The stock market today gives you multiple options to invest in them. Of which, the most common methods are investing in stocks directly and through mutual funds. But how do these two investment methods differ? What is suitable for you, as an investor? Let’s find out through this article.
What are shares?
The concept of buying shares of a company is simple. Public companies offer their shares for investors to buy through stock offerings. The first offering of shares whereby the company will become public is called the initial public offering and there could be subsequent offerings too, according to the financial needs of the company.
During an offering, the company is selling a percentage of ownership to the public. Hence, each stock will have a percentage of ownership associated with it and a significant percentage gives the investor right to vote in the company’s shareholder meeting.
These shares’ prices, once they start trading on the stock market, could move continuously. The price is dependent on demand and supply. Investors will have an idea of what stocks to buy today and according to that sentiment, the price could go up as more and more investors buy the stock. At the same time, the opposite could happen if investors are trying to sell a company’s stock and demand is lesser.
How does investing in stocks work?
Like said above, when you own a stock, you own a piece of the company. This will have a price associated with it called stock price.
Now, there are numerous ways to earn from the stock market but the general consensus is to buy stocks and sell them at a higher price to earn a profit – it’s that simple.
Here, you, as an investor, are solely responsible for your investment decisions. It is your responsibility to research and find stocks that could work. You should also closely monitor the stock market to make sure you buy and sell at the right time.
But what if you can’t do this constant monitoring but still want to invest in stocks? A mutual fund could be an option for you here.
What are mutual fund investments?
In a mutual fund, a fund manager pools money from different investors like you and invest them in securities, including in shares of companies. There will be a portfolio that is according to the theme of the fund. For instance, a technology-focused fund may majorly invest in IT stocks.
In a mutual fund, with each unit you buy, you earn a smaller portion of all the companies in the portfolio. The unit price of a mutual fund is NAV. NAV is calculated by including the total assets and liabilities of the fund, unlike shares where only the working capital is reflected. Mutual funds in India usually start with a NAV of Rs. 10.
How to choose between shares and mutual funds?
The choice between these two is strictly based on your investment taste. If you are someone who can closely monitor market movement and make trades actively, you can invest in stocks and make use of the growing economy. When you invest directly, there won’t be any management charges as well.
At the same time, in a mutual fund, a fund manager will do this job for you, if that’s what you prefer. You have to do your research and choose a fund to invest in and the fund manager will take over from there. This works for you if you are not comfortable with daily monitoring and quick decision making but want to make use of the growing economy.
Investing in both stocks and mutual funds demands research and learning. This is easy nowadays, thanks to plenty of information available about stocks and MF online. Do your research and start investing today!