Share Market vs Mutual Fund – Which one should you invest in?

As a new investor, this question definitely comes in your mind that which one should you invest in, stock market or mutual fund? Both the stock market and mutual funds are attractive and popular investment options.

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But before investing your hard earned money anywhere, you must have the right information about the difference between Share Market and Mutual Fund. So that you can make the best use of your money.

Today we will understand the difference between Stock Market and Mutual Fund closely. At the end of this article, you will understand in which mutual fund or stock market you have to invest.

Difference between Share Market and Mutual Funds

Before understanding the difference between stock market and mutual fund, it is necessary to know their meaning in brief.

What are Stock Markets?

Investing in the stock market means investing directly in the stocks of a company. In the stock market, we buy companies listed on the stock exchange with the expectation that the company’s share price will increase and we will make profits.

In the stock markets, a share gives us proportional ownership of the company. Share means “a part” of the ownership of the company.

A company issues its shares to the public because it needs money. In this way investors buy shares by paying money to the company in exchange for the share and make some ownership in the company.

What is Mutual Fund?

A mutual fund is a compound fund that is made up of deposits made by several investors. Due to the investment of many people at once, it is called mutual fund.

A mutual fund scheme is managed by a fund manager who is a professional expert. He invests investor’s money in stocks, bonds and securities.

The returns of these investors are decided on the basis of the market performance of all these securities. In return for his services, the fund manager charges investors a nominal expense ratio as fees.

Thus Mutual Funds are an indirect way of investing in the stock market in which you just have to invest your money and leave the rest of the work with the fund manager.

Difference between Stock Market and Mutual Fund

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1. Risk (Mutual Funds vs Stocks)

Mutual funds diversify their investors in two ways. The portfolio of a mutual fund scheme consists of a mix of stocks and securities. Well it completely depends on your mutual fund scheme.

Bonds are considered much safer than stocks. If you have stocks and bonds in your Mutual Fund portfolio, then there will be less risk in it.

On the other hand, if there is no bond in your mutual fund portfolio i.e. 100% is invested in stocks, even then there is not much risk in this situation.


Let’s say you have 50 stocks in your mutual fund portfolio and if one company goes down, the entire portfolio will not be affected that much. (A mutual fund is made up of many stocks).

There is a lot of risk involved in investing in the same direct stocks. If Rajesh holds 1,000 shares of ABC Ltd Company. The same mutual fund has invested 2% of its portfolio in ABC Ltd.

If ABC Ltd becomes bankrupt, then Rajesh will be the most affected in this situation and not the investor who has invested in mutual funds.

Therefore, mutual funds are less risky than stocks.

2. Potential Return

High returns can be obtained by investing in stocks through the stock market. If you want to earn more profit in the short term, then you can do this only through the stock market. But for this you need to do proper research and analysis. In the absence of proper research, the possibility of losses in the stock market increases tremendously.

You have to invest in Mutual Funds for a long period of time for good returns. Long-term returns can also be lower than stock market returns.

High returns can be obtained in a short period of time in the stock market but not in mutual funds.

Also read: Best Stocks To Buy India For Short Term (2-3 Years)

3. Cost of Investing

While investing in mutual funds, you have to pay expense ratios, exit loads, etc. These expense ratios are charged for managing your mutual funds.

If you invest in the same stock market, you have to pay Annual Fee (AMC) on your trading account. Apart from this, you have to pay brokerage, STT, stamp duty etc. on the deals done.

Despite all this, the cost of investing in stocks is less than the cost of investing in mutual funds. Expense ratios are charged from the returns of your mutual fund, which become high over the long term. Still, stocks seem more attractive based on their investment cost.

4. Time or Monitoring

A mutual fund is handled by the fund manager. They keep on making changes in the Mutual Fund portfolio from time to time based on their experience and expertise.

Despite this, the investor has to give some time to stay updated with the information like any change in fund manager, post restructuring, returns etc.

In Mutual Funds the investor can choose Mutual Funds such as Active Funds, Index Funds, Debt Funds as per his risk appetite and goals. All of these require different monitoring. For example, there is no special need for monitoring in index funds and debt funds.

On the other hand, if you invest in stocks, then you have to give time to them regularly. In case of stocks, you will have to check financial data every quarter, keep track of the company’s profits as well as stay updated with every news of the company.

It is certain that stock investing demands time out from you, whereas mutual funds can be tracked for 6 months or even once in a year.

Therefore, while choosing one of the Shares or Mutual Funds, it must be kept in mind that how much time that investment plan demands from you.

5. Facility of SIP

Only the investor who is disciplined can earn money from the market. In mutual funds, you have the facility of SIP (Systematic Investment Plan) through which you can deposit a fixed amount like Rs 1000 or Rs 5000 per month in your mutual fund scheme.

SIP is an automated process that disciplines your investments, making it easy to build wealth.

On the other hand, there is no facility to do SIP in any one stock in the stock market. Even if you want to buy a share every month, you will have to order it yourself from the trading account.

However, you can do SIP by creating a pool of certain shares. But due to lack of good diversification in SIP of stocks, it does not make any sense.

7. Asset Class Restrictions or Diversification

You get only one asset class while investing in the share market. In this, your money is invested in equity alone.

On the other hand, Mutual Funds allow you to invest in a diversified portfolio. You can choose any scheme as per your requirement like Equity Mutual Fund, Debt Fund, Hybrid Fund, Balanced Fund.

8. Tax Saving

By investing in the ELSS category of mutual funds, you get tax exemption under section 80(c) of Income Tax on investments up to Rs 1.50 lakh.

As you know, a mutual fund portfolio consists of many stocks. If the fund manager also sells a stock in between, you will not have to pay any capital gains tax.

On the other hand, when you sell a share in the stock market, you have to pay capital gains tax. You have to pay STCG @ 15% and LTCG @ 10%. In this way you do not get any tax benefit by investing in the stock market.

9. Time Period of Investment

To get good returns in mutual funds, you have to hold your holdings for a long time. Ideally you have to keep investments in mutual funds for 5 years. You cannot expect good returns in a short period of time.

But this is not the case with stocks. Stocks can give you great returns even in a week. But in this you also have to take high risk for high returns.

10. Control on Investments

If you decide to invest in the stock market, you will have all the power to control your investments. In this you can decide for yourself what you want to buy, when to buy and when to sell. The performance of your portfolio in the stock market completely depends on your ability and efficiency.

On the other hand, if we talk about mutual funds, then you do not have any control over your portfolio. Your task is just to choose a good mutual fund and invest in it.

All the buying and selling decisions in mutual funds are taken by the fund manager itself. In mutual funds, you have to completely depend on the fund manager of your scheme. If your fund manager is efficient then he can increase your returns whereas if not, your returns may also decrease.

That’s why you also have to keep an eye on your fund manager if he has joined any scheme other than your mutual fund.

If you want to buy and sell shares according to your own preferences, then the stock market is a good option for you. But if you want your portfolio to be seen by an expert only, then you can go with mutual funds.

Also read: Looking for investment? Here are Best Investment Plans With High Returns 2021

Mutual Fund and Stock Market difference – Brief

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Stock market

Mutual fund

Type of investment Direct investment Indirect
Diversification Not available Portfolios are diversified
Investment requirements Requirement of a demat and trading account Directly from AMC website, Demat account or through any mobile app
RiskĀ  High risk Less risk than stock market
Control over investment Complete control, you can buy and sell shares as you wish No control, all work is handled by the fund manager
SIP facility Not available Can SIP in Mutual Funds
Tax benefit No Available in ELSS
Fee Annual fee, brokerage and transaction charges (less than mutual funds) Expense Ratio and Load
Growth potential Can give higher returns in less time Can give good returns only in long term
Best for whom Who can find the time to invest in the stock market For any investor


If you are such an investor who can read the financial statements of a company, as well as do good research, then you can create your own stock portfolio.

It is not that only one invests in the stock market who knows everything. In the stock market, you have to go on learning slowly.

With great returns of stocks, there is always a high risk. Therefore, it is very important to keep in mind the risk taking ability.

As the world’s greatest investor Warren Buffett said, “Investors who can’t see their stocks fall 50% can’t enter the stock market.”

Ultimately the stock market also helps in increasing your knowledge as you remain active about your company.

On the other hand, if you are an investor who does not want to take any responsibility on himself and wants some other expert person to manage your portfolio, then you can invest in mutual funds.

Mutual funds give you many options through which you can achieve your goals in the long term. If you are a new investor, then before trying your hand in the stock market, you should start with mutual funds. Later on, you can gradually invest in the stock market as well. But before investing in the stock market, I have a special opinion with you that never buy shares without just getting someone’s tips and without getting the right information about the company.

Hope that this information about Mutual Funds vs Stocks or Difference between Share Market and Mutual Fund will be of some use to you.