Saturday, 4 December 2010

Shares or Mutual Funds

Shares and Mutual Funds have some relations and a major portion of the mutual funds making money through investing in shares. But shares need much attention and expertise to make money out of them. For common people mutual fund is safer than shares. You have to study enough to invest in shares and to pick up a good share.  In case of mutual funds we have to pick good fund house and good mutual funds, rest of all will look after by the fund house and fund manager. In this situation let us differentiates and correlates shares and mutual funds.

Shares

Shares need a demat account for buying and selling. You cannot transact shares without having a deamt account. So you should open a demat account first for selling or buying shares.

Shares should be purchased and sold through a broker, only IPOs (Initial Public Offerings) are exempted from this.

If you are a share holder you are the part owner of the company and can get bonus shares, voting rights and dividend from the profit of the company.

In case of shares a periodic and regular checking on the performance of your holdings is needed.

For share trading you have to pay demat charge and charges for buying and selling of shares.

Shares may have very volatile price and you should make much effort to sell shares with a desired margin.

Diversify financial instruments are needed in investing, But shares need a lot of money to diversify

As you take part the ownership of the company you should bear the risk of closing down of the company and the loss through such closing down.

Even if you get dividends from the profit of the company but most profitable companies can turned down easily.

You may sell or buy shares with a price of your choice

But the share trading is suitable only for experienced investors and it is a time consuming effort to learn and watch the market.

In case of shares diversification needs a lot of money which is not possible for small investors and the liquidity is very low when you wish to get a good profit.

Mutual Funds

In case of Mutual funds most of the above mentioned disadvantages are advantages. For mutual funds demat account is not mandatory, except trading ETFs and can trade with or without the help of a financial broker. As you are not the owner of a company and have no right to get right issue, dividend and voting right (But dividend is optional for mutual funds)

You should not give much attention to study the market. There are expert fund managers take care of all the activities of mutual funds.

There is Entry load, Exit load and transaction charge for mutual funds and these charges may reduce your earnings from mutual funds. But the Net Asset Value does not volatile like shares. You can get benefit of a diversified portfolio with a minimum investment of 5000 in mutual funds.

You may be charged for the expert management of the fund and for getting benefit out of them and you cannot decide where to invest the money. Only a fund manager can take decision about where to invest and the decision may be beneficial or not.

There is high liquidity in case of mutual funds and can change in to liquid cash easily even if it may charge exit load.

With the above mentioned facts you can easily understand that mutual funds are more safe if you are not an expert in trading stock and do not have much time to spend in analyzing stock and stock market. The fund manager will do all such tedious activities and bring better return out of your hard earned money.

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