Stock Market vs Mutual Funds: You can even lose your money if you do this
Stock Market vs Mutual Funds: Stock market investments are more risk-oriented than mutual fund investments because, in the share market, it's the decision of the investor that counts.
Stock Market vs Mutual Funds: When it comes to investing in the stock market and mutual funds, generally people believe that both are more or less the same, which is completely wrong. Depending on how you go about it, you can even lose your money. In the stocks market, an investor invests directly while in mutual funds, fund managers invest on their behalf. The stock market is exposed to more risk in comparison to mutual funds. Most importantly, mutual fund managers are expected to outperform the stock market performance. Direct investment is full of risk. So, stock market investments are completely different from mutual fund investments.
Speaking on the difference between the stock market and mutual fund investments, Amit Kukreja, Founder at amitkukreja.com said, "Stock market investments are active equity investments while mutual funds are passive equity investments. In the stock market, an investor chooses one's shares to buy while in mutual funds, it's fund managers who decided which stock to buy and which stock to sell. In fact, in mutual fund investments, it's fund manager's job to make equity investments on behalf of the mutual fund investor and outperform the stock market returns while in the stock market, it's completely an investor's choice as to which shares to buy and which shares to sell."
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On comparative risk factors involved in share market and mutual fund investments, Kukreja said that in the stock market, an investor has to make his or her own choice, while in mutual fund investments, there is a fund manager who helps an investor to make money from one's money. Hence, for a stock market investor, an investor has to be more mature and should have a better risk appetite in comparison to a mutual fund investor or else, he can lose money.
"Stock market investments are more risk-oriented than mutual fund investments because, in the share market, it's the decision of the investor that counts. Therefore, stock market investments are not for the new investor. A new investor should start investments from mutual funds, especially from debt mutual funds and later on, he or she should diversify one's mutual funds investment in large-cap, multi-cap, mid-cap, small-cap, and other mutual funds category." Kukreja said that while investing in mutual funds, one would understand the value of risk appetite and the importance of standard deviation and when an investor is able to understand this standard deviation, he or she should know that one is ready for investment in the stock market.