Stocks vs Mutual Funds: Which Option Is Right For You?

Do you want to begin your investing journey? If so, that’s great. Investing can be risky. But, if you choose the right investing technique, you can enhance your assets and funds. However, investing may be difficult and stressful. There are various options available. For example, bonds, real estate, money market accounts, etc. Stocks and mutual funds are also two of the investing options available in the market. So, today, we will discuss stocks vs mutual funds.

Many individuals are confused between these two investing options. Well, stocks and mutual funds are two main investment choices. They allow individuals to expand their assets and increase their wealth. But, mutual funds usually include stocks. Moreover, stocks and mutual funds have distinct features that target different investors with different objectives.

When it comes to investing, there are several basic distinctions between mutual funds and stocks. Therefore, if you want to learn about stocks vs mutual funds, keep scrolling through this blog. In this blog, we will learn the main difference between them. It will help you to select the right option. So, let’s get started.

Stocks vs Mutual Funds: Overview

Well, both stocks and mutual funds help in building a portfolio. But, there are some distinctions in how they work and what you can achieve in the long run.


A stock is a piece of ownership in a corporation. When a firm performs well, those who hold shares gain profits. For example, Tesla (TSLA) or Amazon (AMZN). However, as a company’s revenue increases, its stock price also increases. As a result, it offers investors the option to sell their shares for more than they paid for them.

Mutual Funds

Whereas, a mutual fund is a type of group investment. It includes shares in a variety of assets. Several mutual funds own a large number of different stocks and bonds. Therefore, when you get mutual fund shares, you get a piece of everything that’s included.

Moreover, there are also index mutual funds that track major indexes. For example, the S&P 500. In addition, other funds may be actively managed. It means a professional selects investments for the mutual fund based on objectives. Such as growth or income.

Key Points To Remember

  • Mutual funds collect money from several investors and invest it in a variety of assets.
  • A goal outlines a mutual fund’s risk profile, investment purpose, and overall strategy.
  • Mutual funds have a wide range of assets in a variety of sectors and securities.
  • Mutual fund investment helps you to avoid some difficult decisions that come with stock investing.
  • Though mutual funds tend to pay management fees. So, the cost of trading is split across all mutual fund investors, cutting the cost per person.

In this battle of stocks vs mutual funds, let’s discuss both advantages and disadvantages.

Advantages And Disadvantages Of Stocks

Stocks can be a beneficial tool as they help in building wealth and profit. But, they also have certain disadvantages. Let’s discuss them.


Simple To Trade

Individual stocks are simple to trade on a stock market. Also, a variety of applications makes the procedure simple.

Possibility Of High Profits

You can make a lot of money depending on how well the stock does. It could result in higher wealth in the future.

Low Transaction Costs

Stocks generally come with cheap trading charges. Many stock brokers do not pay trading fees for individual stocks.


Possibilities of Big Losses

Well, big profits are possible. But, you can lose a lot of money if the stock price declines and does not recover.

Research Takes Time

Researching stocks and selecting the assets that perform best for your portfolio can be time-consuming.


Stock investing may be an emotional journey. Also, the tension can make it difficult to sleep.

Advantages And Disadvantages Of Mutual Funds

However, mutual funds can help to keep your portfolio stable. But, they are not perfect. Let’s discuss them.



Many mutual funds, particularly index funds that are managed passively, can be affordable. It means they have a low expense ratio. Moreover, some brokerages also provide their own funds with no trading costs.

Instant Diversification

You do not need to buy numerous individual stocks to spread your portfolio. Because you are investing in a basket of assets. It provides quick diversification and hence reduces risk.

Less Stressful

Investing in mutual funds might be less stressful in some situations. But, if you invest in an index fund, you will likely stay up with the market as a whole.

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Sales “Loads” On Some Funds

When you purchase or sell shares in a mutual fund, you have to pay a fee. These sales loads might cost you a lot of money before you even start investing.

Can Be High Cost

Some funds have a high expense ratio. Sometimes over 1% of your investment each year. But, there are less expensive options as well.

Underperform The Market

If you invest in an actively managed mutual fund, it may underperform the market. Therefore, it will cause you to lose money.

Now, let’s discuss the difference between both investment options.

Stocks vs Mutual Funds: Major Points Of Differences

Risk and Returns

Buying individual stocks is a high-risk, high-reward game. Therefore, there is a possibility that you will end up with a loss.

Whereas, equity mutual fund schemes offer a diverse portfolio. Although they have a higher risk related to the asset class they invest in. But, negative returns on a particular stock can be balanced by positive returns on another stock.

Therefore, investing in mutual funds helps you to avoid the risk of receiving a negative return.


This is another point of stocks vs mutual funds. When making an equity investment, you rely on your research, expertise, and abilities. It can or cannot be enough in all market conditions. So, you may be restricted by tools and services that may assist you in effectively managing your stock investment.

On the other hand, all of these disadvantages do not apply to mutual fund investments. Mutual fund firms have fund managers who are skilled financial specialists. They look after your money. Moreover, the fund house also has access to all of the necessary tools and resources for managing the money.


A well-diversified account should contain at least 15 to 20 stocks. But, this applies to huge investors.

Whereas, investors with small amounts of money, as little as INR 1000, can have access to a diverse portfolio through mutual funds. However, purchasing shares in a mutual fund allows you to invest in several stocks without having to put up a large sum of money.


When purchasing shares, mutual funds benefit from economies of scale. However, it results in lower transaction costs and lowers brokerage fees than individual investors.

Moreover, you can also avoid paying yearly maintenance fees on DEMAT accounts. Because they are not required by mutual funds.

Investment Style

Another point of stocks vs mutual funds is investment style. When you invest in stocks directly, you must conduct your own research. You have to enter and exit the market depending on your findings. Also, you have to spend time managing your investments.

It is up to you to decide whether to purchase or sell. As a result, when you invest in stocks, you have complete control over your investment choice. It makes you an active investor looking to boost your profits.

In the case of mutual funds, you cannot pick or trade stocks. You become a passive investor. Because the und manager handles all of the investing, tracking, and management on your behalf.

However, if you are new to stock investing and do not want to spend a lot of time analyzing stocks, mutual funds are the way to go.

Trading/Investing Time

Stocks can be bought at any time throughout the trading hours of the exchange. It runs from 9:15 a.m. to 3:30 p.m. Also, the transactions are completed at the current price.

You can only buy or sell mutual funds once in a day. At the end of the day, when the NAV has been settled.

Tax Benefits

ELSS mutual funds allow you to save taxes. Also, it helps you save up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961.

Stocks vs Mutual Funds: Which Option Is Better?

Your goals and risk tolerance will decide whether stocks or mutual funds are better for your investments.

For many investors, mutual funds make sense for a long-term retirement portfolio. When diversification and lower risk are more relevant. Whereas, individual stocks provide a means to enhance returns for investors looking to grab the value and prospective growth.

However, if you are a beginner, starting with the index mutual funds will be an efficient strategy with a limited amount to invest. When you gain experience, you can explore particular stocks.

So, consider your objectives carefully and use investments to develop a plan to help you achieve them. If the stock market seems too risky for you, balance your wealth with these low-risk options.

Final Words

So, we have discussed stocks vs mutual funds in the above blog. I hope you now have a better understanding of the differences between mutual funds and stocks. They both are the superior investing option. However, if you want to earn a profit without facing problems, mutual funds are the best way to do so.

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