Differences Between Stock Market and Mutual Funds
We all have heard these two terms, Stock Market, and Mutual Funds, are we not? Yeah, we all have heard! But are we aware of the dissimilarities between these two? Do you have any idea about it? Well, if you ask me then I would say that I do not know, nor do you, and that is the reason you are on this page.
Here, first, we will try to understand the meaning of these two terms, and then we will be moving forward to know the differences between these two terms.
Continue reading this ahead and know the must-know differences between the stock market and mutual funds.
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What Does Stock Market (Shares) and Mutual Funds Mean?
A proportional ownership unit in a company’s capital is called shares, have put it simply.
To influence the price of the shares in the market, numerous factors may cause it to happen. For example, a company whose performance is good will see its price showing a trend upwards. Shares are issued by a company for capital raising purposes and to boost its market value. And investors are provided with the stake-holding opportunity and get a portion of their profits.
There are two forms in which individuals get benefitted, these two forms are dividends and capital gains. Investments can be done in both the long-term and short-term.
By directly investing in the company’s stock using their Demat account, investors develop the prospect to expand their portfolios. And it is the key dissimilarity between mutual funds and the stock market.
Shares come in two types, 1. Equity Shares, and 2. Preference Shares.
Let us have a little discussion regarding these two types of shares.
Equity Shares: Equity shares are ordinary shares that come with numerous benefits for the stakeholders, benefits include substantial dividends and rights to voting. In the stock exchange, equity shares are widely traded and are issued at the face value. Equity shares have some of the prominent categories, which are mentioned ahead in the pointers.
- Bonus share
- Subscribed share capital
- Right share
- Paid-up share capital
- Authorized share capital
- Issued share capital
- Sweaty equity share
Preference Share: Though preference shareholders do not have voting rights, they are given priority over the equity shareholders during liquidation and distributions of the dividends.
There are several types of preference shares, which are mentioned ahead in the pointers.
- Convertible preference shares
- Cumulative preference shares
- Participating preference shares
- Redeemable preference shares
- Non-participating preference shares
- Non-convertible preference shares
- Non-Cumulative preference shares
- Non-redeemable preference shares
Those who want to invest in the shares unswervingly take the responsibility to manage it and needed to bear the complete trading cost. And therefore, a good understanding of the market is a must to take the most benefits out of the investment opportunity.
So, now that we got to know about the shares, let us proceed further and understand mutual funds.
Definition and Explanation of Mutual Funds
From several investors, mutual funds pool money and then into different bonds of profit-generating companies it puts them. Such as gold, FDs, security, etc.
Investors, by investing in mutual funds, contribute to the losses and profits accumulated by the portfolio of their funds. In the companies that are listed on stock exchanges, money by individuals can be put in their shares. And if the investor stays invested for a longer time, higher returns can be gained by most mutual funds.
There are a certain few benefits with mutual funds, such as tax savings, affordability, diversification, and liquidity.
Furthermore, because SEBI regulates mutual funds, it has transparent and reliable proceedings.
Based on the maturity period and principal or initial investment, mutual funds can be categorized. These two we are going to discuss ahead.
Based on Maturity Period: There are three types in this category, which are:
- Open-ended scheme
- Close-ended scheme
- Interval scheme
Here, the thing is to note that, each of these schemes carries numerous types of funds having different reward and risk factors.
By now, we have understood the meaning of both shares and mutual funds, and we will now be exploring and learning the differences between the same.
Differences Between Stock Market and Mutual Funds
Definition
- Stocks: It denotes the proprietorship of establishments.
- Mutual Funds: Funds or stocks are being owned by investors to earn profits.
Denomination
- Stocks: Equal or the same value can be there for different stocks.
- Mutual Funds: in mutual funds, investors collect a pool of money.
Numeric value
- Stocks: Definite numerical value is there for stocks.
- Mutual Funds: It has net asset values
Original Issuance
- Stocks: It is always possible.
- Mutual Funds: Such possibilities do not exist.
Risk Level
- Stocks: It has a higher risk level.
- Mutual Funds: It has also a risk factor, but very low.
Suitability
- Stocks: Investors with market knowledge can do well in the stock market.
- Mutual Funds: New and experienced both can take advantage ad this fund is managed by professionals.
Diversification
- Stocks: If the stocks allow it then diversification is possible.
- Mutual Funds: Mutual funds has more cool things to offer to diversify.
Market Knowledge
- Stocks: Investors must be well-versed in the market forces to make their stock management efficient.
- Mutual Funds: Market knowledge is helpful in mutual funds also.
Trading Cost
- Stocks: Here, the cost for trading is quite high.
- Mutual funds: During the investment, funds for the expenses are retrieved through investors.
Convenience
- Stocks: Investment can be done using Demat and Trading account, but the process for the same is not convenient.
- Mutual Funds: Mutual Fund investment can be initiated within minutes and is comparatively easy.
Tax Benefits
- Stocks: When investor sell their products, they are required to pay taxes.
- Mutual Funds: Numerous mutual fund schemes come with tax-saving benefits for investors.
Restrictions
- Stocks: There are asset-class restrictions in stocks.
- Mutual Funds: The money of the investors can be put into diversified portfolios.
Investment Horizon
- Stocks: One can invest in stocks either for the long-term or short-term.
- Mutual Funds: When people do long-term investments, most mutual funds give better results.
Systematic Plan
- Stocks: This feature in stock investment cannot be extended.
- Mutual Funds: Systematic investment plan is included in mutual funds.
Control over Investment
- Stocks: It gives the stakeholders more control over their investments.
- Mutual Funds: Those who invest in mutual funds, do not have much control over their investment.
And here, we are done with our discussion regarding the must-know differences between the stock (share) market and mutual funds. We have got to know the meaning of these two terms in quite detail. We anticipate that this piece of information was and would be beneficial for you.
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