Mutual Funds
by 5paisa Research Team Last Updated: 2023-07-13T11:24:29+05:30
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Mutual funds and shares are extremely popular investment options in the financial market. But both forms of investment come with different advantages and disadvantages. Explore this detailed mutual fund vs. share market comparison to learn which one would be a better investment option. 

What is a Mutual Fund?

Mutual funds combine stocks and bonds together and are managed by professional fund managers. You will usually come across two primary types of mutual funds:

●    Equity mutual funds: Includes company shares
●    Debt mutual funds: Includes government bonds and securities

What is the Share Market?

Shares are representative of the value of a company. When a company wants to trade its shares, it has to offer an Initial Public Offering (IPO). If you own a share of a company, it means you have a part in the company’s ownership. 
The price of a company’s shares in the market varies according to different factors. For instance, when a company performs well and indicates signs of growth, you will notice an upward trend in its share price. 

Difference Between Mutual Funds and Stocks Investment

Look at this tabular representation of mutual fund vs. share market investments:



Mutual Funds


Multiple stocks can come with the same value

Pool of money collected from investors

Original Issuance


Not possible

Numeric Value

Definite numeric value

Net asset values

Risk Level

High risk level

Comparatively low


Only possible when the stocks allow it

More opportunities for diversification


For seasoned investors with in-depth market knowledge

For both new and seasoned investors

Return Potential

High returns

High to moderate returns

Market Knowledge

Investors need a high amount of market knowledge to manage stock efficiently.

Market knowledge is rewarding for mutual fund investments as well.

Trading Cost

Significantly high


Tax Benefits

No tax benefits.

Equity-linked mutual funds offer some tax benefits.


Stock market investments are only possible through a Demat account. Therefore, it is a little cumbersome and less convenient.

Mutual fund investments are extremely convenient and can be initiated within seconds.


Some asset-class restrictions are present.

Investors can maintain a diversified portfolio.

Control Over Investment

Shareholders usually have more control over their investments.

Mutual fund investors don’t have much control over their investments because they are managed by a fund manager.

Investment Horizon

Stock investments can be long-term or short-term.

Mutual funds usually offer better returns when invested for the long run

Systematic Plan

Stocks don’t come with the systematic investment plan feature.

Mutual funds do not come with the systematic investment plan feature.


Mutual Funds Vs Stocks Investment

Let us now compare mutual fund vs. share market investments on the basis of the following factors:

1. Risk and Return 

Individual stock purchases are risky, which results in high returns. However, stock market investments are also associated with negative returns. 
Mutual fund schemes also have a high risk due to their asset class. But the risk is reduced to a great extent due to the diversification factor. Therefore, negative returns from one get balanced out by positive mutual fund returns from another. 

2. Management 

You will have to rely on your knowledge, skills, and research while making share market investments. But your knowledge might not be enough for share market trading in different scenarios. 
In the case of mutual fund investment, you won’t face any drawbacks in terms of knowledge and skills. Investing in mutual funds offers you access to fund managers with adequate experience to take care of your investments. 

3. Diversification 

The difference between mutual fund and share market investments is also evident in terms of diversification. Diversification in the stock market involves investing in at least 15 to 20 different types of stocks. It means a huge investment for most individual investors. 
But investors with little funds can also invest in mutual funds and get a diversified portfolio. Mutual fund investors can purchase fund units and invest in different stocks without having to spend a huge amount. 

4. Cost 

If you compare mutual fund vs share market investments, the cost of the former is lower. Mutual funds attract lower transaction costs, which means you will have to pay lower brokerages. 
But for share market investments, you will have to pay the annual maintenance charges on your Demat account. Therefore, the costs for share market investment are naturally higher. 

5. Investment Style 

If you compare mutual fund vs. share market investments, your knowledge will be necessary for timing the market. You will be solely responsible for purchasing or selling the stocks. Therefore, you will have to be an active investor and optimize your returns. 
But in the case of mutual funds, a fund manager will be responsible for tracking and management, and you will be a passive investor. Therefore, mutual funds are the best option when you don’t have the time or knowledge to actively monitor your investments. 

6. Investing / Trading Time

If you compare mutual fund vs. share market investments, you will notice some differences in terms of trading time. The hours of stock trading range from 9:15 am to 3:30 pm. But you can purchase mutual funds at any time of the day.

7. Tax Benefits 

A major mutual fund and share market difference is evident in terms of tax savings. If you invest in ELSS mutual funds, you will be able to save taxes of up to Rs 1.5 lakhs. However, share market investments do not offer any kind of tax benefits. 

Why You Should Prefer Mutual Funds Over Individual Stocks

Are you wondering, “share market or mutual funds, which is better?” If so, you should know that mutual funds have some significant advantages over stocks. Check out why you should opt for mutual fund investment over stock investments. 

1. Professional Management 

When you are investing in mutual funds, you won’t have to analyze, track, or time them. An experienced fund manager will look after all this on your behalf. A major mutual fund and share market difference is that mutual fund investments are well-suited for passive investors. 

2. Diversification

If you want to diversify your stock market investment, you will have to invest in a minimum of 15 to 20 stocks. Therefore, the upfront investment amount will be quite high. 
If you compare mutual fund vs share market investments, mutual funds will help with diversification even when you are investing only Rs 1000. 

3. Lower Cost 

While buying or selling mutual funds, you can negotiate with brokers to get better rates. It will lower your costs of mutual fund investment. 
But when you are buying shares, you won’t be able to negotiate. Moreover, investing in the stock market requires you to maintain a demat account. 


Hopefully, the difference between mutual fund and share market investments is not clear to you. Remember that mutual funds can help you reap the benefits of equity returns without the cons of direct equity investing. Moreover, you will get professional expertise while investing in mutual funds. 

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More About Mutual Funds

Frequently Asked Questions

Yes, you can invest as low as Rs 100 in your mutual fund portfolio. The low investment amount is what makes most people start their investment journey with mutual funds. 

Mutual funds get largely affected by share market volatility. The price fluctuations in the share market will affect the NAV of mutual funds. 

If you are comparing a mutual fund vs share market, you will realize that stocks are riskier. Mutual funds invest in shares, but they offer portfolio diversification. Therefore, the price fluctuations in the stock market won’t affect the mutual fund like an individual stock. The volatility gets averaged out due to mutual fund diversification. 

If you are investing in open-ended mutual funds, you will be able to make convenient withdrawals anytime you want. But ELSS funds come with a lock-in period of three years. You won’t be able to withdraw from them before the lock-in period is over. 

The duration of your mutual fund investment will depend on the type of fund you have chosen. The recommended investment period for equity mutual funds is a minimum of 5 years. In the case of debt mutual funds, 

If you are interested in share market investing, you can choose from the following types:

●    Non-participating preference shares
●    Participating preference shares
●    Convertible preference shares
●    Non-convertible preference shares
●    Redeemable preference shares
●    Irredeemable preference shares
●    Cumulative preference shares
●    Non-cumulative preference shares

Several people wonder, “share market or mutual funds, which is better?” The truth is that the share market risk is higher. Mutual funds have a lower risk due to the factor of diversification. 

The lowest investment amount in mutual funds is Rs 100. In the share market, you can invest Rs 100 or even lower.