Difference Between Equities & Mutual Funds

Equities & mutual funds are financial instruments used by people to invest their savings & earn extra from the stock market by trading them. The differences between the two are listed as under:

Equity or shares

1. The shareholder shares the company in the percentage of holding of shares with the company.
2. Equity trading is when you buy and sell shares yourself via stockbrokers  & in your name.
3. All dividends paid out by the company in which you hold shares will be paid directly to you.
4. Number of shares of a company you possess will determine your ownership in capital of that company. It is very clear that the dividend income, in the case of equities, may not be a significant percentage many a times while calculating returns
5. Price determined by the demand, supply for the stock.
6. Direct investments in equities or stocks are more risky compared to mutual funds but higher the risk, higher the returns.
7. They don’t diversify your funds.
8. They don’t require extra fees except brokerage which you have to pay for trading in shares.

Mutual Funds

1. A mutual fund investment is your share (in units) of pooled monies contributed by many investors.
2. These pooled monies are managed by an investment company, which then invests them on behalf of it’s unit holders, usually across a selection of publicly listed stocks, bonds, listed property and other financial derivatives ie. you hold these investments indirectly. The units you buy in the mutual fund are in your name, but the investments the fund buys with the pooled monies are held in the fund’s name.
3. As the funds assets increase or decrease in value, so will the price of your units held in the mutual fund.
4. The fund usually pays you a distribution of profits at set periods,which varies per year from profits; results in low NAV
5. NAV determined mathematically (securities’ price divided by number of outstanding units)
6. Mutual fund schemes investing in equities are less risky propositions.
7. They enable you to diversify risks in different portfolios & invest small amount of money in large number of units in different sectors.
8. Mutual funds have an entry & exit load & require more fees as compared to equities.