Mutual Funds vs Stocks

A detailed breakdown of mutual funds vs stocks to help you decide which investment avenue aligns with your financial objectives.
EXPLORE FUNDS
Mutual Funds vs Stocks
EXPLORE FUNDS
4 mins read
23-January-2025

Stocks symbolise ownership stakes in individual companies, whereas mutual funds encompass a diverse range of assets such as stocks, bonds, and other securities, often spanning hundreds or even thousands. It is not necessary to opt exclusively for one or the other; rather, both mutual funds and stocks can complement each other within a portfolio, aiding in wealth accumulation and achieving financial objectives.

Mutual funds and stocks are two of the most popular investment options available to investors. Both offer growth potential, but they also come with different risks and benefits. In this article, your will know about the comparison - Mutual funds vs stocks, difference between mutual funds and stocks and much more in detail.

What is a mutual fund?

A mutual fund is a type of investment that pools money from a group of investors and invests it in a variety of assets, such as stocks, bonds, and money market instruments. Find more than 1200 funds on our platform which are categorized broadly into equity, debt, and hybrid funds. Mutual funds on the Bajaj Finance platform are managed by professional fund managers who are responsible for selecting the assets to invest in and making investment decisions.

What is a stock?

A stock is a type of investment that represents ownership in a company. When you buy a stock, you are essentially buying a small piece of the company. Stocks can be bought and sold on stock exchanges, and their prices can fluctuate based on a variety of factors. Some of these factors are the company's financial performance, economic conditions, and investor sentiment.

Mutual funds vs stocks - Know key differences

Understanding the difference between mutual funds and stocks is crucial for investors. While stocks represent ownership in individual companies, mutual funds comprise diverse assets. This overview aims to elucidate these disparities, aiding investors in making informed financial decisions.

Factor

Mutual Funds

Stocks

Ownership

Shareholders own units of the fund.

Shareholders own shares in a specific company.

Diversification

Mutual funds pool investors' money to diversify across various securities.

Stocks represent ownership in a single company, offering less diversification.

Professional Management

Managed by professional fund managers.

Investors make individual buy/sell decisions.

Risk & Returns

Risk is spread due to diversification, typically offering moderate returns.

Individual stocks can have higher risk and return potential.

Liquidity

Generally offers high liquidity with daily trading opportunities.

Liquidity varies; some stocks may lack liquidity.

Control

Limited control as fund managers make investment decisions.

Investors have full control over their stock portfolio.

Ease of Use

Easy for beginners, allowing them to benefit from professional management.

Requires market knowledge and research.


Benefits of mutual funds

There are several benefits to investing in mutual funds. Some of the key benefits include:

  • Diversification: One of the biggest benefits of mutual funds is that they offer diversification. This means that your money is invested in a variety of assets, which can help to reduce your risk. For example, if you invest in a stock mutual fund, your money will be invested in a variety of different stocks. This helps to reduce your risk because if one stock goes down, your other stocks may still go up.

  • Professional management: Mutual funds are managed by professional fund managers who have the expertise and experience to make investment decisions. This can be a valuable benefit for investors who do not have the time or expertise to manage their investments. You will the information of fund managers in the individual fund pages under mutual funds on our platform.

  • Low cost: Mutual funds can be a relatively low-cost investment option. This is because the costs of managing a mutual fund are spread out over all the investors in the fund. You will find the exit load, taxation, and expense ratio of each fund specified on the fund page of individual funds on our platform.

Top performing funds

Equity

Debt

Hybrid

Tax saver

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Frequently asked questions

Can a single investment portfolio contain both mutual funds and individual stocks?

Absolutely! A diversified portfolio, which includes both mutual funds and individual stocks, is popular among investors.

Is it better to invest in stocks or mutual funds for long-term?

Particularly for retirement portfolios, mutual funds are frequently regarded as suitable for long-term investing. Stocks have a higher potential for returns but also more volatility.

Is a mutual fund riskier than a stock?

Stocks and mutual funds have different risk profiles. Individual stocks have a higher level of individual risk than mutual funds, which also provide diversification and professional management.

Is it better to invest in mutual funds or stocks?

The choice depends on your financial goals, risk tolerance, and expertise. Mutual funds offer diversification and professional management, making them suitable for many investors. Stocks can offer higher returns but require more research and carry individual company risk.

What is riskier, stocks or mutual funds?

Stocks are generally riskier because their prices are subject to more significant market fluctuations. Mutual funds, by diversifying across various stocks or other assets, can mitigate some risk.

Which is safer, stocks or mutual funds?

Mutual funds are typically considered safer for most investors due to diversification and professional management. However, it depends on the specific mutual fund and stock in question.

Why would you invest in a mutual fund over a stock?

Investing in a mutual fund is preferred when you seek diversification, professional management, and an easier entry into the market. Mutual funds are particularly suited for long-term and risk-averse investors.

Why would you invest in a stock over a mutual fund?

Investing in a stock is suitable when you have in-depth knowledge of a specific company or industry and seek potentially higher returns. Stocks are often chosen by those comfortable with individual stock analysis.

Should I move my stocks to a mutual fund?

It depends on your financial goals and risk tolerance. Moving stocks to a mutual fund can provide diversification and professional management, reducing the risk but potentially offering moderate returns.

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Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.