Shares & Mutual Funds

A stock market or share market is where the stocks or shares of companies are traded so people can either buy or sell them. Today all trading on the stock exchanges happens electronically. There are 2 major stock exchanges for equities (shares) in India – National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). All major businesses in the country are listed on both of these exchanges. While there are many other regional exchanges in different states, most of you will invest through one of these 2 exchanges. Both of these exchanges follow similar trading mechanisms, hours and operating principles.

There are 2 major stock exchanges for equities (shares) in India – National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)

Considering the fact that the stock market investing can be a risky proposition, there is a need for investors to be protected through proper regulations. The Securities and Exchanges Board of India (SEBI), an independent market body, has been created to impose and enforce market regulations, with a view to safeguard the interests of the investors and develop the market.

 

Classification of stock market

 

The market is divided into two types – primary and secondary. When a company or a governmental firm lists its shares for the first time, it’s called a primary market. In a primary market the company being newly listed creates shares and offers them to investors who buy them directly from the company.

Once the shares are listed and available on the stock market for everyone to buy, it’s called a secondary market. Thus although customers buy shares of the same company in both these markets, they buy them from different sellers in each.

 

About mutual funds

Mutual funds are administered vigilantly by a subsidize administrator. These administrators put vigilant concentration to the presentation of the entity mechanism of the fund, building transformations anywhere they consider obligatory. While investors in the share market must keep a grave watch on their investment, investors in mutual funds stay put unwearied, to consent to their speculation to go according to the market diktat. While the individual components will always experience precariousness, the sum of the dissection will characteristically hang about unswerving, and with appropriate attention to detail, remain in a consistent state of increase. Even without selecting the online share market, you can still adapt your investment, choosing from bond-heavy mutual funds, stock-heavy mutual funds, green mutual funds, money market mutual funds - there is something for anybody who wants to invest. Funds that are more heavily composed of bonds and other secure investments classically hint an incredibly stumpy intensity of risk, but a moderately small upper growth limit. Those that are more profoundly arranged of stocks and new changeable investments have a more restrained hazard of trailing some of a venture, but their upper growth limit is more analogous to the lofty probable booty of living the market. Regardless of the category, you can almost always rest assured that your mutual fund will be secured against risk of full subside that is a threat found in living the stock market.

Definition of Mutual Fund

Mutual Fund refers to a collective investment vehicle; that pools money from several investors for the purpose of investing it in the capital market. Making investment in mutual fund scheme means that the investor is becoming a part-owner of the investments held under that scheme. It is a trust constituted under the Indian Trust Act, 1881 and incorporated with Securities and Exchange Board of India (SEBI). The investors are the beneficiaries, who invest in various schemes of the fund.

The fund is classified into three categories which are:

  • By function
    • Open Ended Fund
    • Closed Ended Fund
  • By portfolio
    • Equity fund
    • Debt fund
    • Special Fund
  • Ownership funds

 

A professional money manager manages and controls funds on behalf of unit holders called fund manager, who gets fees in return. The fund manager invests money in various securities, as per specific investment objectives., disclosed in the offer document. At the end of every business day, the Asset Management Company (AMC) calculates the Net Asset Value (NAV) of the fund. NAV is nothing but the total asset value of fund per unit.

 

Comparison Chart

Basis for Comparison

Stocks

Mutual Funds

Meaning

Stock is the collection of shares held by an investor, representing his/her proportion of ownership in the company.

Mutual Fund implies a fund operated by the asset management company that pools money from numerous investors and invests them into basket of assets.

Investment

Direct

Indirect

Ownership

Shares in a company

Shares in a fund

Trading

Throughout the day.

Once in a day

Managed by

Investor

Fund manager

Value

Price per share

Net Asset Value

Risk

High

Low

 

Key Differences Between Stocks and Mutual Funds

The points given below are vital, so far as the difference between stocks and mutual funds is concerned:

  1. The collection of shares, which are owned by an investor signifying his/her proportion of ownership is called stock. A fund managed by the investment company that pools money from numerous investors and invests them in the basket of assets like equity, debt other money market instrument is called mutual fund.
  2. While stocks are a form of direct investment, mutual funds are an indirect investment.
  3. Stocks offer ownership stake to the investor in a company. On the other hand, mutual funds offer fractional ownership of basket of assets.
  4. In the case of stocks, trading is done throughout the day when the market is open. As against this, trading is done only once in a day, in mutual funds.
  5. The management and administration of stock are done by the investor himself. Conversely, the fund manager manages and administers mutual funds.
  6. The per share price multiplied by the number of shares is equal to the value of stock held by the investor. On the contrary, the value of the mutual fund can be measured by calculating NAV, which is the total value of asset net of expenses.
  7. Mutual Funds are comparatively less risky than stocks, due to the presence of diversification.