What is the difference between mutual funds and stock market?

In this article, you will know what is the difference between mutual funds and stock market.

Difference between Stock Market and Mutual Funds

Stock Market	Mutual Funds
You are the direct owner of the shares.	You are the indirect owner of the shares.
Demat account is compulsory for investing directly in the stock market.	Demat account is not compulsory for investing in mutual funds.
Types of Shares: Equity Shares, Preference Shares,	Types of Mutual Funds: Based on maturity period, Based on the initial investment.
Higher Risk level.	Comparatively low-risk factor.
Investors must pay tax while selling their shares.	Several Mutual funds schemes offer tax-saving benefits to investors.
Long and Short Term investment.	Long-term Investment.
High Return Reward.	Low Return Reward.
Trading Cost is significantly high.	Expense Ratio Low.

Mutual Funds

Now let’s understand mutual funds. Fund means money collected from people. In mutual funds, money is collected from many people.

For every mutual fund scheme, the mutual fund company chooses the fund manager and these professional fund managers invest people’s money according to the goals and objectives of that mutual fund scheme.

And the profit that comes from that investment is divided among the people who had invested in this mutual fund.

Read Also: Types of Mutual Funds with Details

The stock market is an investment vehicle whereby investing money you can become a partner in the company.

The same mutual fund is not an investment vehicle but a fund that invests in investment options as per the goals and objectives of the mutual fund scheme.

For example, if you invest in equity mutual funds, then your money is invested in the stock market.

Debt Mutual Funds

If you invest in debt mutual funds, then your money is invested in debt instruments like government securities, debentures, etc.

Similarly, if you invest in a real estate mutual fund scheme then your money is invested in real estate.

When you invest directly in the stock market, then the shares you buy, you get those shares in your own name i.e. those shares are directly owned by you.

On the other hand, if you invest in the stock market through mutual funds, then you invest indirectly in those stocks because when you invest in the stock market through mutual funds, then you do not have direct ownership of those shares.

You are the indirect owner of those shares.

A Demat account is compulsory for investing directly in the stock market, but a Demat account is not compulsory for investing in mutual funds.

You can invest in mutual funds directly through the website of that mutual fund or in many other ways.

When you invest directly in the stock market, which stock to buy when to buy it, you take all these decisions yourself and you have to analyze the stocks yourself.

Whereas in mutual funds, all these decisions are taken by the fund manager of that mutual fund scheme.

RD (Recurring Deposit)

A systematic Investment Plan means investing some specific amount every month or every quarter like RD (Recurring Deposit).

When investing in the stock market through mutual funds, fund managers do all this work like stock analysis and research, you do not need to do anything.

If you need to invest in a good mutual fund scheme, then you have seen that mutual funds manage your money.

So in return, Mutual Funds charge you some fees and this fee is included in the expense ratio of that mutual fund scheme.

The expense ratio is charged annually i.e. if you are investing 1 lakh rupees in any mutual fund scheme whose expense ratio is 2% then it means that you are paying a 2% fee i.e. ₹ 2000 to that mutual fund company.

Read Also: Bonds and Debentures – Explained

And annually you have to pay this 2% fee to that mutual fund company, with most mutual funds, you can start a SIP (systematic investment plan) with even ₹ 500.

There are also some brokerage firms with which you can start investing in the stock market from Rs 500 or even 1000.

Stock Market (Share Market)

The stock market is also known as the share market. The company raises money from the people through the stock market. When the company needs money, the company has 2 common ways to raise money:

Loan (Borrowing money from a bank or anywhere)
Stock Market (raising money from people)

When a company raises money through the stock market, that is, it raises money from people, then the company gives its shares to the people in exchange for that money. Gives them ownership in the company.

In this way, the company gets money from the people and people get ownership i.e. stake in the company and people become partners in the company.

The share price of the company follows the growth of the company in the long term, so if the company consistently performs well then its share price increases in the long term.

What is Stock Market?

The stock market is also known as the share market. The company raises money from the people through the stock market. When the company needs money, the company has 2 common ways to raise money:
1. Loan
2. Stock Market

What are Mutual Funds?

Fund means money collected from people. In mutual funds, money is collected from many people. For every mutual fund scheme, the mutual fund company chooses the fund manager and these professional fund managers invest people’s money according to the goals and objectives of that mutual fund scheme.

What is RD (Recurring Deposit)?