Shares vs Mutual Funds: A Complete Guide

What Are Shares?

What Are Mutual Funds?

What Are the Differences Between Shares and Mutual Funds?

The differences between shares and mutual funds are as follows.

Perspectives

Shares

Mutual Funds

Management

You need to track your own fund from time to time while investing in shares.

While investing in mutual funds, you do not have to manage and track the movement of shares since experienced fund managers will do it.

Diversification

Investing in shares may not cause diversification if you invest in variant stocks.

In the case of mutual funds, if the pooled money is invested in different shares, diversification may arise.

Mode of Investment

While investing in shares, you directly invest in specific shares of your choice using a Demat account.

For mutual funds, the fund manager chooses where the money will be invested and conveys a statement showing the units of mutual funds you hold.

Flexibility

Flexibility is comparatively more in shares as you can purchase and sell them whenever necessary.

Flexibility is lesser in mutual funds as everything is planned and executed by the fund managers.

Tax Benefits

There are no tax benefits when it comes to shares.

As per Section 80C of the Income Tax Act, in the case of mutual funds, deductions of up to Rs. 1.5 Lakhs are allowed within a financial year.

What Are the Types of Shares?

What Are the Types of Mutual Funds?

Shares vs Mutual Funds: Which Is Better?

FAQs About the Difference Between Shares and Mutual Funds

What do you mean by exit load? up-arrow

If an investor redeems a fund within a holding period, that person has to pay a charge to their fund companies. This is known as the exit load.

What is the ideal time to invest in a mutual fund? up-arrow

In general, there are better times for investing in mutual funds. However, as per the thumb rule, you can invest when the Net Asset Value (NAV) of mutual funds is low and you plan for a long-term investment to increase your returns.

What do you mean by pro-rata allotment in shares? up-arrow

In Latin, pro-rata means ‘in proportion’ or ‘proportional’. Pro-rata allotment of shares is computed by dividing the ownership of each individual by the number of shares and then multiplying the value with the total dividend payment.

What do you mean by mutual fund 7-day rule? up-arrow

The seven-day yield method is computed by considering the net difference of the cost today and seven days ago and by multiplying it with an annualisation factor.