.
To sum it up
Irrespective of what you choose, make sure to understand the pros and cons of each option. Once you have decided, the Tata Capital Moneyfy app can help you manage all your investments with ease and convenience, even when on the go.