Difference Between Shares and Mutual funds

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  • 07 Oct 2023
Difference Between Shares and Mutual funds

Stocks represent ownership in a listed company. When you buy a stock, you are essentially purchasing a portion of that company. This ownership comes with certain rights, including voting at shareholder meetings and potentially receiving dividends. Stocks are typically traded on stock exchanges such as NSE or BSE.

Through your demat account you can directly buy shares of xyz company online. You can discover several benefits of share investment are as follows:

Opportunity for High Returns: Shares have historically given one of the highest returns among various assets in the share market. Over the long term, well-chosen stocks can yield substantial profits.

Easy Liquidity: Stocks are highly liquid investments. You can buy or sell them on the stock market relatively easily, allowing you to access your funds whenever you need.

You can diversify: Investing in a mix of different stocks can help spread risk, reducing the impact of poor-performing stocks on your overall portfolio.

Some of the risk associate with your share market investment are as follows:

Stock Market Volatility: Stock prices can fluctuate significantly in the short term. Market volatility means that your investments may be subject to rapid price changes in nature.

Less Control: As a stockholder, you have limited control over the day-to-day operations of the company. Major decisions are made by the company's management and board of directors.

Unstable Returns: Unlike some other investments, stocks do not offer guaranteed returns. Your investments can go up or down in value.

In the stock market, mutual funds are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other types of securities. It is handled by professional fund managers who make investment decisions on behalf of the fund's shareholders.

In India there are several types of mutual funds, distinguished by its underlying assets & different mutual funds options to invest. Some of the advantages of doing mutual funds investment is as follows:

Simple Diversification: Mutual funds provide instant diversification by investing in a broad range of assets. This simultaneously reduces the risk on your investments and enhances your returns.

Optimise by Professional: The fund managers of mutual funds have expertise in selecting and managing investments, which can be beneficial for investors who lack the time or knowledge to manage their portfolios.

Liquidity: Similar to stocks, mutual fund shares can be bought or sold on any business day, giving investors an easy option to enter & exit a trade.

In contrast to difference between share market and mutual funds, mutual funds investment also has some risk factors these are as follows:

Mutual Funds Fees and Expenses: Mutual funds often charge management fees and expenses, which can eat into your overall returns, you need to check the fees before investing in mutual funds.

Share Market Risk: The performance of mutual funds is still influenced by market conditions. If the market experiences a downturn, the value of your mutual fund holdings may decline.Therefore, it's critical to have a close watch on market conditions.

No Control: When you invest in a mutual fund, you entrust your money to a fund manager's decisions. You have no direct control over which specific securities are bought or sold.

Here are the key difference of shares vs mutual fund mention in the below table:

Factors Shares Mutual Funds
OwnershipShares offer ownership in listed companies of the stock market.In mutual funds you don't get stock ownership, instead you get a mutual funds unit.
ReturnsStocks offer high return over short & long term basisMutual funds has lower return and consider as long term investment
DiversificationStocks of a single company carry company-specific risksMutual funds invest in multiple stocks across sectors and are more diversified.
LiquidityStocks are highly liquid instruments traded on exchanges.Mutual funds can be less liquid depending on fund type.
Active managementInvestors directly manage stock portfolios by using their demat account.In mutual funds, fund managers actively manage underlying stocks units.
Market KnowledgeInvesting in shares requires fundamental & technical knowledge.Investing in mutual funds requires less market knowledge compared to stock investments.
VolatilityStocks have higher volatility.Mutual funds smooth out volatility via diversification.
TaxesLong term capital gains tax on stocks is 10% above Rs 1 lakh.For mutual funds, it is 10% above Rs 1 lakh on equity funds and 20% for debt funds.
Minimum InvestmentStock can start from low as a single stock value such as Rs.10.SIP investment starts from Rs.100 & the lumpsum amount for mutual funds is Rs.5000

As we cover all the aspects of the difference between share market and mutual funds, now which is better for your investment. You can go through different criteria to understand which is better stocks or mutual funds.

Risk Tolerance: If you have a low tolerance for risk, mutual funds may be a better choice due to their built-in diversification.

Time Horizon: Consider how long you plan to invest. Stocks may be more suitable for both long-term & short term investors, while mutual funds can be a good fit for long-term goals.

Expertise: Assess your knowledge of the stock market. If you lack expertise, mutual funds offer a professionally managed alternative.

Depending on your individual financial goals, risk tolerance, and investment horizon you can go for either investment which will work for you. Investing requires a deep understanding of your financial assets.


Putting a limelight to the topic, difference between share market and mutual funds you can know have a clear idea about each investment and can easily decide to invest in which market instruments. You can learn more about stock trading and mutual funds from Kotak Securities. Just open your demat account & start investing from Kotak Stock trading app.

FAQs on Share Vs Mutual Funds

The main difference between shares & mutual funds is that shares represent ownership in a company while mutual funds provide exposure to shares of many companies.

Mutual funds are generally considered less risky than shares of individual companies due to diversification across various stocks and sectors.

Yes, small sums can buy shares that can be anything like Rs.10. But mutual funds have minimum purchase requirements, usually ₹500-₹1000 per month via SIPs.

Shares are highly liquid instruments traded on stock exchanges. Liquidity for mutual funds varies based on mutual funds scheme type.

Investors directly manage share portfolios through their trading account, whereas mutual funds are professionally managed.

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