Stocks Vs. Mutual Funds for Long-Term Investment

Your question, ‘Stocks or Mutual Funds, Which is Better?’ defines several factors to be known by any reader, and, for that matter, many do not understand the basic course of action that takes place in stock business or mutual fund business. Moreover, the terms long, and short about investment/trading are more of a time-bound relationship.

In crisp, say, company shares are put in stock markets for trading, and mutual funds are collective stocks of varied companies pooled under specific portfolios. In both cases, you can make investments for the short term or long term.

In stocks, the shortest term is the intraday ( single day) trading, and the longest is the futures and options trading (from a few weeks to a few years).

In mutual funds, the investments made up to a period ranging from one to three years are short term and above three years are considered to be long-term investments.

You asked what is a better investment, stocks or mutual funds for a long term? The answer should be self-judged and only after analyzing the facts of stocks and mutual funds.

Stock Operations in Markets:

Stocks do operate in a highly volatile environment and with the stock prices fluctuating up and down throughout trading sessions, makes it difficult to profit on your investments.

You will have to make highly accurate statistical analyses such as exponential moving averages and predict the probable resistance, and support for buying and selling stocks.

Still, the stocks become unpredictable because the good news of the company can hit the stock’s upper circuit, and bad news can hit the stock’s lower circuit. Hence, you must remember that day trading ( intraday trading) may not reap good results. When you enter into deliveries you may incur huge loss as the intraday trades are extended to the next trading sessions.

For long-term investments, you will have to opt for futures and options for a considerable period like 1 year to 5 years and above relatively. In this case, your risk zones shall reduce and reap you high returns.

In stocks, you can make huge money in the long term but you will have to frequently study the market credentials and change the exit positions to book more profit.

Mutual funds are operated and regulated by fund managers and the possibility of incurring loss in the short term is less, and you can reap between 20 to 40 percent returns in the long term, say from three years and above.

In mutual funds, you can opt for exiting the fund but you will have to make payments on exit fees, and other relevant charges. It can reduce your profitability.

You can exit the mutual fund in long-term investments and you can do any time during the stock trading hours.

On opting for exit from mutual funds, you will be made payments as per the existing rate at that time. Therefore, mutual funds are relatively less risky than volatile stocks that attract huge profits with a higher level of risk factor.

Comparison of Loss on Investments:

As fund managers make investments in different stocks/bonds of a portfolio you shall incur less loss in contrast to the investments made in single stocks. With the fall in the stock price, the possibility of incurring a loss on your investment is more.

Hence, if you are patient enough, invest in stocks for the long term to reap huge profits with the involvement of a bearable risk factor or leap to mutual funds for reasonably good long term profits otherwise.  

Advantages of a Mutual Fund Compared to a Stock

After having read about the advantages of a mutual fund in comparison with a stock you can form your action plan to make an investment and also benefit others by sharing the information on the mutual funds.

Always believe, in the Mutual Fund markets,

The fund managers give you advanced portfolio management, allowing you to convert your dividend amount to units and add it to the operating fund.

The mutual fund has introduced risk reduction techniques that help you to reduce financial loss in the time of stock market dips.

The features of mutual fund operations are made suitable to your convenience, and the funds are introduced in the market at a fair price of INR 10.00 per unit.

Note:

You may engage in buying or selling MF, the unit price of the fund is decided only once a day, it is after closing the stock markets.

Control the Fee Expenses in MF markets:

Mutual funds are more beneficial than stocks but you will have to control the expenses that get laid upon, in various forms. You must be particular in controlling the expense ratio, your investment in MF must not cross 1.5%.

You must be aware of the various charges the fund manager shall make you pay. These charges are fund managers’ fees, legal fees, operational charges, audit charges, investment management fees, marketing fees, distribution fees, and advisory fees.

A mutual fund investor should be able to control the expenses in the form of fees then MF is the best option than Stocks.

Major Setback in Stock:

Quick Purchase of Units in MF:

In contrast to the purchase of units in MF, you can make an option buy or put option on stocks but at a huge cost of time.

Time – intensive Process for a Stock Purchase:

On trading stocks, you will have a higher risk than mutual funds. To diversify your stock portfolio, you will have to select the portfolio and make an individual purchase of stocks.

You will consume more time to purchase stocks because it will need a thorough analysis of the stock performance before you go for it.

Commission Fee:

You will be obliged to pay a commission charge for every transaction made, on executing an option buy, or put option.