Both shares and mutual funds have the potential to offer opportunities for wealth growth and participation in financial markets. However, they differ significantly in their structure, mechanism, and potential outcomes. Whether you're a seasoned investor or a curious beginner, understanding the factors that set these two investment options apart is essential for making informed investment decisions. With this blog post, let's understand the difference between shares and mutual funds.  

What are Shares? 
 

Shares represent a unit of ownership in the capital of a company, entitling shareholders to profit as well as loss of the company. Buying shares directly from a Demat account requires active management of the owned shares and regular diversification of the portfolio to mitigate risk.  If the company thrives, your shares typically increase in value, and vice versa. 

What are Mutual Funds? 
 

On the other hand, mutual funds are investment vehicles that pool money from different investors to invest in diversified portfolios of assets such as stocks, bonds, and other securities. Unlike shares, mutual funds are managed by experienced fund managers. They eliminate the need for individual management and diversification, offering a more hands-off approach for investors. 

Difference between Shares and Mutual Funds 
 

The world of investing offers exciting opportunities, but choosing the right vehicle can be tricky. Two main options stand out: shares (also known as stocks) and mutual funds. Let's explore their key differences to help you pick the preferred fit. 

Investment Knowledge 

Shares: Buying and selling decisions in shares require a better understanding of investing, as they are influenced by price movements. 
Mutual Funds: Managed by experienced fund managers, even novice investors can benefit from investing in mutual funds without the need for active management. 
 

Risk Level 

Shares: Generally riskier due to the lack of diversification and professional management. 
Mutual Funds: Comparatively less risky due to the level of diversification and professional management offered. 
 

Potential Returns 

Shares: Direct investment in shares offers potentially higher returns, but they come with relatively higher risk. 
Mutual Funds: The diversification offered by mutual funds can slightly affect earning potential, but they are typically considered less risky than shares. 
 

Time Spent 

Shares: Require time spent researching and monitoring different stocks based on market conditions. 
Mutual Funds: Investors can stay invested for the short, medium, or long term, with the fund manager managing the fund on their behalf. 
Investment Amount 

Shares: Require a sizable amount to invest in multiple companies for diversification. 
Mutual Funds: These can be started with as little as Rs.1000 through Systematic Investment Plans (SIPs), allowing investors to build a portfolio even with a small sum of money.  
Conclusion 
 

Both shares and mutual funds have the potential to generate inflation-beating returns over the long term. The main difference lies in the level of involvement required. Mutual funds offer a more hands-off approach, with the fund manager handling the investment and generating returns. On the other hand, direct investment in the share market involves active monitoring and management of the investment. 

Disclaimer: Mutual fund investments are subject to market risks, read all scheme-related documents carefully.