Difference Between in Individual Stock and Mutual Fund
Investor faced with two option mutual funds or individual stock. Mutual funds are managed with stocks designed to beat the market with the assistance of a fund manager.
Single stock or a mutual fund both comes under the category of equity. Both are good options for long term investments. There are some differences between stock investing and mutual fund investing. Individual stocks can be bought by any investor through a breakage. Mutual funds are widely regarded as a passive form of investing, while investing in individual stocks is a more active form.
What is Mutual Fund?
Mutual fund provides detailed information on performance of various schemes including latest NAVs and fund comparisons. It is a pool of money from numerous investors who wish to save or make money. Investing in a mutual fund is easier than buying and selling individual stocks and bonds. Investors can sell their shares when they want.
What is Individual Stock
Stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation assets and earnings. There are two type of stock common stock and preferred stock. Common stock usually entitles the owner to vote at shareholders and preferred stock has a higher claim on assets and earning then the common shares.
Difference between Mutual Fund and Individual Stock
Savings Phase – Mutual funds offer the right solution and begin to build retirement savings with investment and some basic level of diversification. On the other hand in stock, if you have more investment you can fine tune your portfolio strategy in your funds.
Control Freak – Mutual funds offer you an auto pilot approach to investment and you can invest your money in a time of shorts. In stock it approached you to control more and better understanding of money.
Tax Sensitivity – Stock offers superior tax efficiency because it is up to your portfolio manager on when you take gains or losses. Taxes are not concern in mutual funds its management fees are not tax deductible.
Subway – Stock offers you the financial equivalent to limousine service because they offer professional navigation. If you prefer subway in mutual fund it is fine for you because you get on and off with everyone else.
Volatility – When you invest in a stock, the change in its value very high it can be extremely volatile. On the other hand mutual fund is not much volatile by nature, different kinds of stocks from different sectors involved in mutual fund.
Return Potential – If you want good return in short time and you believe you can research well, you go for stock investing directly. Mutual funds are known to deliver good return. So you can expect handsome returns from mutual funds.
Monitoring Required – Stock investing is a personal affair and you need to keep news and sector specific developments. In mutual fund monitoring is relatively low because monitoring is done by fund manager.
SIP Investment – Mutual funds are known for possibility of SIP monthly investment. Without understanding the working of equity market person invest in it. On the other hand SIP in stock doesn’t work. Some companies provide the facility of SIP in stock but it’s a terrible concept.
Asset Class Restriction – Asset class restricted to stock only you can choose a large cap stock, mid cap stock or small cap stock but it will be equity in asset class. On the other hand mutual funds can invest in mix of asset classes.
How Mutual Fund is better than Individual Stock
Diversification – Mutual fund hold over individual stocks. It offers diversification convenience and lower cost. Concept of mutual funds is to diversify investment in order to lower the risk of investing. Mutual funds allocate their funds into stock of different companies and different bonds.
Customization – Fund manager ability to tailor investment vehicles that meet differing investor goals and risk tolerance levels. Creating a properly customized portfolio that meets specific needs when you are investing in individual stock.
Oversight – Mutual funds take all the legwork out of investing. Each fund is managed by professionals whose sole purpose is to general profit. Stock funds offer similar rewards to investing in the stock market.
Affordability – Mutual fund affordability relative to investing in individual stocks. If you buy and sell stocks frequently, the brokerage fees alone can be a substantial drain on your profit.
Lower Trading Cost – When you are trading small blocks of stock the transaction costs often end up being a higher percentage of the purchase and sales than when a mutual fund trades much larger block.
Manager Expertise – Depending on your level of investment experience and expertise you have not delved into an annual report before picking individual stock. When you invest in mutual fund you get the expertise of the management team.