Mutual funds or stocks: Which is better for beginners?

For those who are entering the investment game, two very confusing choices exist: mutual funds and stocks. These investment instrumentsare for those with a greater risk appetite and those who want a greater return on their investments. Who are mutual funds for? Who are stocks for? What's the difference between mutual funds and stocks? Here are all your questions answered.

Stocks promise more returns. However, one must have deep knowledge about the market to do that. Most of the investors who invest in the stock market lose their investments. In the case of mutual funds, a person can invest indirectly in the stock market. Experts invest in stock markets through mutual funds.

What are mutual funds?

In mutual funds, lakhs of investors park their money. This money is invested in several options, including stocks, bonds, and other securities. They are managed by fund managers who are experts in investing money. These investments generate returns, which are distributed among the investors. These are long-term investments. They provide greater returns than FDs and government bonds.

What are Stocks?

Stocks simply mean ownership in a firm or a conglomerate. Once a company is listed on a stock exchange, people buy bits of it. These pieces of a company are called shares. If you buy these shares, you become a shareholder. The values of these shares increase and decrease on the basis of the firm's performance and market trends. They can both be short-term and long-term investments. However, they are subject to volatility in the market and carry greater risks.

Which instrument is good for beginners?

Beginners should decide whether a mutual fund or stocks are better for them using the following factors.

Risk Tolerance

They should assess how much risk they can take. This is because sometimes, stocks can provide faster returns. However, stock values also drop in a matter of minutes. Mutual funds are more stable as far as risk is concerned. Hence, one must be willing to take more risk if investing in stocks. Mutual funds also carry risks. However, compared to stocks, they are considered safer.

Knowledge of investments

Those investing in stocks should have deep knowledge about the market. They should also have deep knowledge about the companies they want to invest in. Mutual funds also require knowledge. However, one must pick the right type of funds.

Amount of investment

In mutual funds, one can keep investing using a small amount of money. SIPs start with as low as Rs 100 per month. However, in stock markets, one must have capital to generate profit.

Investors can track the performance of their investments through many apps. They also use these apps to invest. If a person has a greater risk appetite and is willing to learn the nitty-gritties of the market, they can invest in stocks. Those who want to invest long-term and want experts to handle their money can invest in mutual funds.