Stocks vs Mutual Funds

Difference Between Stocks vs Mutual Funds

To describe the ownership certificates of any given company a general term used to describe is Stocks while the ownership certificates of a particular company are referred to as shares. Stocks invest in companies listed on a particular stock exchange. Whereas if they say they own mutual funds, a mutual fund is a pool of money collected from investors and is invested according to stated investment objectives. New investors come in and old investors can exit, at prices related to net asset value per unit. Investors hold a proportionate share of the fund in the mutual fund.

So, in simple terms when we talk about owning more than one share in a company or a few companies these are called stocks, as stocks generally refer to a portfolio of shares. On the stock markets, mutual funds are also traded as equity mutual funds or debt mutual funds.

STOCKS:

Whenever a company plans to raise capital, it can issue stocks or it can try to borrow some money. They are the securities that represent a part of ownership in the corporation. When an investor buys a company’s stock, that person is not lending the company money, but rather, is buying a percentage of ownership in that company. In exchange for purchasing stocks in a given company, stockholders have a claim on part of its earnings and assets. Some stocks pay monthly, quarterly or annual dividends, which are a portion of the issuing company’s earnings. Investing in stocks can be profitable in two regards. Not only do you stand a chance to possibly receive dividends, but if the company whose stock you own performs well and its stock price go up, you could make money by selling that stock for a price that’s higher than what you paid. Those who own stocks in a public company may be referred to as stockholders, stakeholders, and shareholders, and in reality, all three terms are correct.

MUTUAL FUNDS:

Mutual funds are the best financial product ever designed, for small investors, mutual funds can be open-ended or close-ended. In an open-ended fund, sale and repurchase of units happen on a continuous basis, at NAV related price, from the fund itself. The corpus of open-ended funds, therefore, changes every day. A close-ended fund offers units for sale only in the IPO. Investors wanting to buy or sell units have to do so in the stock markets.  Usually, close-ended funds sell at a discount to NAV. Mutual fund products can be broadly classified as equity, debt, hybrid, commodity, real estate, exchange-traded funds and fund of funds.

Stocks vs Mutual Funds Infographics

Below is the top 7 difference between Stocks vs Mutual Funds

Key differences between Stocks vs Mutual Funds

As you can see there are many difference between Stocks vs Mutual Funds. Let’s look at the top difference between Stocks vs Mutual Funds –

• Stocks are the collection of shares of multiple companies or are a collection of shares of a single company.
• Mutual funds money is invested in marketable securities according to the investment objective.
• A stock is a collection of shares. Mutual Funds are a collection of money.
• Stocks are risky in nature as market sentiments and global news can impact the stock market instantly.
• Strong mutual funds provide broad, risk-controlled exposure to the market’s sectors without watering down their managers’ best ideas amid hundreds of picks.
• Mutual Funds represent the diversified portfolio of companies while a stock is a simple aggregation of Mutual Funds in a company.
• Mutual funds may not outperform the index but stocks do.
• Mutual Funds are issued by companies. It is known as equity mutual fund when the Mutual Funds invest in equity funds. While stocks are equities.
• For instance, let’s say Mr. James has bought funds for JP Morgan than in this case we will say Mutual Funds can have many companies under the fund’s asset allocation. Now, on the other hand, if Mr. James has the ownership of certificates from several other companies as well, it can be said that Mr. Anderson has certificates of stocks and not shares.

Head to head Comparison between Stocks vs Mutual Funds

Below is the topmost comparison between Stocks vs Mutual Funds

Stocks vs Mutual Funds – Final Thoughts

Stocks vs Mutual Funds are both important in their own terms. And they both Stocks vs Mutual Funds help in determining the ownership in the company or companies and invest in companies as ownership or as asset allocation respectively.

While when we calculate quantity for different companies, it can be wholly called as stock. Mutual funds Investors hold a proportionate share of the fund in the mutual fund.  New investors come in and old investors can exit, at prices related to net asset value per unit.

Advantages of mutual funds to investors are portfolio diversification, professional management, reduction in risk, reduction in transaction cost, liquidity, convenience, and flexibility.

One of the primary benefits of investing in the stock market is the chance to grow your money, i.e. investment Gains. The stock market tends to rise in value, though the prices of individual stocks rise and fall daily, over time. Investments in stable companies that are able to grow more tend to make more profits for investors.

So the question remains can an investor use both Stocks vs Mutual Funds?  The answer is yes; both Stocks vs Mutual Funds have been discussed with their respective meanings and usage along with the difference between Stocks vs Mutual Funds in this article.

Recommended Article

This has a been a guide to the top differences between Stocks vs Mutual Funds. Here we also discuss the stocks vs Mutual Funds key differences with infographics, and comparison table. You may also have a look at the following stocks vs Mutual Funds articles to learn more –

1. Stocks vs Shares
2. Mutual Fund vs Exchange Traded Fund
3. Bonds vs Stocks
4. Hedge Fund vs Mutual Fund