Difference between Share and Mutual Fund

Key Difference: Shares are a type of equity investment or financing and are a unit of financing. A mutual fund isn’t exactly a type of security, but rather a scheme that allows the purchase of securities.

Shares and mutual funds are two types of investments that are available in the market. Shares and mutual funds are two different types of securities, which are basically any tradable financial asset of any kind.

Shares are a type of equity investment  or financing and are a unit of financing. These are securities issue by companies in order to raise capital. It’s a form of equity financing, which requires the company to sell ownership in the form of shares. So, if a company is looking to raise finances it will issue shares, which would divide its capital in the form of shares, these shares are then put on the stock market available for purchase. A shareholder basically buys a portion of the company, when he purchases the stock. The purchaser can attend the shareholder’s meeting, as well as vote on big decisions. The higher the number of stocks or shares, the more input the investor gets in how the business is run. The profit is usually the percentage of the required income. However, if the company is liquidated, the investors also suffer as the price of the shares would fall.

A mutual fund isn’t exactly a type of security, but rather a scheme that allows the purchase of securities. This scheme is professionally managed that pools money from multiple investors and places the money in multiple investments. The term mutual fund has no legal definition and is applied to collective investment vehicles that are regulated and sold to the general public. These companies are run by people with the know-how of the financial markets. They take the money and invest it in various shares across many companies, this reduces the risk of losing a whole lot of money. If a person invests in a mutual fund, what the scheme will do is take 1,000 dollars from 10 people, which would result in 10,000 dollars and put split it equally in shares of 10 companies. In case, one of the company’s share prices drops, it wouldn’t result in one person losing all of their money but rather 10 people losing a small amount of their money. This is a far safer option, then purchasing shares individually. It also makes the share market open for the general public that may not have any idea about investments or how the share markets work.

Comparison between Share and Mutual Fund:

 

Share

Mutual Fund

Ownership

Provides ownership in the company

Investor does not really own a stake.

Identity

Known as a shareholder

Known as a shareholder

Returns

No certainty of returns. If company profits returns will be provided

Returns are higher as risk is minimal

Control

Right to participate and vote on the company’s decisions

No control or voting right provided

Losses

Will also shoulder the losses

Will suffer minimized losses

Interest

Not fixed, if profits are higher so is the dividend

Not fixed, if profits are higher so is the dividend

Image Courtesy: canstar.com.au, toptradersindia.com

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