A few weeks ago, one of my readers asked me to provide details for the investment in the mutual fund and the share market. So, in this article, you will learn about the differences between the mutual fund and the share market. This information will help you to decide which investment tool is better and why.
In general, most of the people are confused between these tools. Some people thought that the investment in the mutual fund and the share market is different. For these, please note, both investments are investing in the share market only. In the first case, the investor investing money indirectly into the share market. In the later, investors invest money directly into the share market. In both cases, the mutual fund and share market are risky. Even the asset management companies (AMC) mentioned a line at the bottom of their document for mutual fund investments. The line is
“Mutual Fund Investments are subjected to market risks, read all scheme related documents carefully”
Here, the market indicates the share market & the risks indicate the risk involved in the share market.
Whatever investment instrument you decide you must understand, is directly linked to your Net worth. Nobody becomes rich with only salary income and your savings. In current times, if you wanted to become prosperous you must invest either in mutual funds or in the share market directly. (Learn the difference between Savings and Investments)
WHAT IS MUTUAL FUND AND SHARE MARKET INVESTMENTS?
Mutual Fund Investment
Asset Management companies generally start Mutual fund investments. Where they initiate the fund by collecting a bunch of good companies, where they invest money. The pool a large amount of money from the investors and invest in those funds. The bunch of those superior companies together make a fund called mutual funds. There are lots of asset management companies in India as:
Share Market Investment
In the share market, you can invest your money by just opening a Demat account and buys the shares of the company. That allows you to purchase the ownership of a company. In the share market, you can buy and sell the shares at any point in time. Like mutual funds, there are a bunch of good companies that make a fund here does not apply. You can invest directly individually in the market.
Read more about the Share Market:
DIFFERENCE BETWEEN MUTUAL FUND AND SHARE MARKET
SHARE MARKET INVESTMENT
MUTUAL FUND INVESTMENT
Control in a hand of investor itself
Control in a hand of Asset Management Companies (AMC’s)
Buy & Sell
Buy and sell at any point of time during trading session
Buy and Sell mutual funds at business hours
Entry or Exit from single stock at any time
This feature not possible
Cost incurred in demat account. Annual maintenance charges also incurred
Exit load is more. Investing cost is more than direct share market investment
Required demat account for investment
Investing can be done without opening any demat account
Trading or Speculation
It can be done during trading sessions only
Selection of Stocks
Individual selection is possible
Not applicable. It is done by AMC’s only.
No Taxes incurred. No tax saving applicable in income tax returns
It helps in income tax returns under 80C
Return is more
Consistent return but less than direct investment
High Risk level due to volatility
High Risk but not in the long term investment
It can be invested for the long term or short term. Good results found in both the long and short term. But long term is always preferable
Good results found in long term only
It can be done by yourself. It is a time-consuming process
Research is done by fund managers of AMC’s. You only need to invest money
Good or Bad
It is good for people who knew already about share market
It is good only for new investors
It is only restricted with the share of the company
It is not restricted with shares. It diversified in government bonds, corporate bonds, Gold Real Estate or Commodities etc.
With the above table, it may now clear you that the difference between a mutual fund and the share market. There is no investment which is not risky, either invest in the mutual fund or share market. But if you are treacherous, then you must directly invest in the share market that can give you more returns than any other tool.
If you can take the calculated risk then you must invest in the Mutual funds. There are a lot of examples are available in front of us who invest directly and bring out huge returns. Some are – Warren Buffett, RK Damani, Rakesh Jhunjhunwala, etc. These people build their wealth by investing directly in the share market and continuously increasing wealth.