Biggest Confusion For New Investors, Where To Invest – Stocks Or Mutual Fund ?

Investing in the shares of a company means acquiring a certain amount of ownership of that company. However, you are limited to that specific asset class, which means equity. So you are subject to high returns but high risk situationsIn the case of mutual funds, you also invest in shares of the company but indirectly you can also invest in other asset classes. Mutual funds are a pool of assets that gives you a diversified portfolio that is managed by expert fund managers.

To understand the part of mutual funds, we will focus on exchange traded funds (which is a type of mutual fund) that tracks the underlying factor like stock market index.

The difference in investing in these two products is very different and in this article we will compare shares and ETFs to see the differences between what individual investors offer.

What is the difference between shares and ETFs?
1. Definition:
Stock is a product that represents sole proprietorship. An ETF, on the other hand, is a type of mutual fund that mimics the functionality of an underlying factor.2. Value:
The value of stocks on a stock exchange depends on its supply and demand, in this case the value of an ETF depends entirely on the effectiveness of its replication factor.

3. Investment style:
Stocks involve active investment; Investors need to do research to invest efficiently. However, ETFs are a component of passive investing; They are not actively involved in research and trading.

4. Investor rights:
Stocks provide ownership and voting rights to their holders, on the other hand, no investor ownership rights are granted over an ETF company.

5. Type:
There are multiple types of stocks – preference shares, redeemable shares, common shares, etc. On the other hand, an ETF can be formed by tracking multiple sectors, such as the commodity sector, the stock market index.

In addition to the above, there is a difference between risks and returns that distinguishes both investment products.

Company stocks are able to outperform inflation, as they rely solely on the performance of that company. Some stocks may outperform in that particular sector in the Greek market, but it is natural that the amount of risk is higher than others. The higher the market value – the higher the risk and return A lot of the time – bonus shares and dividends are available separately from company shares

The performance of the underlying factors is reflected in the ETF. Commodities, currencies and the entire sector can also be affected by this factor. This is why the return of an ETF depends on the performance of the underlying factors. When it comes to risk, most ETFs are safe investments. But some ETFs are considered risky – such as oil industry ETFs. Since the oil industry is very volatile – it depends on many macroeconomics and uncontrolled issues with performance.

Which should we invest in?
Actually there is no right answer of this question.Stocks have always been popular and are becoming more and more popular, with more and more people turning to ETFs to achieve their goals. For example, the coronavirus epidemic has had a major impact on the stock market.

According to a Bloomberg report, Indians invested more in gold ETFs in January 2020 than in the previous seven years. It shows that investors are willing to use other products as the market situation changes.

So, when choosing between stocks and mutual funds, your answer will depend on the subject matter.

Your ability to take risks;
The return you need; And
The purpose of your investment.