Difference Between Shares and Mutual Funds

Shares and Mutual Funds are among the most popular investment instruments in the financial market. But, before investing your hard-earned money, you must understand the basic difference between them. Investing in shares means that you are investing directly in equity markets, while Mutual Fund investments mean a professional fund manager is investing for you in either equity funds or debt funds. Both forms of investments have their distinct advantages and disadvantages. Read on to find the difference between both.

What are Shares?

Shares represent a part of a company’s value. When a company wants its shares to be traded in stock markets, it offers an Initial Public Offering (IPO). The total value of its shares represents the total value of the company. This means that if you own shares of a company, then you are a part-owner of the company.

Let us understand it from the company’s viewpoint. Suppose any company is looking to raise funds for its business, it has two options:

  • The company can borrow from a bank.
  • The company offers an IPO, asking retail investors to invest in its shares, thus raising funds for its business.

What are Mutual Funds?

Mutual funds are an amalgamation of stocks and bonds, which are managed by professional fund managers. Typically, fund managers are part of an Asset Management Company (AMC) or an investment house. Mutual funds are of two types:

  • Equity Mutual Funds: These consist of shares of a company.
  • Debt Mutual Funds: These comprise government bonds and securities.

A Mutual Fund is a diversified basket of shares from various companies. Mutual Funds also invest in money market instruments, including participatory notes and treasury bills. These funds are also invested in gold, real estate and commodities. In a nutshell, Mutual Funds allow your money to be invested in a wide variety of asset classes.

Difference Between Shares and Mutual Funds:

You can refer to the chart given below to understand the fundamental differences between shares and mutual funds:

Shares Mutual Funds
Form of investment Direct investment Indirect investment
Diversification At a time, you can purchase only a particular share. You can have a diversified portfolio with a one-time investment.
Objective Part of the company's growth strategy. Investment option for an individual.
Control over investment You are directly responsible for the choice of stocks. You can choose to trade or exit from the stocks as per your choice. Predetermined portfolio of stocks. You have no control over the investments, nor can you choose to exit from any particular stocks in the portfolio.
Fixed investment No option for fixed investment as prices fluctuate regularly. You have to monitor the prices constantly. You can invest in fixed monthly Systematic Investment Plan (SIP)
Fees and charges Brokerage charges and other transaction fees. You have to pay fund management charges, front-end load/back-end load charges, early redemption charges etc.
Growth trajectory Can provide quick returns Can provide good returns only in the long-term; typically after 5 years.
Returns Long-term returns can range from 14-16% Average returns of up to 8%
Investor type Best suited for people having expertise in stock markets. Anyone can invest in Mutual funds.
Risk assessment Risky investment. Subject to high market volatility. Less market risks.

Benefits of Investing in Stocks:

It has become easy to trade in shares in the digital age. You just need to open a Demat Account along with a Trading Account, complete KYC formalities, and you are all set to begin your share trading journey. You must remember that whenever you purchase shares, it gets directly credited in your Demat Account, while Trading Account enables is the link between your Demat Account and bank account.

Benefits of Investing in Mutual Funds:

The key highlight of Mutual Funds is the SIPs, which allows you to invest as per your income and provide the benefit of rupee cost averaging.


Investment in mutual funds or shares depends on your knowledge and expertise in stock markets. You can choose mutual funds if you want a slow and steady avenue for wealth creation. But if you want higher returns, and are willing to trade with close attention to stock market fundamentals, then you must choose investment in stocks. If you want to trade in stocks, then do remember to choose a trusted financial partner who can provide you with free online Demat Account, a single trading platform, and best stock recommendations.

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