While the stock market has always attracted investors, Mutual Funds are known to be considerably safer and more convenient. If you are planning to invest, what should you select between stocks and Mutual Funds? This post can help you decide.
While the Indian stock market appears to be very attractive, the rewards or returns are directly linked to your stock-picking knowledge and experience. It is generally said that more than 95% of people lose their money in the stock market. With professionals handling your money on your behalf, Mutual Funds are known to be considerably safer and more convenient. If you are struggling to select between Mutual Funds or stocks, here are a few points that can help you decide:
What are Mutual Funds?
Mutual Funds are a very popular investment tool in India. In this, the money from multiple investors is invested in a diverse portfolio that includes stocks, bonds, and other securities. Generally, these are managed by fund managers who have expertise in managing mutual funds to give you maximum returns. Mutual funds are a good option if you're aiming for long-term, high returns, along with easy access to your investments.
What are Stocks?
Stocks represent the ownership in a company. They are listed on stock exchanges, and when you buy a company’s stock, you become a shareholder, owning a portion of that company. Their values fluctuate as per the company's performance and market trends. It is also important to know that stocks offer higher returns however, they also come with greater risks.
Difference between Stocks and Mutual Funds
Feature | Mutual Funds | Stocks |
Investment Type | Pooled investment managed by professionals | Direct investment in individual companies |
Management | Actively or passively managed by fund managers | Self-managed by an investor |
Diversification | Offers built-in diversification | Requires multiple stock purchases for diversification |
Risk Level | Generally lower due to diversification | Higher risk due to market and company volatility |
Returns | Moderate and steady over time | Can be high, but are often unpredictable |
Cost | Includes expense ratio and fund management fees | Brokerage fees per trade |
Suitability | Ideal for beginners or passive investors | Better for experienced and active investors |
Liquidity | Redeemable at NAV (Net Asset Value) | Can be sold during market hours |
Mutual Funds vs Stocks: Factors to Consider before Investing
1. Risk Tolerance
While there is no denying that your investment in stocks has unlimited potential, it is also essential to know that stock markets are the riskiest form of investment. The higher returns potential comes with a higher level of risk too, and you can suffer from significant losses.
Mutual Funds such as equity funds are considerably safer. aAsset Management Companies (AMCs) that offer Mutual Fund schemes have a professional team for every fund they offer. This makes Mutual Funds a safer option in Mutual Funds versus stocks comparison.
2. Investment Knowledge
Selecting a multi-bagger or a stock that can deliver returns multiple times their actual cost is a skill that is very difficult to master. Even the most experienced of investors sometimes end up making the wrong decisions. This is known to be one of the biggest difference between stocks and Mutual Funds.
While there is a learning curve with Mutual Funds too, it is not as steep as the stock market. Depending on your objective, you can pick the right type of fund for your investment and can remain invested in it as long as you like.
3. Investment Amount
If you are struggling with investing in stocks versus Mutual Funds, the investment amount required is also an important consideration. With the stock market, you’d mostly need a lump sum amount to generate any decent profits.
With Mutual Funds and Systematic Investment Plan (SIP), you can now start investing with as little as Rs 1,000 per month. This allows investors to begin their investment journey earlier in life and be better equipped to meet their financial objectives.
4. Investment Tracking
Investment tracking is also an important factor while selecting which is better - Mutual Fund or share market. As you will yourself pick stocks for investment, you will also be required to track your investment and make the required changes regularly.
On the other hand, with Mutual Funds, there is no need to track your investments regularly. The investment team of the AMC will manage your money and make the required changes to the underlying fund portfolio if needed.
How To Invest In a Mutual Fund?
You can start investing in Mutual Funds easily through ICICI Bank Net Banking and iMobile app. Here is the investing process:
Start by determining your investment goal, time, and risk levels.
Through Net Banking
- Log in to your Net Banking account.
- On the 'Investments and Insurance' page, choose 'Buy Mutual Funds.'
- Look through the different schemes, select the funds and filter based on your preferences. You can also determine the potential returns and plan your investment strategy, whether through SIP or Lumpsum investment methods, using the Mutual Fund Calculator to guide your decisions.
- Click 'Invest Now,' type in the amount, then select 'Lumpsum or SIP'.
- Examine the information and be sure to complete the investment.
Through the iMobile App
- Get the iMobile app from the app store, then enter your login information.
- Click 'Invest' tab and then click 'Mutual Funds.'
- Look over the available schemes, verify information such as performance and NAV, and select the one you wish to invest in.
- Enter the sum, choose a lumpsum or SIP, check the information, and validate your investment.
How To Invest In Stocks
The stock investment procedure is equally simple. You can start by following the steps given below:
- As a beginner, start your journey by opening a Demat and Trading Account with ICICI Bank.
- After completing KYC formalities and linking your Savings Bank Account, you can easily start trading online.
- You also need to research the company fundamentals, financials, and market trends very carefully when choosing a stock.
- You can keep using your ICICI Bank Trading Account to buy or sell shares on stock exchanges.
Understanding Stocks and Mutual Funds Before Investing
To make the right selection between stocks and Mutual Funds, you first need to understand how both of these investment options work. Direct stock investments require a considerable amount of knowledge and experience, making it a hazardous option for someone who has just started investing.
Mutual Funds are fairly safe and convenient and an excellent option for beginners and professionals alike. Understand the stock market versus Mutual Funds points discussed above in detail, and you will be able to make the right decision.