• HDFC securities
• 23 Aug 2018
• Knowledge Centre

Shares and Mutual Funds are two very distinct concepts that are often misconstrued as being the same. Once you decide to start investing, it becomes important to learn the difference. Read below to find the difference between mutual funds and shares!

 

Shares.

 

A share is a part of the total share capital of the company. This means that if you are a shareholder, you own a stake in the business. When companies look for funds for their business, they can get it in two ways:

• They can borrow from a bank, i.e. raise the debt
• Ask people like you, i.e. small retail investors to invest and in return, give them equity.

 

In short, shares are a part of a company or business.

 

Mutual Funds.

 

Mutual Funds, on the other hand, are instruments through which you can invest in the shares of different companies that are listed on the stock exchange, i.e. BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). Mutual funds are not only restricted to shares but also to debt securities such as government bonds, corporate bonds, etc. They can also invest in Money market instruments like Participatory notes, Treasury bills, etc. which are considered to be volatile and uncertain. Besides, mutual funds also invest in other investment avenues, like Gold, Real Estate, Commodities, etc.

 

With the number of companies whose shares are available on the stock exchange, you might be confused as to which company to invest in. But if you let an experienced professional or a fund manager take that decision for you, you can be assured of good returns. That is exactly what Mutual Funds do. An Asset Management company pools all the money collected from small retail investors and invests it in various other securities. In return, the company issues investors units to indicate that they have a part in the gains of the fund.

 

Another significant difference between mutual funds and shares is that while Mutual Funds help you achieve diversification in your portfolio with a sum as small as INR 500, it is impossible to do so if you invest directly in shares. However, investing in shares is a risky and costly affair that requires expertise. Also, it is impossible to achieve diversification if you invest in shares, since you are mainly investing in equities only. Therefore, it is essential to understand that with Mutual Funds, you can get access to a wide variety of asset classes such as debt, etc. If you're planning to begin your mutual fund investment journey, the SIP Calculator can help you estimate your returns and plan your investments effectively.

 

In short, shares are a part of a business, while mutual funds are a cumulative investment that invests in shares, among other asset classes