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8 differences between Mutual Funds and Shares

In the world of investments, mutual funds and shares are two distinct investment avenues. However, many people often get confused between the two and use them interchangeably. 

Shares are units of the entire capital of a company. Owning a stock of a company means owning a part of the company; while a mutual fund pools the money collected from various investors and invests it in a variety of assets, including shares of different companies. However, you must know that you do not become a part-owner of a company by investing in mutual funds. Instead, you receive mutual fund units in proportion to the investment amount.

Understanding the differences between mutual funds and shares is critical to make an informed decision while investing. Let’s take a look at the eight key differences between mutual funds and shares:

1. Diversification:

Mutual funds allow diversification as the pooled money gets invested across different shares or fixed income instruments as per the fund’s objective. Direct investment in shares may not lead to any diversification unless you choose to invest in different stocks.

2. Management:

Once you invest in a mutual fund, you do not have to manage the fund on your own. Experienced fund managers are responsible for managing the performance of mutual funds and making decisions to buy or sell. In the case of shares, you are responsible for monitoring the price movement of shares and managing your investment.

3. Mode of investment:

When you invest in shares, you invest the funds directly as the shares get credited to your Demat account directly. In case of mutual funds, the fund manager decides where the money will be invested and sends you a statement of account that represents the units of mutual fund you are holding.

4. Risk mitigation:

Mutual fund invests the pooled in money into the securities of various companies. This helps to minimize the risk in case of any market volatility.

5. Flexibility:

Fund managers manage mutual funds. You don't get to decide which securities should be in your portfolio. When you invest in the shares of a company, you can buy or sell as per your preference. This gives you the flexibility to buy more of a particular stock if you are confident of the prospects of that stock.

6. Tax efficiencies:

Equity oriented mutual funds such as Equity Linked Savings Scheme (ELSS) allows deductions up to Rs. 1.5 lakh in a financial year under Section 80C of the Income Tax Act.  However, no such tax benefits are available in the case of shares. 

7. SIPs and SEPs:

You can make investments in mutual funds through a Systematic Investment Plan (SIP), which allows you to invest a fixed amount regularly. You can start with as little as INR 100 and grow your wealth. On the other hand, investing in shares, does not provide you with an SIP option but a SEP (Systematic Equity Plan) option that allows you to invest in shares in a systematic manner. Here, you can invest daily, weekly or monthly.

8. The autonomy of investment:

Investing in shares gives you more control as you can decide what to buy or sell, when to buy or sell, etc. However, in mutual funds, there are fund managers who manage the investment and they determine the type of securities to invest in, when to buy or sell, etc. 

Now that you have understood the differences between mutual funds and shares, you can pick the product that suits your needs. Direct investments in shares are suitable if you can choose the right stocks and create a diversified portfolio. Mutual funds are a good choice for those who lack expertise or time to manage their investments. However, you can invest in both direct shares and mutual funds to take advantage of both.

Want to start investing in shares or mutual funds? Open a trading account now.


Disclaimer: ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No: 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. PFRDA. We are distributors of Mutual funds. Please note that Mutual Fund Investments are subject to market risks, read the scheme related documents carefully before investing for full understanding and detail. I-Sec does not assure that the fund's objective will be achieved. Please note. NAV of the schemes may go up or down depending upon the factors and forces affecting the securities markets. Information mentioned herein is not necessarily indicative of future results and may not necessarily provide a basis for comparison with other investments. Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The information provided is not intended to be used by investors as the sole basis for investment decisions, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific investor. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. Investors should make independent judgment with regard suitability, profitability, and fitness of any product or service offered herein above. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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