For an investor, mutual funds as well as equities introduce a suitable long-term investment solution. Based on financial goals and risk profiles, an investor can choose between the two after understanding the key differences.
Generally, mutual funds introduce an ideal investment option to risk-averse investors or those with a low-risk profile. However, investors who hold the potential to take risks can invest in equity or individual stocks.
Mutual funds offer investors respectable returns over a period, while equity stocks hold the potential to provide the investor with extremely high returns in a much shorter span. However, investing in equity stocks requires an in-depth understanding of market situations.
Equity stocks or individual stocks tend to be highly volatile by nature. The value of such investments could rise or fall dramatically in a short span. An investor could either make immense profits or suffer huge losses. Comparatively, mutual funds are a bit more stable form of investment. An investor has the option of diversification as well.
Essentially, a mutual fund manager is appointed to take care of the portfolio of an investor. There is no need to undertake active research daily. On the other hand, investments in equity stocks require personal monitoring of the stock market daily. An investor is also required to undertake research and analysis of the trends in the market regularly.
Trading in individual or equity stocks involves comparatively a higher cost. There is also a possibility of any gains made from selling a particular stock taking a hit due to the high trading cost. Mutual funds, meanwhile, involve much lower costs considering the expenses are spread over all portfolios within the fund.
In mutual funds or equity stocks, an investor can choose between the two investment tools after understanding their individual needs without being influenced by others. Also, always seek out professional help whenever in doubt.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
