Buying Stocks vs Investing in Equity Mutual Fund

5 May 2016 | 1547 Views | By Mint2Save

The Indian wave of investment in the stock market via mutual funds has grabbed attention all over. Being one of the leading developing economy of the world, it is uncanny, how often we have got addicted to new ideas (start ups?), objects and what not!! The overflow in the mutual fund market is one such example. With increase in jobs, improvement in salary structure and some very cool marketing, mutual funds have made their presence very concrete in the Indian Financial Market.

Mutual funds, though of various, have peculiarly gained more popularity in the category of Equity Based Mutual Funds. With returns going all the way to over 16%, equity mutual funds have gotten confidence and as a result investment by a lot of young as well as aged investors. Still, when it comes to reaping better returns, can these group of various stocks challenge individual shares?

What do you think, can a mutual fund that has Infosys, can perform better than Infosys stock itself? Let’s find out in this comparative study between a mutual fund and a share/stock.

Definition: By definition, a stock is simply a part of a company, which makes the investor (stock owner), a part owner of that company. In other words, it is a simply an ownership contract.

On the other hand, a mutual fund is a combination of various stocks and debt instruments.

2. SIP: Systematic Investment Plan or SIP, has established itself as a USP of mutual funds. A lot of mutual funds, specially equity based ones do bank on SIP when it comes to marketing these funds. Stocks, cannot be bought using a SIP or a similar instruments.

Why? The reason is simple. Mutual funds are traded in units. These units need not be whole numbered and can have upto 4 decimal units. This would mean that your Rs. 1000 SIP can fetch you 24.4234 or such random number of units.

Stocks, are like real estate. They cannot be divided into half or quarter or even one-sixth, while buying. You need to buy stock in non decimal units. i.e., 1, 2, 10 and so on. Another interesting yet confusing thing to keep in mind when we compare these two.

3. Dividend: Well, quite a lot of stocks do give a dividend and similarly, quite a mutual funds do give dividends too. Then what’s the difference? For a stock, decision to giving dividends is based on the discretion of the board of directors, while a mutual fund in a dividend scheme is a sure shot to give you dividends, which might vary from time to time.

4. Management: A USP that mutual funds thrive upon to attract a common man is the management of dedicated fund managers who are consistently working to improve the performance of the mutual fund.

5. Exit Load: Exit load is a kind of fees that one has to pay when he wraps up his investment and takes all his returns. Almost all equity mutual funds have an exit load of 1% or so, when the investor exits in less than 1 year of investment. However, there is not a single trace of exit load when you are selling a stock.

6. NAV/Price: This is more of a technical feature. The mutual funds are valued at NAV or net asset value. On the other hand, stocks are valued their buying or selling price.

Two easy and rapidly growing ways of investing in the Indian stock market are stock and equity mutual funds. Two products from the same market that differ in a few, but highly relevant factors, does create a lot of interest when you start investing. Be aware, invest wise!!